<Page>
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: 02/29/2004
--------------------------
Date of reporting period: 02/29/2004
-------------------------
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Alpha LIBOR Fund returned +0.9% for the period from December 1, 2003 to
February 29, 2004, as compared with +0.3% for the Citigroup 3-Month Treasury
Bill Index.
The Fund outperformed the benchmark during the period by +0.6%. The Fund's
outperformance was primarily attributable to issue selection. The Fund benefited
from its exposure to non-Treasury/Agency securities due to the tightening of
spreads during the period. Exposure to National Century's healthcare receivable
asset-backed bonds gained 48 basis points in February as the bond price rose
from 11 to 12. The Fund's duration at February 29, 2004 was 0.37 years.
At February 29, 2004, about 84% of the portfolio is AAA-rated, 3% AA-rated, 4%
A-rated, and the remaining 9% is rated below A. Approximately 60% of the Fund is
invested in highly rated, floating rate, asset-backed securities. These included
issues backed by home equity, auto, truck, credit card, and healthcare
receivables. Approximately 20% of the Fund is invested in US government agency
issues that offer higher yields than similar maturity U.S. Treasury securities.
The remainder of the Fund is split between collateralized bond obligations (15%)
and corporate bonds (1%).
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
Annual Dump
Alpha Libor Fund
As Of: 11/30/2003
<Table>
<Caption>
DATE ALPHA LIBOR FUND J.P. MORGAN U.S. 3 MONTH CASH
12/31/1999 10,000.00 10,000.00
3/31/2000 10,172.00 10,153.62
6/30/2000 10,344.84 10,317.15
9/30/2000 10,522.43 10,491.27
12/31/2000 10,727.86 10,681.25
3/31/2001 10,898.61 10,859.69
6/30/2001 11,040.20 10,999.51
9/30/2001 11,156.32 11,127.64
12/31/2001 11,248.41 11,208.73
3/31/2002 11,314.40 11,258.17
6/30/2002 11,428.78 11,321.85
9/30/2002 11,380.51 11,376.92
12/31/2002 10,670.34 11,433.48
3/31/2003 10,563.81 11,474.41
6/30/2003 10,710.28 11,514.14
9/30/2003 10,643.70 11,546.99
11/30/2003 10,603.75 11,569.50
</Table>
Average Annual Returns
Inception 12/31/1999
<Table>
<Caption>
11/30/03 - 02/29/04 1YR 5YR 10YR(ITD)
0.92 0.5 N/A 1.51
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 90.8%
ASSET-BACKED SECURITIES -- 66.8%
AIRLINES -- 1.1%
3,400,000 Aircraft Finance Trust Series 99-1A Class A1,
Variable Rate, 1 mo. LIBOR + .48%, 1.57%, due 05/15/24 2,490,500
-------------
AUTOMOTIVE -- 2.5%
2,027,739 Capital Auto Receivables Asset Trust (GMAC) 2002-2 A3, 3.82%,
due 07/15/05 2,042,155
3,500,000 Ford Credit Auto Owner Trust Series 03-A Class A4A, 2.70%, due
06/15/07 3,533,495
-------------
5,575,650
-------------
CREDIT CARDS -- 15.3%
5,000,000 American Express Credit Account Master Trust Series 01-6 2003-1
A, 144A, AMBAC, Variable Rate, 1 mo. LIBOR + .11%, 1.20%,
due 09/15/10 5,002,000
4,000,000 Bank One Issuance Trust Series 02-A5 Class A5,
Variable Rate, 1 mo. LIBOR + .12%, 1.21%, due 06/15/10 4,007,500
5,000,000 Bank One Issuance Trust Series 03 Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 1.21%, due 09/15/10 5,007,812
5,000,000 Chase Credit Card Master Trust Series 01-6 Class A,
Variable Rate, 1 mo. LIBOR + .13%, 1.22%, due 03/16/09 5,010,800
4,000,000 Discover Card Master Trust I 2003-2 Class A,
Variable Rate, 1 mo. LIBOR + .13%, 1.22%, due 08/15/10 4,003,750
4,600,000 Discover Card Master Trust I Series 00-5 Class A,
Variable Rate, 1 mo. LIBOR + .18%, 1.27%, due 11/15/07 4,608,266
2,000,000 Discover Card Master Trust I Series 03-4 A1,
Variable Rate, 1 mo. LIBOR + .11%, 1.20%, due 05/15/11 2,000,938
5,000,000 MBNA Master Credit Card Trust Series 03 Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 1.21%, due 08/16/10 5,007,813
-------------
34,648,879
-------------
HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 4.9%
1,932,363 Nomura CBO Ltd Series 97-2 Class A2, 144A, Step up, 6.26%, due
10/30/09 1,946,160
656,133 Pacific Life CBO Series 98-1A Class A2A, 144A, Step Up, 6.56%,
due 02/15/10 656,120
3,341,186 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Step Up, 6.33%, due 09/15/09 3,458,128
5,430,073 SHYPPCO Finance Co Series II Class A-2B, 144A, 6.64%, due
06/15/10 5,049,968
-------------
11,110,376
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------
INSURED AUTO FINANCING -- 2.2%
5,000,000 Aesop Funding II LLC Series 03-2A Class A1, 144A, MBIA, 2.74%,
due 06/20/07 5,029,688
-------------
INSURED BUSINESS LOANS -- 1.5%
1,493,370 CNL Commercial Mortgage Loan Trust Series 03-2A Class A1, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .44%, 1.53%, due 10/25/30 1,495,237
2,000,000 Golden Securities Corp 03-A A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 1.40%, due 12/02/13 2,002,860
-------------
3,498,097
-------------
INSURED EMERGING MARKETS COLLATERALIZED DEBT OBLIGATIONS -- 2.5%
3,471,517 Anfield Road I Ltd Series 1 Class A, CapMAC, PTE,
Variable Rate, 6 mo. LIBOR + .25%, 1.42%, due 11/06/06 3,424,860
2,166,973 Starvest Emerging Markets CBO-I Series 1A, Class A, CapMAC,
Variable Rate, 6 mo. LIBOR + .19%, 1.36%, due 07/30/11 2,128,769
-------------
5,553,629
-------------
INSURED HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 4.0%
1,332,862 DLJ CBO Ltd Series 1A Class A2, 144A, FSA, 6.68%, due 04/15/11 1,346,191
1,862,581 GSC Partners CDO Fund Ltd Series 2A Class A, 144A, FSA,
Variable Rate, 6 mo. LIBOR + .52%, 1.75%, due 05/22/13 1,843,583
2,488,474 Northstar CBO Ltd Series 97-2I Class A2, 144A,
Variable Rate, Step Up, 4.12%, due 07/15/09 2,487,578
3,467,077 Spirit CBO Series 03-4AW,
Variable Rate, 6 mo. LIBOR + .55%, 1.77%, due 05/23/11 3,459,727
-------------
9,137,079
-------------
INSURED HOME EQUITY -- 0.7%
1,492,931 Residential Funding Mortgage Securities Series 03-HS1 Class AII,
FGIC, Variable Rate, 1 mo. LIBOR + .29%, 1.38%, due 12/25/32 1,492,035
-------------
INSURED INSURANCE PREMIUMS -- 1.5%
3,000,000 PFS Financing Corp Series 01-FA Class A, MBIA, 144A,
Variable Rate, 1 mo. LIBOR + .33%, 1.42%, due 06/15/08 3,000,938
366,666 Polaris Funding Company Series EMTN,
Variable Rate, 1 mo. LIBOR + .45%, 1.55%, due 01/07/05 366,336
-------------
3,367,274
-------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------
INSURED PERPETUAL LOAN COLLATERALIZED DEBT OBLIGATION -- 3.0%
7,000,000 Augusta Funding Ltd Series 10A Class F-1, 144A, CapMAC,
Variable Rate, 3 mo. LIBOR + .25%, 2.05%, due 06/30/17 6,825,000
-------------
INSURED RESIDENTIAL HOME EQUITY (EUROPEAN) -- 4.5%
GBP 3,000,000 RMAC Series 03-NS1X Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .45%, 4.46%, due 06/12/35 5,593,497
GBP 2,500,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.41%, due 09/12/35 4,641,820
-------------
10,235,317
-------------
INSURED RESIDENTIAL HOME EQUITY (UNITED STATES) -- 2.9%
3,243,275 Quest Series 03-X4A Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .43%, 1.52%, due 12/25/33 3,243,275
3,241,173 Residential Asset Securities Corp Series 02-KS3 Class A1B, AMBAC,
Variable Rate, 1 mo. LIBOR + .25%, 1.34%, due 05/25/32 3,242,956
-------------
6,486,231
-------------
INSURED RESIDENTIAL PRIME MORTGAGES (UNITED STATES) -- 3.9%
1,468,661 Chevy Chase Mortgage Funding Corp Series 03-4, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .34%, 1.43%, due 10/13/34 1,468,808
3,285,870 Wachovia Asset Securization Inc Series 02-HE1 Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .37%, 1.46%, due 09/27/32 3,295,498
4,003,856 Wachovia Asset Securization Inc Series 03-HE1 Class A1, FGIC,
Variable Rate, 1 mo. LIBOR + .29%, 1.38%, due 03/25/33 4,005,898
-------------
8,770,204
-------------
NON-INSURED EMERGING MARKETS DEBT OBLIGATIONS -- 0.7%
1,592,537 Oasis CBO Ltd, 144A,
Variable Rate, 6 mo. LIBOR + .38%, 1.63%, due 05/30/11 1,556,736
-------------
RATE REDUCTION BOND -- 2.1%
4,390,300 California Infrastructure PG&E Series 97-1 Class A7, 6.42%,
due 09/25/08 4,636,054
-------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------
RESIDENTIAL HOME EQUITY (UNITED STATES) -- 3.6%
2,000,000 CIT Group Home Equity Loan Trust Series 03-1 Class A3, 2.79%,
due 03/20/29 2,014,140
2,778,322 Citigroup Mortgage Loan Trust Inc Series 03-HE3 A, AMBAC,
Variable Rate, 1 mo. LIBOR + .38%, 1.47%, due 12/25/33 2,781,045
3,284,807 Residential Asset Mortgage Products Inc, Series 03-RS11, Class
AI1, Variable Rate, 1 mo. LIBOR + .19%, 1.28%, due 03/25/23 3,282,442
-------------
8,077,627
-------------
RESIDENTIAL PRIME MORTGAGES (AUSTRALIAN) -- 4.9%
4,171,192 Interstar Millennium Trust Series 03-3G Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 1.42%, due 09/27/35 4,177,448
3,398,325 Interstar Millennium Trust Series 03-5G Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 1.37%, due 01/20/36 3,398,325
3,402,361 Medallion Trust Series 03-1G Class A,
Variable Rate, 3 mo. LIBOR + .19%, 1.36%, due 12/21/33 3,402,361
-------------
10,978,134
-------------
STUDENT LOANS -- 5.0%
401,850 Bank One Student Loan Trust Series 94-A Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 1.39%, due 10/25/16 402,023
2,400,000 Keycorp Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 1.82%, due 11/25/21 2,401,440
2,000,000 Keycorp Student Loan Trust Series 95-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 1.84%, due 10/27/21 2,001,200
1,193,200 SMS Student Loan Trust Series 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 1.80%, due 07/26/21 1,193,558
1,051,400 SMS Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 1.84%, due 10/25/23 1,052,451
986,400 SMS Student Loan Trust Series 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 1.74%, due 04/25/25 988,866
2,815,343 SMS Student Loan Trust Series 97-A Class A,
Variable Rate, 3 mo. U.S. Treasury Bill + .60%, 1.53%,
due 10/27/25 2,813,090
532,392 Student Loan Marketing Association Series 96-4 Class A2,
Variable Rate, 3 mo. U.S. Treasury Bill + .64%, 1.57%,
due 07/25/09 529,730
-------------
11,382,358
-------------
Total Asset-Backed Securities 150,850,868
-------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PRINCIPAL
AMOUNT ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------
CORPORATE DEBT -- 2.1%
2,532,579 Continental Airlines Series 99-1A, 6.55%, due 02/02/19 2,532,579
2,000,000 General Motors Acceptance Corp, 7.50%, due 07/15/05 2,132,200
-------------
4,664,779
-------------
U.S. GOVERNMENT -- 21.9%
28,523,000 U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (a) 32,195,336
17,000,000 U.S. Treasury Note, 2.00%, due 11/30/04 (b) 17,111,563
-------------
49,306,899
-------------
TOTAL DEBT OBLIGATIONS (COST $202,904,407) 204,822,546
-------------
PRIVATE INVESTMENT FUND -- 5.7%
1,074,155 GMO SPV I, LLC *(c) (d) 12,879,123
-------------
TOTAL PRIVATE INVESTMENT FUND (COST $107,044,224) 12,879,123
-------------
CALL OPTIONS PURCHASED -- 0.4%
OPTIONS ON BONDS -- 0.4%
25,000,000 Bellsouth Telecommunications, 7.00%, 12/01/95, Expires 10/26/06,
Strike 100.00 937,493
-------------
TOTAL CALL OPTIONS PURCHASED (COST $312,500) 937,493
-------------
MUTUAL FUNDS -- 3.4%
325,484 Dreyfus Money Market Fund (e) 325,484
7,319,344 Merrimac Cash Fund (e) 7,319,344
-------------
TOTAL MUTUAL FUNDS (COST $7,644,828) 7,644,828
-------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.7%
CASH EQUIVALENTS -- 0.7%
1,602,406 Harris Trust & Savings Bank Eurodollar Time Deposit, 1.01%, due
3/30/04 (e) 1,602,406
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,602,406) 1,602,406
-------------
TOTAL INVESTMENTS -- 101.0%
(Cost $319,508,365) 227,886,396
Other Assets and Liabilities (net) -- (1.0%) (2,159,558)
-------------
TOTAL NET ASSETS -- 100.0% $ 225,726,838
=============
</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.
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
FSA - Insured as to the payment of principal and interest by
Financial Security Assurance
GBP - British Pound
PTE - Asian Securitization & Infrastructure Assurance Ltd.
MBIA - Insured as to the payment of principal and interest by
MBIA Insurance Corp
Variable and step up rates - The rates shown on Variable and
step up rate notes are the current interest rates at
February 29, 2004, which are subject to change based on the
terms of the
See accompanying notes to the financial statements.
6
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
security, including varying reset dates.
NOTES TO THE SCHEDULE OF INVESTMENTS -- CONTINUED
* Non-income producing security.
(a) All or a portion of this security is held as collateral
for open swap contracts (Note 8).
(b) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts (Note 8).
(c) GMO Alpha LIBOR Fund held 81.3% of GMO SPV I, LLC at
February 29, 2004. GMO SPV I, LLC is comprised of the
following underlying assets:
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------
49,500,000 NPF VI Inc Series 02-1A Class A, 144A,
Variable Rate, 1 mo. LIBOR +.95%, 2.69%, due
02/01/08 5,940,000
56,000,000 NPF XII Inc Series 02-1 Class A, 144A,
Variable Rate, 1 mo. LIBOR +.65%, 2.39%, due
05/02/05 6,720,000
22,000,000 NPF XII Inc Series 00-3 Class A, 144A,
Variable Rate, 1 mo. LIBOR +.45%, 2.20%, due
12/01/05 2,640,000
-----------
15,300,000
-----------
Other Assets and Liabilities 531,747
-----------
15,831,747
-----------
</Table>
(d) Security valued at fair value using methods determined
in good faith by or at the direction of the Trustees
(Note 2).
(e) All or a portion of this security represents investment
of security lending collateral (Note 2).
See accompanying notes to the financial statements.
7
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value, including securities on loan
of $2,490,500 (cost $212,464,141) (Note 2) $ 215,007,273
Investments in affiliated issuers, at value (cost $107,044,224) 12,879,123
Receivable for investments sold 113,629
Interest receivable 836,048
Receivable for expenses reimbursed by Manager (Note 3) 42,714
-------------
Total assets 228,878,787
-------------
LIABILITIES:
Payable upon return of securities loaned (Note 2) 2,550,000
Payable for open forward foreign currency contracts (Notes 2 and 8) 171,934
Periodic payments from open swap contracts (Notes 2 and 8) 115,775
Net payable for open swap contracts (Notes 2 and 8) 37,217
Payable for variation margin on open futures contracts (Notes 2 and 8) 122,105
Trustees fee 11,875
Accrued expenses 143,043
-------------
Total liabilities 3,151,949
-------------
NET ASSETS $ 225,726,838
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 358,445,331
Accumulated undistributed net investment income 6,523,465
Accumulated net realized loss (47,197,563)
Net unrealized depreciation (92,044,395)
-------------
$ 225,726,838
=============
SHARES OUTSTANDING 9,361,894
=============
NET ASSET VALUE PER SHARE $ 24.11
=============
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS
<Table>
<Caption>
FOR THE PERIOD
DECEMBER 1, 2003 YEAR ENDED
THROUGH FEBRUARY 29, 2004 NOVEMBER 30, 2003
------------------------- -----------------
INVESTMENT INCOME:
Interest (including securities lending income
of $864 and $342, respectively) $ 1,309,456 $ 7,798,174
-------------- --------------
Total income 1,309,456 7,798,174
-------------- --------------
EXPENSES:
Custodian and transfer agent fees 9,009 33,573
Audit and tax fees 48,994 90,597
Legal fees 29,302 345,328
Trustees fees and related expenses (Note 3) 19,093 87,275
Interest expense (Notes 2 and 8) 22,709 8,119
Miscellaneous 1,456 3,680
-------------- --------------
Total expenses 130,563 568,572
Fees and expenses reimbursed by Manager (Note 3) (63,918) (253,158)
-------------- --------------
Net expenses 66,645 315,414
-------------- --------------
Net investment income 1,242,811 7,482,760
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments in unaffiliated issuers (2,381) (43,199,669)
Investments in affiliated issuers (199,887) --
Closed futures contracts (906,982) (713,908)
Closed swap contracts 742,089 293,150
Foreign currency, forward contracts and
foreign currency related transactions (860,961) (277,147)
-------------- --------------
Net realized loss (1,228,122) (43,897,574)
-------------- --------------
Change in net unrealized appreciation (depreciation) on:
Investments 2,912,680 37,711,254
Open futures contracts (347,875) 302,634
Open swap contracts (557,269) 520,052
Foreign currency, forward contracts and
foreign currency related transactions 50,803 (504,398)
-------------- --------------
Net unrealized gain 2,058,339 38,029,542
-------------- --------------
Net realized and unrealized gain (loss) 830,217 (5,868,032)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,073,028 $ 1,614,728
============== ==============
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE PERIOD FOR THE PERIOD
DECEMBER 1, 2003 MARCH 1, 2002
THROUGH YEAR ENDED THROUGH
FEBRUARY 29, 2004 NOVEMBER 30, 2003 NOVEMBER 30, 2002
----------------- ----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,242,811 $ 7,482,760 $ 35,057,752
Net realized loss (1,228,122) (43,897,574) (9,458,422)
Change in net unrealized appreciation (depreciation) 2,058,339 38,029,542 (120,340,832)
--------------- --------------- ---------------
Net increase (decrease) in net assets from operations 2,073,028 1,614,728 (94,741,502)
--------------- --------------- ---------------
Distributions to shareholders from:
Net investment income -- -- (8,124,881)
Net realized gains -- -- (4,222,800)
--------------- --------------- ---------------
-- -- (12,347,681)
--------------- --------------- ---------------
Net share transactions: (Note 7)
Proceeds from sale of shares -- 324,210 464,399,000
Net asset value of shares issued to shareholders in
payment of distributions declared -- -- 12,347,681
Cost of shares repurchased (467,911) (59,532,346) (1,528,653,659)
--------------- --------------- ---------------
Decrease in net assets resulting from net share
transactions (467,911) (59,208,136) (1,051,906,978)
--------------- --------------- ---------------
Total increase (decrease) in net assets 1,605,117 (57,593,408) (1,158,996,161)
NET ASSETS:
Beginning of period 224,121,721 281,715,129 1,440,711,290
--------------- --------------- ---------------
End of period (including undistributed net
investment income of $6,523,465 and $6,369,332,
and distributions in excess of net
investment income of $548,547, respectively) $ 225,726,838 $ 224,121,721 $ 281,715,129
=============== =============== ===============
</Table>
See accompanying notes to the financial statements.
10
<Page>
THIS PAGE INTENTIONALLY LEFT BLANK
See accompanying notes to the financial statements.
11
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
PERIOD FROM
DECEMBER 1, 2003 YEAR
THROUGH ENDED
FEBRUARY 29, 2004(f)(g) NOVEMBER 30, 2003(f)
----------------------- --------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 23.89 $ 23.77
------------ ------------
Income from investment operations:
Net investment income 0.13++ 0.75++
Net realized and unrealized gain (loss) 0.09 (0.63)
------------ ------------
Total from investment operations 0.22 0.12
------------ ------------
Less distributions to shareholders:
From net investment income -- --
From net realized gains -- --
------------ ------------
Total distributions -- --
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 24.11 $ 23.89
============ ============
TOTAL RETURN (a) 0.92%+ 0.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 225,727 $ 224,113
Net operating expenses to average daily net assets 0.08%** 0.13%
Interest expense to average daily net assets(b) 0.04%** --(e)
Total net expenses to average daily net assets 0.12%** 0.13%
Net investment income to average daily net assets 0.49%** 3.11%
Portfolio turnover rate 4%+ 80%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.11%** 0.10%
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
PERIOD FROM
MARCH 1, 2002 YEAR ENDED FEB. 28/29, (f)
THROUGH ---------------------------------------
NOVEMBER 30, 2002(f)* 2002 2001(c) 2000***
--------------------- ----------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.66 $ 26.14 $ 25.29 $ 25.00
---------- ----------- ----------- ---------
Income from investment operations:
Net investment income 0.73++ 1.29++ 1.83++ 0.26
Net realized and unrealized gain (loss) (2.39) (0.33) 0.07 0.03
---------- ----------- ----------- ---------
Total from investment operations (1.66) 0.96 1.90 0.29
---------- ----------- ----------- ---------
Less distributions to shareholders:
From net investment income (0.15) (1.44) (1.05) --
From net realized gains (0.08) -- -- --
---------- ----------- ----------- ---------
Total distributions (0.23) (1.44) (1.05) --
---------- ----------- ----------- ---------
NET ASSET VALUE, END OF PERIOD $ 23.77 $ 25.66 $ 26.14 $ 25.29
========== =========== =========== =========
TOTAL RETURN (a) (6.53)%+ 3.69% 7.61% 1.16%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 281,715 $ 1,440,711 $ 1,520,173 $ 338,101
Net operating expenses to average daily net assets 0.01%** --(d) --(d) --**(d)
Interest expense to average daily net assets(b) 0.03%** 0.05% 0.20% 0.40%**
Total net expenses to average daily net assets 0.04%** 0.05% 0.20% 0.40%**
Net investment income to average daily net assets 3.76%** 4.91% 7.05% 6.62%**
Portfolio turnover rate 39%+ 29% 39% 4%+
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.02%** 0.02% 0.02% 0.02%**
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
(a) The total return would have been lower had certain expenses not been
reimbursed during the period shown.
(b) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
(c) Effective March 1, 2000, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and discount on debt securities. The effect of this change on net
investment income and net realized and unrealized gains and losses per
share for the year ended February 28, 2001 was less than $0.01 per share.
The effect of this change decreased the ratio of net investment income to
average net assets from 7.06% to 7.05%. Per share and ratios/supplemental
data for periods prior to March 1, 2000 have not been restated to reflect
this change.
(d) Net operating expenses as a percentage of average daily net assets was
less than 0.01%.
(e) Interest expense as a percentage of average daily net assets was less than
0.01%.
(f) As a result of changes in generally accepted accounting principles, the
Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to increase the net investment income ratio for the
year ending February 29, 2004 by 0.06% and net investment income per share
by $0.01. For consistency, similar reclassifications have been made to
prior year amounts, resulting in increases (reductions) to the net
investment income ratio of 0.15%, 0.41%, 0.24%, less than 0.01% and
(0.15)% and to net investment income per share of $0.04, $0.08, $0.06,
less than $0.01 and less than $(0.01) in the fiscal years/periods ending
November 30, 2003, November 30, 2002, February 28, 2002, February 28, 2001
and February 29, 2000, respectively.
(g) The Fund changed its fiscal year end from November 30 to February 28.
* The Fund changed its fiscal year end from February 28 to November 30.
* * Annualized.
* * * Period from December 31, 1999 (commencement of operations) to February 29,
2000.
+ Not annualized.
+ + Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
14
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Alpha LIBOR Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
The Fund's investment objective is high total return comparable to the
3-month London Inter-Bank Offer Rate ("LIBOR"). The Fund seeks to achieve
its objective by investing primarily in relatively high quality, low
volatility fixed income instruments. The Fund's benchmark is the J.P.
Morgan U.S. 3-Month Cash Index.
Shares of GMO Alpha LIBOR Fund are not publicly offered and are principally
available only to other GMO Funds of the Trust and certain accredited
investors. Presently the Fund is closed to new investment.
On November 26, 2002, approximately 78% of the Fund's assets were
transferred to a new fund, the GMO Short-Duration Collateral Fund ("SDCF").
The Fund retained the National Century Financial Enterprises bonds (through
its investment in GMO SPV I, LLC) and generally retained other lower
quality issues. Effective November 30, 2002, the Fund changed its fiscal
year end from February 28 to November 30.
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which the Fund contributed its net assets, other than its
interest in GMO SPV I, LLC, its claims resulting from its holdings of the
NPF Securities, and a fixed amount of cash, such contribution representing
$214,143,316 or 94.14% of the Fund's assets, to SDCF in exchange for SDCF
shares. The transaction, which was structured as a tax-free reorganization,
was consummated after the close of business on March 31, 2004 and the
shares received by the Fund were then distributed to its shareholders.
After distribution of the SDCF shares, the Fund changed its name to GMO
Special Purpose Holding Fund and elected partnership status for Federal
income tax purposes. The tax year end of the GMO Special Purpose Holding
Fund will be determined by reference to the year end of the majority of the
partners on the first day of its taxable year, April 1, 2004. For financial
reporting purposes, the Fund changed its year end from November 30 to
February 28.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the
15
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of a recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
Statement of Operations. For consistency, similar reclassifications have
been made to amounts appearing in the previous year's Statement of Changes
in Net Assets and the per share amounts in all prior year financial
highlights presented. Prior year net investment income ratios in the
financial highlights have also been modified accordingly. This
reclassification increased net investment income and decreased net realized
gains by $137,837 for the period ended February 29, 2004 and increased net
investment income and decreased net realized gains by $384,490 for the year
ended February 28, 2003. This change had no effect on the Fund's net asset
value, either in total or per share, or its total increase (decrease) in
net assets from operations during any period.
PORTFOLIO VALUATION
Shares of investment funds are valued at their net asset value as reported
on each business day. Portfolio securities listed on a securities exchange
for which market quotations are readily available are valued at the last
sale price or official closing price on each business day, or if there is
no such reported sale or official closing price, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Securities for which quotations are not readily available or whose values
the Manager has determined to be unreliable are valued at fair value as
determined in good faith by the Trustees or other persons acting at their
direction. A security's value may be deemed unreliable if, for example, the
Manager becomes aware of information or events occurring after the close of
a foreign market that would materially affect that security's value. The
prices provided by the Manager may differ from the value that would be
realized if the securities were sold and the differences could be material
to the financial statements. At February 29, 2004, the total value of such
securities represented 5.7% of net assets.
Some fixed income securities are valued at the closing bid for such
securities as supplied by a primary pricing source chosen by the Manager.
The Manager evaluates such primary pricing sources on an ongoing basis, and
may change a pricing source should it deem it appropriate. The Manager is
informed of erratic or unusual movements (including unusual inactivity) in
the prices supplied for a security and at its discretion may override a
price supplied by a source (by taking a price supplied by another source).
Securities may be valued by independent pricing services which use prices
provided by market makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
16
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Certain securities held by the Fund were valued solely on the basis of a
price provided by the principal market maker. The prices provided by the
principal market makers may differ from the value that would be realized if
the securities were sold and the differences could be material to the
financial statements. At February 29, 2004, the total value of these
securities represented 10.1% 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 8 and represents the currency exposure the Fund has
acquired or hedged through forward currency contracts as of February 29,
2004.
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
17
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
must deliver the full amount of the contracts. Futures contracts are marked
to market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or
receivable is liquidated on the following business day. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a futures contract can vary
from the previous day's settlement price, thereby effectively preventing
liquidation of unfavorable positions. Losses may arise from the changes in
the value of the underlying instrument, if the Fund is unable to liquidate
a futures position due to an illiquid secondary market for the contracts or
the imposition of price limits, or if counterparties do not perform under
the contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 8 for all open futures contracts as of February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004.
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.
18
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
financial markets. A swap is an agreement to exchange the return generated
by one instrument for the return generated by another instrument. The Fund
may enter into interest rate, total return, forward swap spread lock and
credit default swap agreements to manage its exposure to interest rates and
credit risk. Interest rate swap agreements involve the exchange by the Fund
with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. Total return swap
agreements involve commitments to pay interest in exchange for a market
linked return, both based on notional amounts. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Forward
swap spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of the
swap rate. The swap spread is the difference between the benchmark swap
rate (market rate) and the specific treasury rate. In a credit default
swap, one party makes a stream of payments to another party in exchange for
the right to receive a specified return in the event of a default by a
third party on its obligation. The Fund may use credit default swaps to
provide a measure of protection against defaults of sovereign or corporate
issuers (i.e., to reduce risk where the Fund owns or has exposure to the
issuer) or to take an active long or short position with respect to the
likelihood of a particular issuer's default. In connection with these
agreements, cash or securities may be set aside as collateral by the Fund's
custodian in accordance with the terms of the swap agreement. The Fund
earns interest on cash set aside as collateral. Swaps are marked to market
daily based upon quotations from market makers and the change in value, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made on swap contracts 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 interest rates. See Note 8 for a
summary of open swap agreements as of February 29, 2004.
19
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. At February 29,
2004, there were no open repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government securities or other liquid high grade debt obligations in
the name of the counterparty equal in value to its obligations in respect
of reverse repurchase agreements. Reverse repurchase agreements involve the
risk that the market value of the securities the Fund has sold may decline
below the price at which it is obligated to repurchase them under the
agreement. At February 29, 2004, the Fund had no open reverse repurchase
agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of loss with respect to
the investment of collateral, the risk of delay in recovery or loss of
rights in collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
February 29, 2004, the Fund loaned securities having a market value of
$2,490,500 collateralized by cash in the amount of $2,550,000, which was
invested in short-term instruments.
TAXES AND DISTRIBUTIONS
The Fund intends to qualify as a regulated investment company until March
31, 2004, under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The Fund intends to distribute substantially all of
its net investment income and net realized short-term and long-term capital
gains, if any, after giving effect to any available capital loss carryovers
for U.S. federal income tax purposes. Therefore, no provision for U.S.
federal income or excise tax is necessary.
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
20
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $6,335,530 of undistributed ordinary income. The
temporary differences between book and tax basis distributable earnings are
primarily due to swaps and foreign currency transactions.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code,
of $31,485,960 and $2,335,272 expiring November 30, 2011 and February 28,
2012, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions, the transaction described in Note 1 and redemption in kind
transactions. The net loss from redemption in kind transactions was
$198,051. The financial highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
--------------------- ------------------- ---------------------
$ (1,088,678) $ 8,765,236 $ (7,676,558)
</Table>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Interest income is
recorded on an accrual basis and is adjusted for the amortization of
premiums and discounts. Income is not recognized, nor are premium and
discount amortized on securities for which collection in the ordinary
course of business is not expected. Dividend income is recorded on the
ex-dividend date. Non-cash dividends, if any, are recorded at fair market
value of the securities received. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis. Interest income on inflation indexed securities is accrued
daily based upon an inflation adjusted principal. Additionally, any
increase in principal or face amount of these securities is recorded as
interest income.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
21
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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
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's portion of the fee paid by the Trust to the independent Trustees
during the period ended February 29, 2004 and year ended November 30, 2003,
were $15,089 and $55,559, respectively. No remuneration is paid to any
Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the period ended February 29, 2004, aggregated
$9,018,800 and $18,807,625, respectively.
At February 29, 2004, 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
---------------- ------------------ ------------------ ----------------
$ 319,492,364 $ 3,665,295 $ (95,271,263) $ (91,605,968)
</Table>
5. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 60.4% 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. At February 29, 2004, .04% of the Fund was held by one related
party.
6. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that
22
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
material liabilities related to such obligations will not arise in the
future that could adversely impact the business of the Fund.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
FOR THE PERIOD FOR THE PERIOD
DECEMBER 1, 2003 MARCH 1, 2002
THROUGH YEAR ENDED THROUGH
FEBRUARY 29, 2004* NOVEMBER 30, 2003 NOVEMBER 30, 2002*
-------------------- -------------------- --------------------
Shares sold -- 13,488 18,062,276
Shares issued to shareholders
In reinvestment of distributions -- -- 480,081
Shares repurchased (19,584) (2,483,384) (62,845,666)
--------- ---------- -----------
Net decrease (19,584) (2,469,896) (44,303,309)
Fund shares:
Beginning of period 9,381,478 11,851,374 56,154,683
--------- ---------- -----------
End of period 9,361,894 9,381,478 11,851,374
========= ========== ===========
</Table>
*Change in year end. See Note 1.
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
SETTLEMENT UNITS OF NET UNREALIZED
DATE DELIVER CURRENCY VALUE DEPRECIATION
------------- --------------------------- --------------- --------------- --------------
Sales
4/13/04 GBP 5,500,000 $ 10,170,934 $ (171,934)
===========
</Table>
GBP - British Pound
23
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF CONTRACT NET UNREALIZED
CONTRACTS TYPE EXPIRATION DATE VALUE DEPRECIATION
------------- --------------------------- --------------- --------------- --------------
Sales
368 U.S. Treasury Note 5 Yr. June 2004 $ 41,365,500 $ (45,241)
==========
</Table>
REVERSE REPURCHASE AGREEMENTS
<Table>
Average balance outstanding $ 8,669,318
Average interest rate 1.15%
Maximum balance outstanding $ 13,355,700
Average shares outstanding 9,366,954
Average balance per share outstanding $ 0.93
</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
10,000,000 USD 3/4/08 Agreement with JP Morgan Chase Bank dated $ (53,027)
3/4/03 to pay the notional amount multiplied
by 3.096% and to receive the notional amount
multiplied by the 3 month Floating Rate
LIBOR.
11,400,000 USD 2/25/13 Agreement with JP Morgan Chase Bank dated (271,507)
12/9/03 to pay the notional amount
multiplied by 4.54% and to receive the
notional amount multiplied by the 3 month
Floating Rate LIBOR.
</Table>
24
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- continued
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------- --------------
TOTAL RETURN SWAPS
10,000,000 USD 03/31/04 Agreement with Lehman Brothers Special $ 106,571
Financing Inc. dated 12/31/03 to receive the
notional amount multiplied by the change in
market value of Lehman Brothers CMBS AAA
Index and to pay the initial market value
multiplied by the 1 month LIBOR adjusted by
a specific spread.
15,000,000 USD 7/31/04 Agreement with JP Morgan Chase Bank dated 180,746
01/21/04 to receive the notional amount
multiplied by the change in market value of
Lehman Brothers CMBS AAA 8.5 yr. Index and
to pay the initial market value multiplied
by the 1 month LIBOR adjusted by a specific
spread.
--------------
$ (37,217)
==============
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
9. INVESTMENTS IN AFFILIATES
A summary of the Fund's transactions in the securities of these issuers
during the period ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING OF DIVIDEND VALUE, END OF
AFFILIATE PERIOD PURCHASES SALES PROCEEDS INCOME PERIOD
--------------------- ------------ ----------- ---------------- ---------- -------------
GMO SPV I, LLC $ 12,949,142 $ -- $ 26,043 $ -- $ 12,879,123
</Table>
25
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO ALPHA LIBOR FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Alpha LIBOR Fund (the "Fund")
(a series of GMO Trust) at February 29, 2004, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
26
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SHAREHOLDER MEETING AND RESULTS (UNAUDITED)
A special meeting of the shareholders of Alpha LIBOR Fund was held on March 11,
2004. No proxies were solicited for the meeting. 5,259,746.724 shares
representing a quorum were present in person at the meeting. The only matter
voted on was a proposal to consider for approval the agreement and plan of
reorganization between Alpha LIBOR Fund and GMO Short-Duration Collateral Fund
(SDCF) that set forth the terms and conditions by which substantially all the
assets of Alpha LIBOR Fund would be transferred to SDCF in a tax-free
transaction to be completed on or before March 31, 2004. All 5,259,746.724
shares present at the meeting voted in favor of the proposal. No other matters
came before the meeting for consideration by those present at the meeting and
entitled to vote.
27
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ------------------ ----------------------- ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of Business 41 *(2)
c/o GMO Trust Administration and
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Trustee Since Advisory Counsel, 41 None
Glazer, Esq. December 2000 Goodwin Procter LLP;
c/o GMO Trust Secretary and
40 Rowes Wharf Consultant, Provant,
Boston, MA 02110 Inc. (provider of
DOB: 07/26/1944 performance improvement
training services and
products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
28
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ------------------ ----------------------- ------------- --------------
R. Jeremy Chairman of Since September Chairman, Grantham, 41 None
Grantham(3) the Board of 1985. Mayo, Van Otterloo &
c/o GMO Trust Trustees President from Co. LLC
40 Rowes Wharf February 2002 -
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
29
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ------------------- ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since Otterloo & Co. LLC (June
40 Rowes Wharf March 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
30
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO U.S. Core Fund returned +37.5% for the fiscal
year ended February 29, 2004, as compared to +38.5% for the S&P 500. Consistent
with the Fund's investment objectives and policies, the Fund was invested
substantially in U.S. equity securities throughout the period.
The portfolio's underperformance for the fiscal year is primarily attributed to
sector selection, where an overweight to health care proved costly. Underweight
positions in materials processing and producer durables, and an overweight
position in utilities also detracted from relative performance.
Stock selection within sectors had mixed results for the year. Selection within
technology was ineffective, as overweight positions in Intel, BMC Software, and
Oracle detracted from relative performance. Selection within consumer
discretionary and utilities stocks was strong.
For the year, both the intrinsic value and price to normalized earnings stock
selection strategies added value, while the price momentum strategy
underperformed.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
Annual Dump
U.S. CORE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO U.S. CORE FUND S&P 500 INDEX
2/28/1994 5,000,000 5,000,000
3/31/1994 4,794,045 4,782,015
6/30/1994 4,803,895 4,802,150
9/30/1994 5,010,035 5,036,930
12/31/1994 5,063,095 5,036,145
3/31/1995 5,525,590 5,526,500
6/30/1995 6,130,585 6,054,055
9/30/1995 6,795,915 6,535,175
12/31/1995 7,253,065 6,928,615
3/31/1996 7,514,160 7,300,465
6/30/1996 7,766,190 7,628,140
9/30/1996 7,982,520 7,863,965
12/31/1996 8,530,455 8,519,445
3/31/1997 8,738,955 8,747,805
6/30/1997 10,158,505 10,275,030
9/30/1997 11,351,040 11,044,635
12/31/1997 11,524,235 11,361,810
3/31/1998 13,033,360 12,946,700
6/30/1998 13,301,480 13,374,230
9/30/1998 12,025,505 12,043,885
12/31/1998 14,369,625 14,608,860
3/31/1999 14,894,120 15,336,730
6/30/1999 16,006,370 16,417,705
9/30/1999 14,912,855 15,392,515
12/31/1999 17,041,605 17,682,790
3/31/2000 17,717,780 18,088,240
6/30/2000 17,083,615 17,607,810
9/30/2000 17,895,950 17,437,245
12/31/2000 17,092,170 16,072,880
3/31/2001 15,737,520 14,167,365
6/30/2001 16,490,130 14,996,515
9/30/2001 14,544,965 12,795,300
12/31/2001 15,778,665 14,162,490
3/31/2002 15,957,830 14,201,550
6/30/2002 13,991,565 12,298,815
9/30/2002 11,593,230 10,174,085
12/31/2002 12,675,505 11,032,545
3/31/2003 12,045,965 10,684,990
6/30/2003 14,044,360 12,329,825
9/30/2003 14,288,685 12,656,020
12/31/2003 16,048,745 14,196,500
2/29/2004 16,613,150 14,658,680
</Table>
Average Annual Returns
Inception 9/18/1985
<Table>
<Caption>
1YR 5YR 10YR(ITD)
37.5 2.99 12.76
</Table>
<Page>
U.S. CORE FUND-II
As Of: 2/29/2004
Average Annual Returns
Inception 6/7/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
37.26 2.9 10.26
</Table>
U.S. CORE FUND-IV
As Of: 2/29/2004
Average Annual Returns
Inception 1/9/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
37.5 3.04 6.98
</Table>
U.S. CORE FUND-V
As Of: 2/29/2004
Average Annual Returns
Inception 7/2/2001
<Table>
<Caption>
1YR 5YR 10YR(ITD)
37.55 N/A 0.15
</Table>
U.S. CORE FUND-VI
As Of: 2/29/2004
Average Annual Returns
Inception 6/30/2003
<Table>
<Caption>
1YR 5YR 10YR(ITD)
N/A N/A 18.41
</Table>
U.S. CORE FUND-CLASS M
As Of: 2/29/2004
Average Annual Returns
Inception 4/15/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
37.23 N/A 3.67
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Performance for Classes II, IV, V, VI and M may
vary due to different fees. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
* Class II performance includes Class III performance for the period November
17, 1997 to January 9, 1998, during which no Class II shares were outstanding.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
COMMON STOCKS -- 99.1%
AUTO & TRANSPORTATION -- 3.3%
449,400 Burlington Northern Santa Fe Corp. 14,461,692
124,500 CSX Corp. 3,925,485
460,200 Delphi Corp. 4,694,040
1,572,111 Ford Motor Co. 21,616,526
996,816 General Motors Corp. 47,966,786
12,800 Genuine Parts Co. 444,544
410,100 Harley-Davidson, Inc. 21,784,512
104,700 Lear Corp. 6,452,661
122,550 Paccar, Inc. 6,790,495
-----------
128,136,741
-----------
CONSUMER DISCRETIONARY -- 14.5%
38,200 Abercrombie & Fitch Co.-Class A * 1,204,446
249,100 Amazon.com, Inc. * 10,748,665
157,400 Apollo Group, Inc.-Class A * 11,986,010
237,600 Autonation, Inc. * 3,963,168
66,700 Avon Products, Inc. 4,709,020
521,200 Best Buy Co., Inc. 27,753,900
38,800 Black & Decker Corp. 1,999,752
103,900 CDW Corp. 7,187,802
161,800 Coach, Inc. * 6,412,134
199,500 Comcast Corp.-Class A * 5,829,390
137,800 Dollar General Corp. 3,016,442
192,300 Dollar Tree Stores, Inc. * 5,942,070
641,800 Eastman Kodak Co. 18,316,972
146,000 eBay, Inc. * 10,053,560
274,800 EchoStar Communications Corp.-Class A * 9,925,776
306,500 Federated Department Stores 16,051,405
3,878,100 Home Depot, Inc. 140,813,811
305,300 InterActiveCorp * 9,943,621
352,100 International Game Technology 13,816,404
157,900 JC Penney Co., Inc. Holding Co. 4,874,373
208,400 Jones Apparel Group, Inc. 7,773,320
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
85,300 Kimberly Clark Corp. 5,517,204
736,400 Liberty Media Corp.-Class A * 8,394,960
115,600 Liz Claiborne, Inc. 4,265,640
178,900 Limited Brands, Inc. 3,533,275
255,300 May Department Stores Co. (The) 8,991,666
1,310,800 McDonald's Corp. 37,095,640
95,700 Mohawk Industries, Inc. * 7,971,810
103,300 Nike, Inc.-Class B 7,566,725
64,200 Omnicom Group 5,251,560
110,800 RadioShack Corp. 3,829,248
235,600 Ross Stores, Inc. 7,550,980
62,400 RR Donnelley & Sons Co. 1,981,824
577,300 Sears Roebuck & Co. 27,138,873
371,000 Target Corp. 16,309,160
3,068,400 Time Warner, Inc. * 52,929,900
127,600 Toys R Us, Inc. * 2,003,320
57,300 VF Corp. 2,574,489
74,600 Whirlpool Corp. 5,441,324
744,800 Yahoo!, Inc. * 33,069,120
96,200 Yum! Brands, Inc. * 3,562,286
-----------
567,301,045
-----------
CONSUMER STAPLES -- 4.4%
527,752 Albertson's, Inc. 13,056,584
1,427,500 Altria Group, Inc. 82,152,625
131,100 Campbell Soup Co. 3,665,556
221,200 Colgate-Palmolive Co. 12,265,540
40,500 CVS Corp. 1,518,750
57,000 H.J. Heinz Co. 2,177,970
464,800 Kroger Co. * 8,933,456
83,900 RJ Reynolds Tobacco Holdings, Inc. 5,179,147
1,046,100 Safeway, Inc. * 23,924,307
393,700 Sara Lee Corp. 8,590,534
157,000 Tyson Foods, Inc.-Class A 2,493,160
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- CONTINUED
126,700 UST, Inc. 4,824,736
52,500 WM Wrigley Jr. Co. 2,952,600
-----------
171,734,965
-----------
FINANCIAL SERVICES -- 21.5%
569,300 Allstate Corp. (The) 25,977,159
96,400 AMBAC Financial Group, Inc. 7,538,480
265,600 Ameritrade Holding Corp. * 4,323,968
120,800 Automatic Data Processing, Inc. 5,127,960
331,409 Bank of America Corp. 27,149,025
124,100 Bank of New York Co. (The), Inc. 4,095,300
70,000 Bank One Corp. 3,778,600
146,179 Bear Stearns Cos. (The), Inc. 12,840,363
381,500 Capital One Financial Corp. 26,979,680
329,600 Cigna Corp. 18,269,728
30,400 CIT Group, Inc. 1,199,888
1,410,900 Citigroup, Inc. 70,911,834
86,200 CNA Financial Corp. * 2,370,500
188,200 Comerica, Inc. 10,829,028
258,266 Countrywide Financial Corp. 23,664,914
28,400 Dun & Bradstreet Corp. * 1,511,448
488,700 E*Trade Financial Corp. * 6,993,297
914,800 Fannie Mae 68,518,520
339,625 Fidelity National Financial, Inc. 13,282,734
204,300 First Data Corp. 8,372,214
527,488 FleetBoston Financial Corp. 23,752,785
132,400 Franklin Resources, Inc. 7,480,600
627,500 Freddie Mac 38,854,800
135,450 Greenpoint Financial Corp. 5,908,329
271,700 Hartford Financial Services Group, Inc. 17,796,350
73,400 Huntington Bancshares, Inc. 1,697,742
263,700 Janus Capital Group, Inc. 4,514,544
149,300 John Hancock Financial Services, Inc. 6,291,502
2,276,880 JP Morgan Chase & Co. 93,397,618
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
267,600 KeyCorp 8,675,592
76,500 Lehman Brothers Holdings, Inc. 6,633,315
183,200 Lincoln National Corp. 8,505,976
298,300 Loews Corp. 17,984,507
124,300 Marsh & McLennan Cos., Inc. 5,965,157
121,850 MBIA, Inc. 8,016,512
1,262,800 MBNA Corp. 34,512,324
90,000 Mellon Financial Corp. 2,914,200
278,200 Merrill Lynch & Co., Inc. 17,028,622
216,000 Metlife, Inc. 7,592,400
295,800 MGIC Investment Corp. 19,576,044
552,300 Morgan Stanley 33,005,448
261,100 National City Corp. 9,321,270
75,000 Old Republic International Corp. 1,770,000
246,900 PMI Group (The), Inc. 9,777,240
148,700 PNC Financial Services Group, Inc. 8,716,794
214,400 Radian Group, Inc. 9,369,280
86,700 Regions Financial Corp. 3,199,230
49,000 SEI Investments Co. 1,749,790
156,600 Sovereign Bancorp, Inc. 3,468,690
83,200 Suntrust Banks, Inc. 6,016,192
111,200 T. Rowe Price Group, Inc. 5,848,008
117,900 Torchmark Corp. 6,144,948
264,800 Travelers Property Casualty Corp.-Class A 4,808,768
91,900 Union Planters Corp. 2,755,162
566,900 UnumProvident Corp. 8,401,458
246,700 Wachovia Corp. 11,834,199
729,650 Washington Mutual, Inc. 32,790,471
-----------
839,810,507
-----------
HEALTH CARE -- 15.4%
125,600 Abbott Laboratories 5,375,680
57,300 Aetna, Inc. 4,629,267
75,000 Allergan, Inc. 6,565,500
171,100 AmerisourceBergen Corp. 9,928,933
531,400 Amgen, Inc. * 33,759,842
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
641,400 Baxter International, Inc. 18,677,568
101,500 Becton, Dickinson & Co. 4,937,975
301,500 Biomet, Inc. 11,752,470
303,200 Boston Scientific Corp. * 12,385,720
764,500 Bristol-Myers Squibb Co. 21,268,390
390,900 Cardinal Health, Inc. 25,498,407
162,900 Eli Lilly & Co. 12,044,826
244,200 First Health Group Corp. * 5,172,156
670,500 Genentech, Inc. * 72,340,245
116,000 Genzyme Corp. * 5,890,480
96,500 Gilead Sciences, Inc. * 5,231,265
498,300 Guidant Corp. 33,954,162
167,200 Health Net, Inc. * 4,614,720
52,600 Humana, Inc. * 1,152,992
665,800 Johnson & Johnson 35,893,278
190,100 Lincare Holdings, Inc. * 6,147,834
163,300 McKesson Corp. 4,459,723
1,431,600 Merck & Co., Inc. 68,831,328
491,900 Millennium Pharmaceuticals, Inc. * 8,760,739
228,600 Mylan Laboratories 5,372,100
2,706,080 Pfizer, Inc. 99,177,832
1,165,600 Schering-Plough Corp. 20,934,176
206,000 St. Jude Medical, Inc. * 14,965,900
125,500 Stryker Corp. 11,135,615
360,800 Tenet Healthcare Corp. * 4,336,816
43,600 WellPoint Health Networks * 4,742,372
355,700 Wyeth 14,050,150
108,100 Zimmer Holdings, Inc. * 8,176,684
-----------
602,165,145
-----------
INTEGRATED OILS -- 2.0%
91,900 Amerada Hess Corp. 5,913,765
662,215 ConocoPhillips 45,606,747
528,400 Marathon Oil Corp. 18,567,976
204,500 Occidental Petroleum Corp. 9,079,800
-----------
79,168,288
-----------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 1.7%
585,000 Alcoa, Inc. 21,919,950
101,200 Ashland, Inc. 4,848,492
6,213 Eagle Materials, Inc. 362,529
20,892 Eagle Materials, Inc.-Class B * 1,175,175
11,800 Energizer Holdings, Inc. * 550,706
118,500 Freeport-McMoran Copper & Gold, Inc.-Class B 5,054,025
227,500 Georgia-Pacific Corp. 7,291,375
187,500 Monsanto Co. 6,195,000
240,300 Sealed Air Corp. * 11,978,955
218,000 Sherwin-Williams Co. (The) 7,630,000
-----------
67,006,207
-----------
OTHER -- 2.3%
1,177,100 General Electric Co. 38,279,292
941,200 Honeywell International, Inc. 32,989,060
201,200 Johnson Controls, Inc. 11,733,984
145,800 Textron, Inc. 8,068,572
-----------
91,070,908
-----------
OTHER ENERGY -- 0.7%
96,760 Apache Corp. 3,983,609
100,100 Devon Energy Corp. 5,683,678
1,729,900 EL Paso Corp. 12,870,456
587,000 Williams Cos., Inc. 5,558,890
35,633 XTO Energy, Inc. 1,063,289
-----------
29,159,922
-----------
PRODUCER DURABLES -- 5.0%
628,700 Agilent Technologies, Inc. * 21,495,253
164,500 American Power Conversion Corp. 3,720,990
1,437,600 Applied Materials, Inc. * 30,534,624
693,100 Boeing Co. (The) 30,059,747
120,200 Caterpillar, Inc. 9,105,150
140,200 Centex Corp. 14,973,360
635,200 D.R. Horton, Inc. 20,193,008
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
71,800 KB Home 5,194,730
146,900 KLA-Tencor Corp. * 7,756,320
145,200 Lennar Corp.-Class A 7,180,140
58,600 Lexmark International, Inc. * 4,822,194
71,200 Northrop Grumman Corp. 7,199,032
123,800 Pulte Homes, Inc. 6,531,688
109,200 United Technologies Corp. 10,058,412
125,000 Waters Corp. * 4,617,500
828,800 Xerox Corp. * 11,719,232
-----------
195,161,380
-----------
TECHNOLOGY -- 16.8%
154,000 Adobe Systems, Inc. 5,734,960
379,100 Altera Corp. * 8,370,528
151,500 Analog Devices, Inc. 7,559,850
153,800 Applera Corp.-Applied Biosystems Group 3,506,640
760,300 Avaya, Inc. * 13,039,145
567,500 BMC Software, Inc. * 11,123,000
321,800 Broadcom Corp.-Class A * 13,058,644
321,000 Cadence Design Systems, Inc. * 4,953,030
130,300 Ceridian Corp. * 2,466,579
1,778,800 Cisco Systems, Inc. * 41,090,280
227,500 Citrix Systems, Inc. * 4,818,450
1,092,500 Computer Associates International, Inc. 29,016,800
1,923,900 Corning, Inc. * 24,144,945
306,900 Dell, Inc. * 10,020,285
552,700 Electronic Data Systems Corp. 10,584,205
2,467,700 EMC Corp., Massachusetts * 35,337,464
88,000 General Dynamics Corp. 8,106,560
801,500 Hewlett-Packard Co. 18,202,065
6,347,200 Intel Corp. 185,528,656
548,900 International Business Machines Corp. 52,968,850
425,100 Juniper Networks, Inc. * 10,997,337
106,900 Linear Technology Corp. 4,274,931
1,038,500 Microsoft Corp. 27,520,250
555,500 Motorola, Inc. 10,248,975
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
1,936,900 Oracle Corp. * 24,947,272
110,000 Rockwell Automation, Inc. 3,350,600
245,800 Sandisk Corp. * 6,233,488
412,900 Sanmina-SCI Corp. * 5,239,701
302,900 Scientific-Atlanta, Inc. 10,025,990
495,700 Tellabs, Inc. * 4,808,290
1,315,300 Texas Instruments, Inc. 40,313,945
588,200 Veritas Software Corp. * 17,893,044
-----------
655,484,759
-----------
UTILITIES -- 11.5%
441,900 AES Corp. (The) * 4,003,614
27,500 Alltel Corp. 1,424,500
69,300 Ameren Corp. 3,284,820
279,200 American Electric Power Co., Inc. 9,632,400
1,160,171 AT&T Corp. 23,238,225
2,475,700 AT&T Wireless Services, Inc. * 33,620,006
1,788,300 BellSouth Corp. 49,285,548
224,400 Cablevision Systems Corp.-Class A * 5,717,712
156,500 Centerpoint Energy, Inc. 1,636,990
280,500 Citizens Communications Co. * 3,696,990
103,200 Consolidated Edison, Inc. 4,558,344
66,900 Constellation Energy Group, Inc. 2,659,275
178,200 Cox Communications, Inc.-Class A * 5,773,680
47,600 DTE Energy Co. 1,925,896
505,600 Duke Energy Corp. 11,102,976
315,100 Edison International 7,275,659
111,800 FirstEnergy Corp. 4,318,834
76,500 FPL Group, Inc. 5,022,225
72,800 Kinder Morgan, Inc. 4,492,488
674,900 Nextel Communications, Inc.-Class A * 17,878,101
888,100 PG&E Corp. * 25,017,777
62,300 Pinnacle West Capital Corp. 2,435,307
193,300 PPL Corp. 8,994,249
127,400 Public Service Enterprise Group, Inc. 6,005,636
4,250,082 SBC Communications, Inc. 102,044,469
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
UTILITIES -- CONTINUED
150,100 Sempra Energy 4,758,170
1,426,400 Sprint Corp.-FON Group 25,290,072
778,800 Sprint Corp.-PCS Group * 7,009,200
265,100 TECO Energy, Inc. 3,995,057
124,900 TXU Corp. 3,513,437
1,566,822 Verizon Communications, Inc. 60,056,287
51,800 Xcel Energy, Inc. 904,946
-------------
450,572,890
-------------
TOTAL COMMON STOCKS (COST $3,416,677,440) 3,876,772,757
-------------
MUTUAL FUNDS -- 0.3%
3,535,699 Dreyfus Money Market Fund (a) 3,535,699
6,757,919 Merrimac Money Market Fund (a) 6,757,919
-------------
TOTAL MUTUAL FUNDS (COST $10,293,618) 10,293,618
-------------
SHORT-TERM INVESTMENTS -- 2.9%
CASH EQUIVALENTS -- 0.4%
17,406,761 Harris Trust & Savings Bank Eurodollar Time Deposit, 1.01%,
due 3/30/04 (a) 17,406,761
-------------
U.S. GOVERNMENT -- 0.2%
7,500,000 U.S. Treasury Bill, 1.01%, due 04/22/04 7,489,167
-------------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.3%
88,909,832 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 03/01/04, with a maturity value of
$88,914,648, an effective yield of 0.65%, collateralized by
a U.S. Treasury Bill with a rate of 0.915%, maturity date
of 05/20/04, and a market value, including accrued interest
of $90,696,920. 88,909,832
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $113,805,760) 113,805,760
---------------
TOTAL INVESTMENTS -- 102.3%
(Cost $3,540,776,818) 4,000,872,135
Other Assets and Liabilities (net) -- (2.3%) (89,650,055)
---------------
TOTAL NET ASSETS -- 100.0% $ 3,911,222,080
===============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) Represents investment of security lending collateral
(Note 2).
See accompanying notes to the financial statements.
10
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $26,389,845 (cost
$3,540,776,818) (Note 2) $ 4,000,872,135
Cash 4,538
Receivable for investments sold 61,919,826
Receivable for Fund shares sold 4,799,671
Dividends and interest receivable 4,442,787
Receivable for variation margin on closed futures contracts (Note 2) 100,978
Receivable for expenses reimbursed by Manager (Note 3) 111,739
----------------
Total assets 4,072,251,674
----------------
LIABILITIES:
Payable for investments purchased 79,351,430
Payable upon return of securities loaned (Note 2) 27,700,379
Payable for Fund shares repurchased 52,192,975
Payable to affiliate for (Note 3):
Management fee 1,052,967
Shareholder service fee 400,259
12b-1 fee - Class M 57,455
Administration fee - Class M 22,422
Trustees fee 7,151
Accrued expenses 244,556
----------------
Total liabilities 161,029,594
----------------
NET ASSETS $ 3,911,222,080
================
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004 (CONTINUED)
<Table>
NET ASSETS CONSIST OF:
Paid-in capital $ 3,880,222,767
Accumulated undistributed net investment income 11,853,337
Accumulated net realized loss (440,949,341)
Net unrealized appreciation 460,095,317
----------------
$ 3,911,222,080
================
NET ASSETS ATTRIBUTABLE TO:
Class II shares $ 552,424,331
================
Class III shares $ 1,517,457,865
================
Class IV shares $ 709,525,040
================
Class V shares $ 448,352,435
================
Class VI shares $ 542,274,466
================
Class M shares $ 141,187,943
================
SHARES OUTSTANDING:
Class II 40,884,098
================
Class III 112,106,871
================
Class IV 52,485,216
================
Class V 33,187,016
================
Class VI 40,123,682
================
Class M 10,445,452
================
NET ASSET VALUE PER SHARE:
Class II $ 13.51
================
Class III $ 13.54
================
Class IV $ 13.52
================
Class V $ 13.51
================
Class VI $ 13.52
================
Class M $ 13.52
================
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 55,656,836
Interest (including securities lending income of $72,358) 477,660
----------------
Total income 56,134,496
----------------
EXPENSES:
Management fee (Note 3) 10,372,640
Shareholder service fee (Note 3) - Class II 927,466
Shareholder service fee (Note 3) - Class III 2,266,231
Shareholder service fee (Note 3) - Class IV 567,155
Shareholder service fee (Note 3) - Class V 367,261
Shareholder service fee (Note 3) - Class VI 79,140
12b-1 fee (Note 3) - Class M 237,102
Administration fee (Note 3) - Class M 189,682
Custodian and transfer agent fees 439,040
Audit and tax fees 54,043
Legal fees 164,012
Trustees fees and related expenses (Note 3) 62,824
Registration fees 118,796
Miscellaneous 95,272
----------------
Total expenses 15,940,664
Fees and expenses reimbursed by Manager (Note 3) (871,163)
----------------
Net expenses 15,069,501
----------------
Net investment income 41,064,995
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 27,388,448
Closed futures contracts 22,707,050
----------------
Net realized gain 50,095,498
----------------
Change in net unrealized appreciation (depreciation) on:
Investments 886,665,928
Open futures contracts (70,776)
----------------
Net unrealized gain 886,595,152
----------------
Net realized and unrealized gain 936,690,650
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 977,755,645
================
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 41,064,995 $ 35,105,334
Net realized gain (loss) 50,095,498 (302,568,297)
Change in net unrealized appreciation (depreciation) 886,595,152 (338,582,521)
----------------- -----------------
Net increase (decrease) in net assets from operations 977,755,645 (606,045,484)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class II (5,078,401) (2,561,727)
Class III (19,675,170) (16,337,118)
Class IV (7,427,145) (9,588,920)
Class V (5,916,344) (5,745,428)
Class VI (1,075,848) (370,335)
Class M (933,685 --
----------------- -----------------
Total distributions from net investment income (40,106,593) (34,603,528)
----------------- -----------------
Net share transactions (Note 7):
Class II 189,093,135 115,982,471
Class III (80,194,410) 143,190,844
Class IV 79,625,844 (126,130,617)
Class V (112,633,974) 84,738,772
Class VI 512,230,961 --
Class M 52,097,396 67,581,135
----------------- -----------------
Increase in net assets resulting from net share transactions 640,218,952 285,362,605
----------------- -----------------
Total increase (decrease) in net assets 1,577,868,004 (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 $11,853,337 and $11,451,349,
respectively) $ 3,911,222,080 $ 2,333,354,076
================= =================
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-------------------------------------------------------
2004 2003 2002
--------------- --------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.97 $ 12.89 $ 13.94
--------------- --------------- ---------------
Income from investment operations:
Net investment income + 0.15 0.14 0.17
Net realized and unrealized gain (loss) 3.54 (2.91) (1.04)
--------------- --------------- ---------------
Total from investment operations 3.69 (2.77) (0.87)
--------------- --------------- ---------------
Less distributions to shareholders:
From net investment income (0.15) (0.15) (0.17)
From net realized gains -- -- (0.01)
--------------- --------------- ---------------
Total distributions (0.15) (0.15) (0.18)
--------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.51 $ 9.97 $ 12.89
=============== =============== ===============
TOTAL RETURN (a) 37.26% (21.63)% (6.29)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 552,424 $ 241,431 $ 176,456
Net expenses to average daily net assets 0.55% 0.55% 0.55%
Net investment income to average daily net assets 1.22% 1.30% 1.27%
Portfolio turnover rate 57% 74% 69%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.03% 0.03% 0.02%
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------
2001 2000
--------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.62 $ 18.57
--------------- ---------------
Income from investment operations:
Net investment income + 0.20 0.23
Net realized and unrealized gain (loss) 0.03** 2.29
--------------- ---------------
Total from investment operations 0.23 2.52
--------------- ---------------
Less distributions to shareholders:
From net investment income (0.18) (0.24)
From net realized gains (2.73) (4.23
--------------- ---------------
Total distributions (2.91) (4.47)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.94 $ 16.62
=============== ===============
TOTAL RETURN (a) 0.75% 13.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 114,454 $ 95,041
Net expenses to average daily net assets 0.55% 0.55%
Net investment income to average daily net assets 1.21% 1.21%
Portfolio turnover rate 81% 90%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.02% 0.02%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
** 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.
See accompanying notes to the financial statements.
15
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-------------------------------------------------------
2004 2003 2002
--------------- --------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 12.90 $ 13.95
--------------- --------------- ---------------
Income from investment operations:
Net investment income + 0.16 0.15 0.18
Net realized and unrealized gain (loss) 3.56 (2.92) (1.05)
--------------- --------------- ---------------
Total from investment operations 3.72 (2.77) (0.87)
--------------- --------------- ---------------
Less distributions to shareholders:
From net investment income (0.16) (0.15) (0.17)
From net realized gains -- -- (0.01)
--------------- --------------- ---------------
Total distributions (0.16) (0.15) (0.18)
--------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.54 $ 9.98 $ 12.90
=============== =============== ===============
TOTAL RETURN (a) 37.50% (21.59)% (6.23)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,517,458 $ 1,141,725 $ 1,321,634
Net expenses to average daily net assets 0.48% 0.48% 0.48%
Net investment income to average daily net assets 1.32% 1.34% 1.33%
Portfolio turnover rate 57% 74% 69%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.03% 0.03% 0.02%
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------
2001 2000
--------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.63 $ 18.59
--------------- ---------------
Income from investment operations:
Net investment income + 0.20 0.24
Net realized and unrealized gain (loss) 0.04** 2.28
--------------- ---------------
Total from investment operations 0.24 2.52
--------------- ---------------
Less distributions to shareholders:
From net investment income (0.19) (0.25)
From net realized gains (2.73) (4.23)
--------------- ---------------
Total distributions (2.92) (4.48)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.95 $ 16.63
=============== ===============
TOTAL RETURN (a) 0.83% 13.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,532,124 $ 1,623,734
Net expenses to average daily net assets 0.48% 0.48%
Net investment income to average daily net assets 1.27% 1.27%
Portfolio turnover rate 81% 90%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.02% 0.02%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
** 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
See accompanying notes to the financial statements.
16
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-------------------------------------------------------
2004 2003 2002
--------------- --------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.97 $ 12.89 $ 13.94
--------------- --------------- ---------------
Income from investment operations:
Net investment income + 0.16 0.16 0.18
Net realized and unrealized gain (loss) 3.55 (2.92) (1.04)
--------------- --------------- ---------------
Total from investment operations 3.71 (2.76) (0.86)
--------------- --------------- ---------------
Less distributions to shareholders:
From net investment income (0.16) (0.16) (0.18)
From net realized gains -- -- (0.01)
--------------- --------------- ---------------
Total distributions (0.16) (0.16) (0.19)
--------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.52 $ 9.97 $ 12.89
=============== =============== ===============
TOTAL RETURN (a) 37.50% (21.55)% (6.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 709,525 $ 463,254 $ 744,813
Net expenses to average daily net assets 0.44% 0.44% 0.44%
Net investment income to average daily net assets 1.36% 1.39% 1.36%
Portfolio turnover rate 57% 74% 69%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.03% 0.03% 0.02%
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------
2001 2000
--------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.62 $ 18.58
--------------- ---------------
Income from investment operations:
Net investment income + 0.21 0.25
Net realized and unrealized gain (loss) 0.04- 2.28
--------------- ---------------
Total from investment operations 0.25 2.53
--------------- ---------------
Less distributions to shareholders:
From net investment income (0.20) (0.26)
From net realized gains (2.73) (4.23)
--------------- ---------------
Total distributions (2.93) (4.49)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.94 $ 16.62
=============== ===============
TOTAL RETURN (a) 0.92% 13.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,287,842 $ 1,343,460
Net expenses to average daily net assets 0.44% 0.44%
Net investment income to average daily net assets 1.31% 1.32%
Portfolio turnover rate 81% 90%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.02% 0.02%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
** 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.
See accompanying notes to the financial statements.
17
<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 FEBRUARY 28/29,
-------------------------------------------------------
2004 2003 2002*
--------------- --------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.96 $ 12.88 $ 14.00
--------------- --------------- ---------------
Income from investment operations:
Net investment income + 0.16 0.16 0.13
Net realized and unrealized gain (loss) 3.55 (2.92) (1.10)
--------------- --------------- ---------------
Total from investment operations 3.71 (2.76) (0.97)
--------------- --------------- ---------------
Less distributions to shareholders:
From net investment income (0.16) (0.16) (0.14)
From net realized gains -- -- (0.01)
--------------- --------------- ---------------
Total distributions (0.16) (0.16) (0.15)
--------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.51 $ 9.96 $ 12.88
=============== =============== ===============
TOTAL RETURN (a) 37.55% (21.55)% (6.96)%(
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 448,352 $ 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 1.40% 1.41% 1.46%**
Portfolio turnover rate 57% 74% 69%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.03% 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.
See accompanying notes to the financial statements.
18
<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
FEBRUARY 29, 2004
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.54
---------------
Income from investment operations:
Net investment income+ 0.10
Net realized and unrealized gain 2.01
---------------
Total from investment operations 2.11
---------------
Less distributions to shareholders:
From net investment income (0.13)
Total distributions (0.13)
---------------
NET ASSET VALUE, END OF PERIOD $ 13.52
===============
TOTAL RETURN (a) 18.41%(
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 542,274
Net expenses to average daily net assets 0.39%*
Net investment income to average daily net assets 1.17%*
Portfolio turnover rate 57%
Fees and expenses reimbursed by the Manager to average daily net assets: 0.03%*
</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.
19
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------
2004 2003*
--------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.96 $ 12.89
--------------- ---------------
Income from investment operations:
Net investment income+ 0.12 0.11
Net realized and unrealized gain (loss) 3.57 (2.94)
--------------- ---------------
Total from investment operations 3.69 (2.83)
--------------- ---------------
Less distributions to shareholders:
From net investment income (0.13) (0.10)
--------------- ---------------
Total distributions (0.13) (0.10)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 13.52 $ 9.96
=============== ===============
TOTAL RETURN (a) 37.23% (22.03)%(
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 141,188 $ 60,242
Net expenses to average daily net assets 0.78% 0.78%**
Net investment income to average daily net assets 0.98% 1.18%**
Portfolio turnover rate 57% 74%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.03% 0.03%**
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Period from April 15, 2002 (commencement of operations) through February
28, 2003.
** Annualized.
+ Computed using average shares outstanding throughout the period.
( Not Annualized.
See accompanying notes to the financial statements.
20
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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.
The Fund has six classes of shares outstanding: Class II, Class III, Class
IV, Class V, Class VI and Class M. Class M shares bear an administrative
fee and a 12b-1 fee. (See Note 3) 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
21
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. At February 29,
2004, 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. 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 on swap contracts 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
22
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29, 2004 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. See Schedule of
Investments for open repurchase agreement as of February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$26,389,845, collateralized by cash in the amount of $27,700,379, 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.
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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid was as follows: ordinary income
$40,106,593 and $34,603,528, respectively.
23
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
As of February 29, 2004, the components of distributable earnings on a tax
basis consists of $11,853,337 of undistributed ordinary income.
At February 29, 2004, the Fund had a capital loss carryforwards available
to offset future capital gains, if any, to the extent permitted by the
Code, of $170,940,887, $190,371,968 and $59,483,961 expiring in 2010, 2011
and 2012, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- ------------- ---------------
$ (556,414) $ 2,834,103 $ (2,277,689)
</Table>
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.
24
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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 .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 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 .33% of the average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $38,333. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$2,388,439,988 and $1,719,229,070, respectively.
25
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 3,560,929,343 $ 557,902,064 $ (117,959,272) $ 439,942,792
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDER
At February 29, 2004, 11.5% 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. At February 29, 2004, 0.04% of the Fund was
held by eight related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS II: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 22,557,342 $ 259,615,277 13,418,875 $ 146,502,245
Shares issued to shareholders
in reinvestment of distributions 339,348 3,948,342 158,481 1,717,067
Shares repurchased (6,235,535) (74,470,484) (3,048,932) (32,236,841)
--------------- --------------- --------------- ---------------
Net increase 16,661,155 $ 189,093,135 10,528,424 $ 115,982,471
=============== =============== =============== ===============
</Table>
26
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 59,091,455 $ 712,132,733 38,472,240 $ 437,495,310
Shares issued to shareholders
in reinvestment of distributions 1,356,325 15,769,262 1,078,206 11,858,975
Shares repurchased (62,706,770) (808,096,405) (27,621,256) (306,163,441)
--------------- --------------- --------------- ---------------
Net increase (decrease) (2,258,990) $ (80,194,410) 11,929,190 $ 143,190,844
=============== =============== =============== ===============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS IV: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 22,888,027 $ 268,399,183 30,894,720 $ 334,668,818
Shares issued to shareholders
in reinvestment of distributions 631,936 7,231,390 634,377 7,001,006
Shares repurchased (17,498,621) (196,004,729) (42,856,570) (467,800,441)
--------------- --------------- --------------- ---------------
Net increase (decrease) 6,021,342 $ 79,625,844 (11,327,473) $ (126,130,617)
=============== =============== =============== ===============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS V: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 679,001 $ 7,287,557 8,112,537 $ 84,103,316
Shares issued to shareholders
in reinvestment of distributions 512,575 5,863,188 519,722 5,681,255
Shares repurchased (10,831,378) (125,784,719) (416,143) (5,045,799)
--------------- --------------- --------------- ---------------
Net increase (decrease) (9,639,802) $ (112,633,974) 8,216,116 $ 84,738,772
=============== =============== =============== ===============
</Table>
27
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
PERIOD FROM JUNE 30, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
----------------------------------
CLASS VI: SHARES AMOUNT
--------------- ---------------
Shares sold 50,440,061 $ 651,635,725
Shares issued to shareholders
in reinvestment of distributions 88,045 1,075,848
Shares repurchased (10,404,424) (140,480,612)
--------------- ---------------
Net increase 40,123,682 $ 512,230,961
=============== ===============
<Caption>
PERIOD FROM APRIL 15, 2002
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 2004 THROUGH FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS M: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Class M:
Shares sold 6,928,541 $ 79,295,865 14,124,184 $ 150,489,047
Shares issued to shareholders
in reinvestment of distributions 80,701 933,685 35,653 370,335
Shares repurchased (2,612,992) (28,132,154) (8,110,635) (83,278,247)
--------------- --------------- --------------- ---------------
Net increase 4,396,250 $ 52,097,396 6,049,202 $ 67,581,135
=============== =============== =============== ===============
</Table>
28
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO U.S. CORE FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
U.S. Core Fund (the "Fund") (a series of GMO Trust) at February 29, 2004,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
29
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 100% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, 72.84% of the Fund's income qualified for the
dividends-received deduction.
30
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------------- ------------------ ----------------- ----------------------- ---------------- -----------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and 41 *(2)
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Glazer, Esq. Trustee Since December Advisory Counsel,
c/o GMO Trust 2000 Goodwin Procter LLP; 41 None
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant, Provant,
DOB: 07/26/1944 Inc. (provider of
performance improvement
training services and
products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
31
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------------- ------------------ ----------------- ----------------------- ---------------- -----------------
R. Jeremy Grantham(3) Chairman of the Since September Chairman, Grantham,
c/o GMO Trust Board of Trustees 1985. President Mayo, Van Otterloo & 41 None
40 Rowes Wharf from February Co. LLC
Boston, MA 02110 2002 - October
DOB: 10/06/1938 2002; President
Quantitative
from September
1985 - February
2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
32
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------------- ------------------------- ----------------------------- --------------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer since (1997-present), Chief Operating
40 Rowes Wharf October 2002; Vice Officer (2000 - present) and Member,
Boston, MA 02110 President from August 1998 Grantham, Mayo, Van Otterloo & Co.
DOB: 01/20/1956 - October 2002. LLC.
Susan Randall Harbert Chief Financial Officer Chief Financial Officer Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust and Treasurer Since February 2000; & Co. LLC.
40 Rowes Wharf Treasurer since February
Boston, MA 02110 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator, Grantham,
c/o GMO Trust Mayo, Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk since Laundering Reporting Officer (July
40 Rowes Wharf March 2001 - present and 2002 - February 2003) and Member,
Boston, MA 02110 May 1999 - August 1999. Grantham, Mayo, Van Otterloo & Co.
DOB: 07/20/1965 LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since August Associate General Counsel, Grantham,
c/o GMO Trust Secretary 1999; Secretary since March Mayo, Van Otterloo & Co. LLC (June
40 Rowes Wharf 2001. 1999 - present); Associate/Junior
Boston, MA 02110 Partner, Hale and Dorr LLP (1991 -
DOB: 02/18/1945 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Laundering Officer (February 2003 - present) and
40 Rowes Wharf Compliance Officer Compliance Officer, Grantham, Mayo,
Boston, MA 02110 Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust February 2004. & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
33
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Tobacco-Free Core Fund returned +37.1% for the
fiscal year ended February 29, 2004, as compared to +38.5% for the S&P 500.
Consistent with the Fund's investment objectives and policies, the Fund was
invested substantially in U.S. equity securities throughout the period.
The portfolio's underperformance for the fiscal year is primarily attributed to
sector selection, where an overweight in health care proved costly. An
overweight in utilities stocks and an underweight in materials processing also
detracted from relative performance.
Stock selection within sectors had mixed results for the year. Selection within
technology was ineffective, as overweight positions in Intel, BMC Software, and
Oracle detracted from relative performance. Selection within consumer
discretionary and utilities stocks was strong.
For the year, both the intrinsic value and price to normalized earnings stock
selection strategies added value, while the price momentum strategy
underperformed.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
TOBACCO FREE CORE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO TOBACCO-FREE CORE FUND S&P 500 INDEX
2/28/1994 5,000,000 5,000,000
3/31/1994 4,801,265 4,782,015
6/30/1994 4,815,330 4,802,150
9/30/1994 4,998,690 5,036,930
12/31/1994 5,055,370 5,036,145
3/31/1995 5,524,115 5,526,500
6/30/1995 6,122,140 6,054,055
9/30/1995 6,774,480 6,535,175
12/31/1995 7,229,280 6,928,615
3/31/1996 7,494,045 7,300,465
6/30/1996 7,750,560 7,628,140
9/30/1996 7,977,305 7,863,965
12/31/1996 8,552,055 8,519,445
3/31/1997 8,770,255 8,747,805
6/30/1997 10,205,795 10,275,030
9/30/1997 11,448,095 11,044,635
12/31/1997 11,596,745 11,361,810
3/31/1998 13,183,010 12,946,700
6/30/1998 13,504,425 13,374,230
9/30/1998 12,153,235 12,043,885
12/31/1998 14,518,935 14,608,860
3/31/1999 15,268,500 15,336,730
6/30/1999 16,348,190 16,417,705
9/30/1999 15,267,865 15,392,515
12/31/1999 17,604,250 17,682,790
3/31/2000 18,332,380 18,088,240
6/30/2000 17,610,175 17,607,810
9/30/2000 18,415,810 17,437,245
12/31/2000 17,446,760 16,072,880
3/31/2001 15,978,130 14,167,365
6/30/2001 16,702,245 14,996,515
9/30/2001 14,629,900 12,795,300
12/31/2001 15,907,785 14,162,490
3/31/2002 16,017,875 14,201,550
6/30/2002 14,039,425 12,298,815
9/30/2002 11,614,745 10,174,085
12/31/2002 12,686,190 11,032,545
3/31/2003 12,129,170 10,684,990
6/30/2003 14,045,125 12,329,825
9/30/2003 14,299,560 12,656,020
12/31/2003 16,050,360 14,196,500
2/29/2004 16,586,310 14,658,680
</Table>
Average Annual Returns
Inception 10/31/1991
<Table>
<Caption>
1YR 5YR 10YR(ITD)
37.06 2.52 12.74
</Table>
TOBACCO FREE CORE FUND-IV
As Of: 2/29/2004
Average Annual Returns
Inception 7/2/2001
<Table>
<Caption>
1YR 5YR 10YR(ITD)
37.12 N/A -0.44
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Performance for Class IV shares may vary due to
different shareholder servicing fees. Past performance is not indicative of
future performance. Information is unaudited. Current performance of the Fund
may be lower or higher than the performance quoted. Performance data current to
the most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
COMMON STOCKS -- 97.5%
AUTO & TRANSPORTATION -- 3.5%
75,700 Burlington Northern Santa Fe Corp. 2,436,026
22,900 CSX Corp. 722,037
35,200 Delphi Corp. 359,040
17,700 Delta Airlines, Inc. 158,946
323,993 Ford Motor Co. 4,454,904
162,213 General Motors Corp. 7,805,690
54,800 Harley-Davidson, Inc. 2,910,976
7,900 Lear Corp. 486,877
14,700 Paccar, Inc. 814,527
-------------
20,149,023
-------------
CONSUMER DISCRETIONARY -- 13.5%
46,800 Amazon.com, Inc. * 2,019,420
13,500 Apollo Group, Inc.-Class A * 1,028,025
55,600 Autonation, Inc. * 927,408
69,600 Best Buy Co., Inc. 3,706,200
13,100 CDW Corp. 906,258
33,100 Coach, Inc. * 1,311,753
20,000 Comcast Corp.-Class A * 584,400
36,500 Dollar Tree Stores, Inc. * 1,127,850
76,700 Eastman Kodak Co. 2,189,018
27,200 eBay, Inc. * 1,872,992
47,100 EchoStar Communications Corp.-Class A * 1,701,252
64,400 Federated Department Stores 3,372,628
500 Fox Entertainment Group, Inc.-Class A * 14,510
512,800 Home Depot, Inc. 18,619,768
48,500 InterActiveCorp * 1,579,645
44,500 International Game Technology 1,746,180
25,200 JC Penney Co., Inc. Holding Co. 777,924
36,000 Jones Apparel Group, Inc. 1,342,800
15,900 Kimberly Clark Corp. 1,028,412
108,600 Liberty Media Corp.-Class A * 1,238,040
29,700 Liz Claiborne, Inc. 1,095,930
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
42,800 Limited Brands, Inc. 845,300
52,500 May Department Stores Co. (The) 1,849,050
167,100 McDonald's Corp. 4,728,930
17,900 Mohawk Industries, Inc. * 1,491,070
26,600 Ross Stores, Inc. 852,530
14,000 RR Donnelley & Sons Co. 444,640
90,200 Sears Roebuck & Co. 4,240,302
54,500 Target Corp. 2,395,820
402,400 Time Warner, Inc. * 6,941,400
27,200 Toys R Us, Inc. * 427,040
9,200 VF Corp. 413,356
12,100 Whirlpool Corp. 882,574
111,400 Yahoo!, Inc. * 4,946,160
--------------
78,648,585
--------------
CONSUMER STAPLES -- 1.9%
72,576 Albertson's, Inc. 1,795,530
28,400 CVS Corp. 1,065,000
59,200 Kroger Co. * 1,137,824
95,900 Rite Aid Corp. * 535,122
141,100 Safeway, Inc. * 3,226,957
89,000 Sara Lee Corp. 1,941,980
20,800 Supervalu, Inc. 588,640
31,800 Tyson Foods, Inc.-Class A 504,984
--------------
10,796,037
--------------
FINANCIAL SERVICES -- 21.8%
105,900 Allstate Corp. (The) 4,832,217
20,600 AMBAC Financial Group, Inc. 1,610,920
53,600 Ameritrade Holding Corp. * 872,608
8,300 AmSouth Bancorp 209,990
23,300 Bank of New York Co. (The), Inc. 768,900
11,500 Bank One Corp. 620,770
23,821 Bear Stearns Cos. (The), Inc. 2,092,437
43,700 Capital One Financial Corp. 3,090,464
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
44,000 Cigna Corp. 2,438,920
5,300 CIT Group, Inc. 209,191
208,900 Citigroup, Inc. 10,499,314
13,700 CNA Financial Corp. * 376,750
26,600 Comerica, Inc. 1,530,564
43,600 Countrywide Financial Corp. 3,995,068
65,900 E*Trade Financial Corp. * 943,029
197,900 Fannie Mae 14,822,710
44,055 Fidelity National Financial, Inc. 1,722,991
29,000 First Data Corp. 1,188,420
107,246 FleetBoston Financial Corp. 4,829,287
128,800 Freddie Mac 7,975,296
27,100 Greenpoint Financial Corp. 1,182,102
32,100 Hartford Financial Services Group, Inc. 2,102,550
56,000 Janus Capital Group, Inc. 958,720
29,800 John Hancock Financial Services, Inc. 1,255,772
333,840 JP Morgan Chase & Co. 13,694,117
43,300 KeyCorp 1,403,786
11,200 Lehman Brothers Holdings, Inc. 971,152
37,800 Lincoln National Corp. 1,755,054
24,900 MBIA, Inc. 1,638,171
155,900 MBNA Corp. 4,260,747
69,600 Merrill Lynch & Co., Inc. 4,260,216
44,800 Metlife, Inc. 1,574,720
44,700 MGIC Investment Corp. 2,958,246
56,500 Morgan Stanley 3,376,440
46,600 National City Corp. 1,663,620
27,900 Old Republic International Corp. 658,440
43,700 PMI Group (The), Inc. 1,730,520
27,300 PNC Financial Services Group, Inc. 1,600,326
29,100 Radian Group, Inc. 1,271,670
23,800 Regions Financial Corp. 878,220
13,200 SEI Investments Co. 471,372
24,100 Sovereign Bancorp, Inc. 533,815
15,700 Suntrust Banks, Inc. 1,135,267
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
6,300 T. Rowe Price Group, Inc. 331,317
23,300 Torchmark Corp. 1,214,396
59,200 Travelers Property Casualty Corp.-Class A 1,075,072
118,800 UnumProvident Corp. 1,760,616
37,100 Wachovia Corp. 1,779,687
109,600 Washington Mutual, Inc. 4,925,424
--------------
127,051,401
--------------
HEALTH CARE -- 15.8%
14,700 Allergan, Inc. 1,286,838
30,100 AmerisourceBergen Corp. 1,746,703
88,200 Amgen, Inc. * 5,603,346
92,200 Baxter International, Inc. 2,684,864
15,900 Becton, Dickinson & Co. 773,535
38,500 Biomet, Inc. 1,500,730
25,800 Boston Scientific Corp. * 1,053,930
108,600 Bristol-Myers Squibb Co. 3,021,252
39,100 Cardinal Health, Inc. 2,550,493
28,500 First Health Group Corp. * 603,630
101,900 Genentech, Inc. * 10,993,991
28,500 Genzyme Corp. * 1,447,230
12,600 Gilead Sciences, Inc. * 683,046
77,200 Guidant Corp. 5,260,408
32,400 Health Net, Inc. * 894,240
8,900 Humana, Inc. * 195,088
115,920 Johnson & Johnson 6,249,247
32,900 Lincare Holdings, Inc. * 1,063,986
25,100 McKesson Corp. 685,481
243,100 Merck & Co., Inc. 11,688,248
71,000 Millennium Pharmaceuticals, Inc. * 1,264,510
18,550 Mylan Laboratories 435,925
411,090 Pfizer, Inc. 15,066,448
38,800 St. Jude Medical, Inc. * 2,818,820
22,400 Stryker Corp. 1,987,552
235,100 Schering-Plough Corp. 4,222,396
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
56,600 Tenet Healthcare Corp. * 680,332
4,200 Watson Pharmaceuticals, Inc. * 192,864
15,300 WellPoint Health Networks * 1,664,181
71,900 Wyeth 2,840,050
15,300 Zimmer Holdings, Inc. * 1,157,292
--------------
92,316,656
--------------
INTEGRATED OILS -- 2.0%
17,600 Amerada Hess Corp. 1,132,560
72,733 ConocoPhillips 5,009,122
105,800 Marathon Oil Corp. 3,717,812
36,800 Occidental Petroleum Corp. 1,633,920
--------------
11,493,414
--------------
MATERIALS & PROCESSING -- 1.8%
79,500 Alcoa, Inc. 2,978,865
20,500 Ashland, Inc. 982,155
1,170 Eagle Materials, Inc. 68,270
3,934 Eagle Materials, Inc.-Class B * 221,287
27,400 Freeport-McMoran Copper & Gold, Inc.-Class B 1,168,610
28,200 Georgia-Pacific Corp. 903,810
37,700 Monsanto Co. 1,245,608
36,600 Sealed Air Corp. * 1,824,510
34,400 Sherwin-Williams Co. (The) 1,204,000
--------------
10,597,115
--------------
OTHER -- 3.0%
235,100 General Electric Co. 7,645,452
177,400 Honeywell International, Inc. 6,217,870
40,200 Johnson Controls, Inc. 2,344,464
28,500 Textron, Inc. 1,577,190
--------------
17,784,976
--------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
OTHER ENERGY -- 0.3%
244,600 EL Paso Corp. 1,819,824
3,766 XTO Energy, Inc. 112,377
--------------
1,932,201
--------------
PRODUCER DURABLES -- 5.1%
89,900 Agilent Technologies, Inc. * 3,073,681
26,800 American Power Conversion Corp. 606,216
215,100 Applied Materials, Inc. * 4,568,724
104,100 Boeing Co. (The) 4,514,817
24,300 Caterpillar, Inc. 1,840,725
26,400 Centex Corp. 2,819,520
69,750 D.R. Horton, Inc. 2,217,353
15,400 KB Home 1,114,190
26,900 KLA-Tencor Corp. * 1,420,320
26,000 Lennar Corp.-Class A 1,285,700
17,800 Lexmark International, Inc. * 1,464,762
9,356 Northrop Grumman Corp. 945,985
24,400 Pulte Homes, Inc. 1,287,344
22,900 Waters Corp. * 845,926
110,600 Xerox Corp. * 1,563,884
--------------
29,569,147
--------------
TECHNOLOGY -- 16.7%
26,500 Adobe Systems, Inc. 986,860
55,800 Altera Corp. * 1,232,064
25,000 Analog Devices, Inc. 1,247,500
21,700 Applera Corp.-Applied Biosystems Group 494,760
111,000 Avaya, Inc. * 1,903,650
66,500 BMC Software, Inc. * 1,303,400
55,900 Broadcom Corp.-Class A * 2,268,422
69,600 Cadence Design Systems, Inc. * 1,073,928
21,000 Ceridian Corp. * 397,530
220,400 Cisco Systems, Inc. * 5,091,240
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
45,500 Citrix Systems, Inc. * 963,690
206,800 Computer Associates International, Inc. 5,492,608
352,800 Corning, Inc. * 4,427,640
49,700 Dell, Inc. * 1,622,705
104,100 Electronic Data Systems Corp. 1,993,515
288,800 EMC Corp., Massachusetts * 4,135,616
10,200 General Dynamics Corp. 939,624
114,200 Hewlett-Packard Co. 2,593,482
935,600 Intel Corp. 27,347,588
80,200 International Business Machines Corp. 7,739,300
46,900 Juniper Networks, Inc. * 1,213,303
22,200 Linear Technology Corp. 887,778
233,700 Microsoft Corp. 6,193,050
85,000 Motorola, Inc. 1,568,250
217,700 Oracle Corp. * 2,803,976
22,700 Rockwell Automation, Inc. 691,442
33,200 Sandisk Corp. * 841,952
24,300 Scientific-Atlanta, Inc. 804,330
62,800 Tellabs, Inc. * 609,160
186,500 Texas Instruments, Inc. 5,716,225
88,300 Veritas Software Corp. * 2,686,086
--------------
97,270,674
--------------
UTILITIES -- 12.1%
71,300 AES Corp. (The) * 645,978
14,400 Ameren Corp. 682,560
35,700 American Electric Power Co., Inc. 1,231,650
173,606 AT&T Corp. 3,477,328
404,700 AT&T Wireless Services, Inc. * 5,495,826
286,700 BellSouth Corp. 7,901,452
25,000 Cablevision Systems Corp.-Class A * 637,000
24,700 Centerpoint Energy, Inc. 258,362
34,500 Citizens Communications Co. * 454,710
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
UTILITIES -- CONTINUED
19,300 Consolidated Edison, Inc. 852,481
19,900 Constellation Energy Group, Inc. 791,025
38,300 Cox Communications, Inc.-Class A * 1,240,920
16,900 DTE Energy Co. 683,774
68,400 Duke Energy Corp. 1,502,064
74,000 Edison International 1,708,660
3,300 Exelon Corp. 221,562
13,400 FirstEnergy Corp. 517,642
11,400 FPL Group, Inc. 748,410
16,800 Kinder Morgan, Inc. 1,036,728
111,700 Nextel Communications, Inc.-Class A * 2,958,933
130,700 PG&E Corp. * 3,681,819
13,900 Pinnacle West Capital Corp. 543,351
41,000 PPL Corp. 1,907,730
26,600 Public Service Enterprise Group, Inc. 1,253,924
577,114 SBC Communications, Inc. 13,856,507
23,700 Sempra Energy 751,290
240,700 Sprint Corp.-FON Group 4,267,611
103,600 Sprint Corp.-PCS Group * 932,400
32,200 TECO Energy, Inc. 485,254
19,700 TXU Corp. 554,161
243,684 Verizon Communications, Inc. 9,340,408
8,600 Xcel Energy, Inc. 150,242
--------------
70,771,762
--------------
TOTAL COMMON STOCKS (COST $507,984,429) 568,380,991
--------------
MUTUAL FUNDS -- 1.1%
2,192,809 Dreyfus Money Market Fund (a) 2,192,809
4,191,202 Merrimac Money Market Fund (a) 4,191,202
--------------
TOTAL MUTUAL FUNDS (COST $6,384,011) 6,384,011
--------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.3%
CASH EQUIVALENTS -- 1.9%
10,795,519 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.01%, due 3/30/04 (a) 10,795,519
-------------
U.S. GOVERNMENT -- 0.2%
1,400,000 U.S. Treasury Bill, 1.01%, due 04/22/04 (b) 1,397,978
-------------
REPURCHASE AGREEMENTS -- 3.2%
18,848,353 Citigroup Global Markets Repurchase Agreement dated
2/27/04, due 3/01/04, with a maturity value of $18,849,374
and an effective yield of 0.65%, collateralized by a U.S.
Treasury Bill with a rate of 0.915%, maturity date of
5/20/04 and a market value, with accrued interest of
$19,227,205. 18,848,353
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $31,041,850) 31,041,850
-------------
TOTAL INVESTMENTS -- 103.9%
(Cost $545,410,290) 605,806,852
Other Assets and Liabilities (net) -- (3.9%) (22,982,936)
-------------
TOTAL NET ASSETS -- 100.0% $ 582,823,916
=============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) Represents investment of security lending collateral
(Note 2).
(b) All or a portion of this security has been segregated
to cover margin requirements on open financial
futures contracts (Note 8).
See accompanying notes to the financial statements.
9
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $16,572,580
(cost $545,410,290) (Note 2) $ 605,806,852
Cash 828
Receivable for investments sold 5,903,728
Dividends and interest receivable 702,327
Receivable for variation margin on open futures contracts (Notes 2 and 8) 33,963
Receivable for expenses reimbursed by Manager (Note 3) 20,362
---------------
Total assets 612,468,060
---------------
LIABILITIES:
Payable for investments purchased 12,197,899
Payable upon return of securities loaned (Note 2) 17,179,530
Payable to affiliate for (Note 3):
Management fee 152,502
Shareholder service fee 55,250
Trustees fee 1,070
Accrued expenses 57,893
---------------
Total liabilities 29,644,144
---------------
NET ASSETS $ 582,823,916
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 584,544,059
Accumulated undistributed net investment income 1,088,171
Accumulated net realized loss (63,204,054)
Net unrealized appreciation 60,395,740
---------------
$ 582,823,916
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 188,369,772
===============
Class IV shares $ 394,454,144
===============
SHARES OUTSTANDING:
Class III 16,013,075
===============
Class IV 33,537,067
===============
NET ASSET VALUE PER SHARE:
Class III $ 11.76
===============
Class IV $ 11.76
===============
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 9,855,303
Interest (including securities lending income of $11,913) 66,791
---------------
Total income 9,922,094
---------------
EXPENSES:
Management fee (Note 3) 1,879,903
Shareholder service fee (Note 3) - Class III 297,525
Shareholder service fee (Note 3) - Class IV 389,884
Custodian and transfer agent fees 108,292
Audit and tax fees 47,741
Legal fees 30,768
Trustees fees and related expenses (Note 3) 11,824
Registration fees 8,814
Miscellaneous 19,094
---------------
Total expenses 2,793,845
Fees and expenses reimbursed by Manager (Note 3) (214,709)
---------------
Net expenses 2,579,136
---------------
Net investment income 7,342,958
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 11,575,154
Closed futures contracts 3,341,349
---------------
Net realized gain 14,916,503
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 155,718,638
Open futures contracts (822)
---------------
Net unrealized gain 155,717,816
---------------
Net realized and unrealized gain 170,634,319
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 177,977,277
===============
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 7,342,958 $ 6,156,235
Net realized gain (loss) 14,916,503 (47,593,721)
Change in net unrealized appreciation (depreciation) 155,717,816 (74,683,911)
----------------- -----------------
Net increase (decrease) in net assets from operations 177,977,277 (116,121,397)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (2,594,439) (2,003,854)
Class IV (4,883,887) (3,699,871)
(7,478,326) (5,703,725)
----------------- -----------------
Net share transactions (Note 7):
Class III (34,050,800) 80,376,925
Class IV (24,650,110) 131,175,397
----------------- -----------------
Increase (decrease) in net assets resulting from net share transactions (58,700,910) 211,552,322
----------------- -----------------
Total increase in net assets 111,798,041 89,727,200
NET ASSETS:
Beginning of period 471,025,875 381,298,675
----------------- -----------------
End of period (including accumulated undistributed net
investment income of $1,088,171 and $1,329,115,
respectively) $ 582,823,916 $ 471,025,875
================= =================
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.69 $ 11.23 $ 12.29 $ 14.35 $ 14.26
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.13+ 0.12+ 0.15+ 0.17+ 0.20
Net realized and unrealized gain (loss) 3.07 (2.55) (1.07) (0.20) 1.94
----------- ----------- ----------- ----------- -----------
Total from investment operations 3.20 (2.43) (0.92) (0.03)^ 2.14
----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.13) (0.11) (0.14) (0.19) (0.19)
From net realized gains -- -- -- (1.84) (1.86)
----------- ----------- ----------- ----------- -----------
Total distributions (0.13) (0.11) (0.14) (2.03) (2.05)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.76 $ 8.69 $ 11.23 $ 12.29 $ 14.35
=========== =========== =========== =========== ===========
TOTAL RETURN (a) 37.06% (21.69)% (7.53)% (0.83)% 15.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 188,370 $ 163,025 $ 133,203 $ 260,432 $ 321,786
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 1.26% 1.26% 1.24% 1.20% 1.34%
Portfolio turnover rate 63% 62% 85% 82% 108%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.04% 0.04% 0.03% 0.05% 0.05%
</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.
See accompanying notes to the financial statements.
13
<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 FEBRUARY 28/29,
--------------------------------------------
2004 2003 2002*
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.69 $ 11.23 $ 12.32
------------ ------------ ------------
Income from investment operations:
Net investment income + 0.13 0.13 0.10
Net realized and unrealized loss 3.07 (2.55) (1.08)
------------ ------------ ------------
Total from investment operations 3.20 (2.42) (0.98)
------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.13) (0.12) (0.11)
------------ ------------ ------------
Total distributions (0.13) (0.12) (0.11)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 11.76 $ 8.69 $ 11.23
============ ============ ============
TOTAL RETURN (a) 37.12% (21.65)% (8.00)%^
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 394,454 $ 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 1.31% 1.35% 1.37%**
Portfolio turnover rate 63% 62% 85%
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.04% 0.04% 0.04%**
</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.
* Period from July 2, 2001 (commencement of operations) through February 28,
2002.
** Annualized.
^ Not Annualized.
See accompanying notes to the financial statements.
14
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Tobacco-Free Core Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees 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 year ended February 29, 2004, 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
15
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 8 for
all open futures contracts as of February 29, 2004.
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. 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 on swap contracts 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
16
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29, 2004 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. See Schedule of
Investments for the open repurchase agreement.
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
February 29, 2004, the Fund loaned securities having a market value of
$16,572,580 collateralized by cash in the amount of $17,179,530, 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.
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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $7,478,326
and $5,703,725, respectively.
17
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $1,088,171 of undistributed ordinary income.
At February 29, 2004, 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, $28,414,910 and $5,841,231 expiring in 2010, 2011 and 2012,
respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ------------- ---------------
$ (105,576) $ 105,574 $ 2
</Table>
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 fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
18
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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.
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 .33% of the average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $7,271. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the February 29, 2004, aggregated $346,421,797
and $410,782,988, respectively.
At February 29, 2004, 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
--------------------- ---------------------- ---------------------- ----------------------
$ 549,639,174 $ 75,170,583 $ (19,002,905) $ 56,167,678
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
19
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 58.8% 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. At February 29, 2004, less than .01% of the
Fund was held by one related party.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 1,932,775 $ 18,886,632 19,145,833 $ 202,448,347
Shares issued to shareholders
in reinvestment of distributions 209,262 2,139,237 139,964 1,343,482
Shares repurchased (4,886,251) (55,076,669) (12,384,896) (123,414,904)
--------------- --------------- --------------- ---------------
Net increase (decrease) (2,744,214) $ (34,050,800) 6,900,901 $ 80,376,925
=============== =============== =============== ===============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS IV: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 3,102,166 $ 30,016,000 12,955,575 $ 127,475,526
Shares issued to shareholders
in reinvestment of distributions 480,093 4,883,887 398,388 3,699,871
Shares repurchased (5,492,447) (59,549,997) -- --
--------------- --------------- --------------- ---------------
Net increase (decrease) (1,910,188) $ (24,650,110) 13,353,963 $ 131,175,397
=============== =============== =============== ===============
</Table>
20
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
NET
NUMBER OF CONTRACT UNREALIZED
CONTRACTS TYPE EXPIRATION DATE VALUE DEPRECIATION
------------------ --------------------------- ----------------------- ---------------- -------------------
Buys
19 S&P 500 March 2004 $ 5,436,850 $ (822)
=========
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
21
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO TOBACCO-FREE CORE FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Tobacco-Free Core Fund (the "Fund") (a series of GMO Trust) at February 29,
2004, and the results of its operations, the changes in its net assets and
the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
22
<Page>
GMO TOBACCO-FREE CORE
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 88.22% of the Fund's income
represents qualified dividend income subject to the 15% rate category
For corporate shareholders, 83.64% of the Fund's income qualified for the
dividends-received deduction..
23
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------------- ------------------ ----------------- ----------------------- ---------------- -----------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and 41 *(2)
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Glazer, Esq. Trustee Since December Advisory Counsel,
c/o GMO Trust 2000 Goodwin Procter LLP; 41 None
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant, Provant,
DOB: 07/26/1944 Inc. (provider of
performance improvement
training services and
products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
24
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------------- ------------------ ----------------- ----------------------- ---------------- -----------------
R. Jeremy Grantham(3) Chairman of the Since September Chairman, Grantham,
c/o GMO Trust Board of Trustees 1985. President Mayo, Van Otterloo & 41 None
40 Rowes Wharf from February Co. LLC
Boston, MA 02110 2002 - October
DOB: 10/06/1938 2002; President
Quantitative
from September
1985 - February
2002
</Table>
(1 Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
25
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------------- ------------------------- ----------------------------- --------------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer since (1997-present), Chief Operating
40 Rowes Wharf October 2002; Vice Officer (2000 - present) and Member,
Boston, MA 02110 President from August 1998 Grantham, Mayo, Van Otterloo & Co.
DOB: 01/20/1956 - October 2002. LLC.
Susan Randall Harbert Chief Financial Officer Chief Financial Officer Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust and Treasurer since February 2000; & Co. LLC.
40 Rowes Wharf Treasurer since February
Boston, MA 02110 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator, Grantham,
c/o GMO Trust Mayo, Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk since Laundering Reporting Officer (July
40 Rowes Wharf March 2001 - present and 2002 - February 2003) and Member,
Boston, MA 02110 May 1999 - August 1999. Grantham, Mayo, Van Otterloo & Co.
DOB: 07/20/1965 LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since August Associate General Counsel, Grantham,
c/o GMO Trust Secretary 1999; Secretary since March Mayo, Van Otterloo & Co. LLC (June
40 Rowes Wharf 2001. 1999 - present); Associate/Junior
Boston, MA 02110 Partner, Hale and Dorr LLP (1991 -
DOB: 02/18/1945 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Laundering Officer (February 2003 - present) and
40 Rowes Wharf Compliance Officer Compliance Officer, Grantham, Mayo,
Boston, MA 02110 Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust February 2004. & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
26
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Active Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Value Fund returned +40.7% for the fiscal year
ended February 29, 2004, as compared to +42.3% for the Russell 1000 Value Index.
Consistent with the Fund's investment objectives and policies, the Fund was
invested substantially in equity securities throughout the period.
Positive stock selection within consumer discretionary stocks was partially
offset by poor selection in technology shares.
Underweighting the utility sector during the fiscal year added to performance,
while overweighting health care shares detracted.
The Value Fund uses a quantitative discipline to systematically identify the
most attractively valued stocks in the universe, which delivered a return of
+46.4% compared to the Russell 1000 Value Index return of +42.3%. Fundamental
selection and other costs subtracted 5.7%.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
VALUE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO VALUE FUND RUSSELL 1000 VALUE INDEX
2/28/1994 5,000,000 5,000,000
3/31/1994 4,777,450 4,813,620
6/30/1994 4,755,655 4,843,785
9/30/1994 4,988,250 4,968,040
12/31/1994 5,001,025 4,890,380
3/31/1995 5,502,015 5,355,735
6/30/1995 6,019,955 5,835,155
9/30/1995 6,527,480 6,345,080
12/31/1995 6,910,655 6,766,135
3/31/1996 7,327,325 7,149,230
6/30/1996 7,532,950 7,272,385
9/30/1996 7,576,660 7,483,785
12/31/1996 8,342,890 8,230,440
3/31/1997 8,396,105 8,441,380
6/30/1997 9,632,770 9,685,820
9/30/1997 10,703,250 10,650,510
12/31/1997 10,880,870 11,126,235
3/31/1998 12,097,915 12,423,295
6/30/1998 12,091,270 12,478,840
9/30/1998 10,774,060 11,033,220
12/31/1998 12,149,130 12,865,165
3/31/1999 12,092,360 13,049,440
6/30/1999 13,557,235 14,521,125
9/30/1999 12,163,150 13,098,520
12/31/1999 12,476,625 13,810,460
3/31/2000 12,137,955 13,876,310
6/30/2000 12,117,815 13,226,105
9/30/2000 12,889,955 14,266,130
12/31/2000 13,807,550 14,779,270
3/31/2001 13,987,455 13,913,680
6/30/2001 14,611,630 14,592,595
9/30/2001 13,560,420 12,994,925
12/31/2001 14,200,960 13,953,110
3/31/2002 14,153,935 14,523,900
6/30/2002 12,909,095 13,286,745
9/30/2002 10,407,155 10,792,420
12/31/2002 11,269,590 11,787,045
3/31/2003 10,770,180 11,213,775
6/30/2003 12,677,865 13,150,815
9/30/2003 12,705,010 13,422,350
12/31/2003 14,544,020 15,326,770
2/29/2004 15,114,055 15,930,685
</Table>
Average Annual Returns
Inception 11/13/1990
<Table>
<Caption>
1YR 5YR 10YR(ITD)
40.69 5.06 11.7
</Table>
VALUE FUND-CLASS M
As Of: 2/29/2004
Average Annual Returns
Inception 1/10/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
40.23 N/A 2.63
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Performance for Class M shares may vary due to
different fees. Past performance is not indicative of future performance.
Information is unaudited. Current performance of the Fund may be lower or higher
than the performance quoted. Performance data current to the most recent month
end may be obtained by visiting www.gmo.com.
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
COMMON STOCKS -- 98.0%
AUTO & TRANSPORTATION -- 1.0%
8,800 Burlington Northern Santa Fe Corp. 283,184
4,800 Lear Corp. 295,824
--------------
579,008
--------------
CONSUMER DISCRETIONARY -- 12.4%
60,100 Cendant Corp. 1,364,270
15,300 Dollar General Corp. 334,917
12,600 Federated Department Stores 659,862
29,200 Home Depot, Inc. 1,060,252
14,200 Jones Apparel Group, Inc. 529,660
9,200 Kimberly Clark Corp. 595,056
3,000 Omnicom Group 245,400
94,300 Time Warner, Inc. * 1,626,675
19,300 Viacom, Inc.-Class B 742,278
--------------
7,158,370
--------------
CONSUMER STAPLES -- 7.7%
31,900 Altria Group, Inc. 1,835,845
13,700 Constellation Brands, Inc.-Class A * 434,290
8,400 CVS Corp. 315,000
14,900 Pepsi Bottling Group, Inc. 431,057
14,000 Safeway, Inc. * 320,180
52,000 Sara Lee Corp. 1,134,640
--------------
4,471,012
--------------
FINANCIAL SERVICES -- 35.6%
13,800 Allstate Corp. (The) 629,694
12,100 Assurant, Inc. * 311,454
12,500 Bank of America Corp. 1,024,000
20,600 Bank One Corp. 1,111,988
3,800 Bear Stearns Cos. (The), Inc. 333,792
42,500 Citigroup, Inc. 2,136,050
17,300 CNA Financial Corp. * 475,750
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
8,000 Factset Research Systems, Inc. 294,640
17,300 Fannie Mae 1,295,770
20,100 First Data Corp. 823,698
14,700 Flagstar Bancorp, Inc. 379,994
10,800 FleetBoston Financial Corp. 486,324
17,800 Freddie Mac 1,102,176
8,100 John Hancock Financial Services, Inc. 341,334
32,800 JP Morgan Chase & Co. 1,345,456
11,100 MBNA Corp. 303,363
14,000 Merrill Lynch & Co., Inc. 856,940
16,000 Metlife, Inc. 562,400
21,900 Morgan Stanley 1,308,744
8,300 National City Corp. 296,310
38,300 Old Republic International Corp. 903,880
7,500 Regions Financial Corp. 276,750
63,700 Travelers Property Casualty Corp.-Class A 1,156,792
9,700 U.S. Bancorp 276,741
33,900 UnumProvident Corp. 502,398
15,500 Wachovia Corp. 743,535
26,000 Washington Mutual, Inc. 1,168,440
4,100 WellChoice, Inc. * 151,454
--------------
20,599,867
--------------
HEALTH CARE -- 9.5%
6,600 AmerisourceBergen Corp. 382,998
19,800 Baxter International, Inc. 576,576
4,600 Cardinal Health, Inc. 300,058
15,300 McKesson Corp. 417,843
33,500 Merck & Co., Inc. 1,610,680
59,300 Pfizer, Inc. 2,173,345
--------------
5,461,500
--------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
INTEGRATED OILS -- 7.0%
5,000 Amerada Hess Corp. 321,750
18,100 ConocoPhillips 1,246,547
29,400 Exxon Mobil Corp. 1,239,798
27,400 Occidental Petroleum Corp. 1,216,560
--------------
4,024,655
--------------
MATERIALS & PROCESSING -- 1.2%
9,000 Engelhard Corp. 261,180
12,900 Sherwin-Williams Co. (The) 451,500
--------------
712,680
--------------
OTHER -- 3.2%
35,800 Honeywell International, Inc. 1,254,790
4,900 Johnson Controls, Inc. 285,768
7,200 SPX Corp. * 302,400
--------------
1,842,958
--------------
OTHER ENERGY -- 1.8%
15,600 Apache Corp. 642,252
6,600 Valero Energy Corp. 396,000
--------------
1,038,252
--------------
PRODUCER DURABLES -- 2.8%
2,200 Centex Corp. 234,960
7,650 D.R. Horton, Inc. 243,194
4,100 Lennar Corp.-Class A 202,745
3,500 M/I Schottenstein Homes, Inc. 157,360
2,700 Northrop Grumman Corp. 272,997
2,300 Ryland Group, Inc. 197,156
6,600 W.W. Grainger, Inc. 311,850
--------------
1,620,262
--------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
TECHNOLOGY -- 4.9%
50,800 Hewlett-Packard Co. 1,153,668
53,700 Microsoft Corp. 1,423,050
9,200 Raytheon Co. 279,680
--------------
2,856,398
--------------
UTILITIES -- 10.9%
29,200 American Electric Power Co., Inc. 1,007,400
20,500 BellSouth Corp. 564,980
28,600 NiSource, Inc. 620,906
63,500 SBC Communications, Inc. 1,524,635
25,400 Sempra Energy 805,180
46,900 Verizon Communications, Inc. 1,797,677
--------------
6,320,778
--------------
TOTAL COMMON STOCKS (COST $48,986,086) 56,685,740
--------------
MUTUAL FUNDS -- 0.3%
49,703 Dreyfus Money Market Fund (a) 49,703
95,000 Merrimac Money Market Fund (a) 95,000
--------------
TOTAL MUTUAL FUNDS (COST $144,703) 144,703
--------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.0%
CASH EQUIVALENTS -- 0.4%
244,697 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.01%, due 3/30/04 (a) 244,697
-------------
REPURCHASE AGREEMENTS -- 3.6%
2,075,900 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $2,076,012,
and an effective yield of 0.65%, collateralized by a U.S.
Treasury Bill with a rate of .915%, maturity date of
5/20/04, and a market value, including accrued interest
of $2,117,626. 2,075,900
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,320,597) 2,320,597
-------------
TOTAL INVESTMENTS -- 102.3%
(Cost $51,451,386) 59,151,040
Other Assets and Liabilities (net) -- (2.3%) (1,330,929)
-------------
TOTAL NET ASSETS -- 100.0% $ 57,820,111
=============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) Represents investment of security lending collateral
(Note 2).
See accompanying notes to the financial statements.
5
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $381,348
(cost $51,451,386) (Note 2) $ 59,151,040
Cash 39
Receivable for investments sold 2,152,688
Receivable for Fund shares sold 12,438
Dividends and interest receivable 90,918
Receivable for expenses reimbursed by Manager (Note 3) 10,862
---------------
Total assets 61,417,985
---------------
LIABILITIES:
Payable for investments purchased 626,411
Payable upon return of securities loaned (Note 2) 389,400
Payable for Fund shares repurchased 2,503,128
Payable to affiliate for (Note 3):
Management fee 21,913
Shareholder service fee 5,870
12b-1 fee - Class M 4,499
Administration fee - Class M 1,701
Trustees fees 110
Accrued expenses 44,842
---------------
Total liabilities 3,597,874
---------------
NET ASSETS $ 57,820,111
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 78,358,132
Accumulated net realized loss (28,237,675)
Net unrealized appreciation 7,699,654
---------------
$ 57,820,111
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 46,904,488
===============
Class M shares $ 10,915,623
===============
SHARES OUTSTANDING:
Class III 5,051,910
===============
Class M 1,178,204
===============
NET ASSET VALUE PER SHARE:
Class III $ 9.28
===============
Class M $ 9.26
===============
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 1,453,669
Interest (including securities lending income of $516) 7,742
---------------
Total income 1,461,411
---------------
EXPENSES:
Management fee (Note 3) 285,934
Shareholder service fee (Note 3) - Class III 80,328
12b-1 fee (Note 3) - Class M 21,519
Administration fee (Note 3) - Class M 17,215
Custodian and transfer agent fees 41,629
Audit and tax fees 44,447
Legal fees 4,520
Trustees fees and related expenses (Note 3) 1,245
Registration fees 21,074
Miscellaneous 11,124
---------------
Total expenses 529,035
Fees and expenses reimbursed by Manager (Note 3) (122,794)
---------------
Net expenses 406,241
---------------
Net investment income 1,055,170
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (6,851,684)
Closed futures contracts 38,969
---------------
Net realized loss (6,812,715)
---------------
Change in net unrealized appreciation (depreciation) on investments 19,245,846
---------------
Net realized and unrealized gain 12,433,131
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,488,301
===============
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
2004 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,055,170 $ 3,509,590
Net realized loss (6,812,715) (37,323,839)
Change in net unrealized appreciation (depreciation) 19,245,846 (15,408,843)
----------------- -----------------
Net increase (decrease) in net assets from operations 13,488,301 (49,223,092)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (1,146,041) (3,347,011)
Class M (162,700) (69,858)
----------------- -----------------
Total distributions from net investment income (1,308,741) (3,416,869)
----------------- -----------------
Net share transactions (Note 7):
Class III (126,044,557) (17,609,557)
Class M 1,777,888 7,381,915
----------------- -----------------
Decrease in net assets resulting from net share transactions (124,266,669) (10,227,642)
----------------- -----------------
Total decrease in net assets (112,087,109) (62,867,603)
NET ASSETS:
Beginning of period 169,907,220 232,774,823
----------------- -----------------
End of period (including accumulated undistributed net
investment income of $0 and $49,492, respectively) $ 57,820,111 $ 169,907,220
================= =================
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.73 $ 8.82 $ 9.57 $ 7.98 $ 10.40
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.13 0.14 0.18 0.18 0.21
Net realized and unrealized gain (loss) 2.59 (2.10) (0.51) 2.32 (0.83)
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.72 (1.96) (0.33) 2.50 (0.62)
----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.17) (0.13) (0.17) (0.18) (0.23)
From net realized gains -- -- (0.25) (0.73) (1.57)
----------- ----------- ----------- ----------- -----------
Total distributions (0.17) (0.13) (0.42) (0.91) (1.80)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.28 $ 6.73 $ 8.82 $ 9.57 $ 7.98
=========== =========== =========== =========== ===========
TOTAL RETURN (a) 40.69% (22.29)% (3.64)% 32.72% (8.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 46,904 $ 163,463 $ 232,289 $ 247,971 $ 178,329
Net expenses to average daily net assets 0.61% 0.61% 0.61% 0.61% 0.61%
Net investment income to average daily net assets 1.74% 1.79% 1.89% 1.99% 2.06%
Portfolio turnover rate 127% 100% 95% 102% 104%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.20% 0.07% 0.06% 0.05% 0.05%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
See accompanying notes to the financial statements.
9
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------
2004 2003 2002 *
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.72 $ 8.82 $ 9.06
------------ ------------ ------------
Income from investment operations:
Net investment income 0.11 0.12 0.01
Net realized and unrealized loss 2.57 (2.10) (0.25)
------------ ------------ ------------
Total from investment operations 2.68 (1.98) (0.24)
------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.14) (0.12) --
------------ ------------ ------------
Total distributions (0.14) (0.12) --
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.26 $ 6.72 $ 8.82
============ ============ ============
TOTAL RETURN (a) 40.23% (22.56)% (2.65)%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 10,916 $ 6,444 $ 486
Net expenses to average daily net assets 0.91% 0.92% 0.91%**
Net investment income to average daily net assets 1.42% 1.46% 1.52%**
Portfolio turnover rate 127% 100% 95%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.20% 0.07% 0.06%**
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
+ Not Annualized.
* Period from January 10, 2002 (commencement of operations) through February
28, 2002.
** Annualized.
See accompanying notes to the financial statements.
10
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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 year ended February 29, 2004, 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 type and level of fees.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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.
11
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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. 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 on swap contracts 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
12
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
may be unfavorable changes in the price of the security or index underlying
these transactions. At February 29, 2004, 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. See Schedule of
Investments for the open repurchase agreement as of February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$381,348 collaterized by cash in the amount of $389,400, 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $1,308,741
and $3,416,869, respectively.
13
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004 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, $16,413,957 and $6,482,499 expiring in 2010, 2011 and 2012,
respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to differing treatments for
redemption in-kind transactions. Net losses resulting from redemption
in-kind transactions were $16,910,325. The financial highlights exclude
these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- ------------- ---------------
$ 204,079 $ 27,805,395 $ (28,009,474)
</Table>
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 when the amount of the
return of capital is conclusively determined.
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.
3. 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.
14
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 .46% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $798. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$81,440,207 and $202,377,317, respectively.
At February 29, 2004, 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
-------------------- -------------------- -------------------- ------------------
$ 56,398,170 $ 2,940,664 $ (187,794) $ 2,752,870
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that
15
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
have not yet occurred. Based on experience, management is of the view that
the risk of loss in connection with these potential indemnification
obligations is remote; however, there can be no assurance that material
liabilities related to such obligations will not arise in the future that
could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 48.8% 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. At February 29, 2004, 2.39% of the Fund was
held by four related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 546,928 $ 4,023,325 4,918,036 $ 36,956,368
Shares issued to shareholders
in reinvestment of distributions 97,052 791,137 96,123 700,606
Shares repurchased (19,876,245) (130,859,019) (7,055,458) (55,266,531)
--------------- --------------- --------------- ---------------
Net decrease (19,232,265) $ (126,044,557) (2,041,299) $ (17,609,557)
=============== =============== =============== ===============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS M: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 482,342 3,960,130 999,258 8,085,093
Shares issued to shareholders
in reinvestment of distributions 19,668 162,700 10,104 69,858
Shares repurchased (282,747) (2,344,942) (105,520) (773,036)
--------------- --------------- --------------- ---------------
Net increase 219,263 $ 1,777,888 903,842 $ 7,381,915
=============== =============== =============== ===============
</Table>
16
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO VALUE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Value Fund (the "Fund") (a
series of GMO Trust) at February 29, 2004, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
17
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 72.66% of the Fund's income and
short-term capital gains represents qualified dividend income subject to
the 15% rate category.
For corporate shareholders, 96.22% of the fund's income qualified for the
dividends-received deduction.
18
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
PRINCIPAL IN FUND OTHER
POSITION(S) TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- ----------- --------------- - --------------- ----------- --------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)(1998
- present);
Consultant -
Business and
Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
19
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
PRINCIPAL IN FUND OTHER
POSITION(S) TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- ----------- --------------- - --------------- ----------- --------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board 1985. Grantham, 41 None
c/o GMO Trust of Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
20
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ------------------- --------------------- -----------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van Otterloo
40 Rowes Wharf Secretary since March & Co. LLC (June 1999 -
Boston, MA 02110 2001. present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
21
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Intrinsic Value Fund returned +43.7% for the fiscal year ended February
29, 2004 as compared to +42.3% for the Russell 1000 Value Index. Consistent with
the Fund's investment objectives and policies, the Fund was invested
substantially in U.S. equity securities throughout the period.
Sector selection detracted from relative performance for the period. An
overweight of health care, the worst performing sector, proved costly. An
underweight in consumer discretionary and materials processing stocks, and an
overweight in utilities also detracted from relative performance.
The portfolio's outperformance for the fiscal year is primarily attributed to
stock selection. The portfolio benefited from strong selection in producer
durables, utilities, and autos and transportation stocks.
For the year, both the price to intrinsic value and price to normalized earnings
stock selection strategies added value, while the price momentum strategy
underperformed.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
INTRINSIC VALUE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO INTRINSIC VALUE FUND RUSSELL 1000 VALUE INDEX
8/2/1999 5,000,000 5,000,000
9/30/1999 4,645,000 4,643,300
12/31/1999 4,966,445 4,895,675
3/31/2000 4,961,405 4,919,020
6/30/2000 4,765,555 4,688,530
9/30/2000 5,234,520 5,057,210
12/31/2000 5,496,530 5,239,115
3/31/2001 5,481,075 4,932,270
6/30/2001 5,879,550 5,172,940
9/30/2001 5,272,575 4,606,580
12/31/2001 5,678,230 4,946,245
3/31/2002 5,906,850 5,148,585
6/30/2002 5,308,060 4,710,025
9/30/2002 4,387,645 3,825,810
12/31/2002 4,783,855 4,178,395
3/31/2003 4,453,740 3,975,175
6/30/2003 5,311,275 4,661,835
9/30/2003 5,396,325 4,758,090
12/31/2003 6,203,605 5,433,190
2/29/2004 6,471,345 5,647,270
</Table>
Average Annual Returns
Inception 8/2/1999
<Table>
<Caption>
1YR 5YR 10YR(ITD)
43.68 N/A 5.79
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
COMMON STOCKS -- 97.7%
AUTO & TRANSPORTATION -- 4.9%
15,000 AMR Corp. * 228,000
2,800 ArvinMeritor, Inc. 63,168
10,000 Burlington Northern Santa Fe Corp. 321,800
2,800 Cooper Tire & Rubber Co. 55,860
6,400 Dana Corp. 136,896
7,400 Delphi Corp. 75,480
5,300 Delta Airlines, Inc. 47,594
44,154 Ford Motor Co. 607,117
28,082 General Motors Corp. 1,351,306
8,000 Goodyear Tire & Rubber Co. (The) * 67,360
4,000 Harley-Davidson, Inc. 212,480
2,600 Lear Corp. 160,238
1,200 Navistar International Corp. * 55,920
1,800 Paccar, Inc. 99,738
2,400 Tidewater, Inc. 79,752
---------------
3,562,709
---------------
CONSUMER DISCRETIONARY -- 11.6%
1,800 Abercrombie & Fitch Co.-Class A * 56,754
3,100 American Eagle Outfitters * 75,609
1,000 Barnes & Noble, Inc. * 34,900
4,500 Blockbuster, Inc.-Class A 77,310
2,700 Callaway Golf Co. 50,409
3,400 Catalina Marketing Corp. * 59,398
38,300 Cendant Corp. 869,410
1,500 Columbia Sportswear Co. * 78,015
1,800 Comcast Corp.-Class A * 52,596
4,300 Dillard's, Inc.-Class A 75,680
3,300 Earthlink, Inc. * 30,129
14,000 Eastman Kodak Co. 399,560
6,900 Federated Department Stores 361,353
2,700 Foot Locker, Inc. 70,740
2,500 GTECH Holdings Corp. 146,825
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
3,200 Hasbro, Inc. 69,984
33,800 Home Depot, Inc. 1,227,278
4,900 Hughes Electronics Corp. * 84,966
9,100 Ikon Office Solutions, Inc. 106,925
3,200 InterActiveCorp * 104,224
3,100 Interpublic Group of Cos., Inc. * 52,545
5,900 JC Penney Co., Inc. Holding Co. 182,133
6,200 Jones Apparel Group, Inc. 231,260
6,700 Liberty Media Corp.-Class A * 76,380
7,100 May Department Stores Co. (The) 250,062
23,200 McDonald's Corp. 656,560
1,400 Mohawk Industries, Inc. * 116,620
3,800 RR Donnelley & Sons Co. 120,688
5,000 Sabre Holdings Corp. 113,450
8,400 Saks, Inc. * 146,328
13,500 Sears Roebuck & Co. 634,635
1,900 Starwood Hotels & Resorts Worldwide, Inc. 74,119
1,300 Target Corp. 57,148
63,200 Time Warner, Inc. * 1,090,200
9,300 Toys R Us, Inc. * 146,010
200 VeriSign, Inc. * 3,482
2,400 VF Corp. 107,832
2,500 Walt Disney Co. 66,325
1,200 Whirlpool Corp. 87,528
4,000 XM Satellite Radio Holdings, Inc.-Class A * 97,920
---------------
8,343,290
---------------
CONSUMER STAPLES -- 5.4%
8,700 Albertson's, Inc. 215,238
35,000 Altria Group, Inc. 2,014,250
400 CVS Corp. 15,000
9,100 Kroger Co. * 174,902
4,200 PepsiAmericas, Inc. 80,556
18,200 Rite Aid Corp. * 101,556
3,800 RJ Reynolds Tobacco Holdings, Inc. 234,574
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
CONSUMER STAPLES -- CONTINUED
22,100 Safeway, Inc. * 505,427
7,400 Sara Lee Corp. 161,468
1,900 Smithfield Foods, Inc. * 48,602
1,100 Supervalu, Inc. 31,130
13,024 Tyson Foods, Inc.-Class A 206,821
1,800 UST, Inc. 68,544
3,900 Winn-Dixie Stores, Inc. 23,868
---------------
3,881,936
---------------
FINANCIAL SERVICES -- 29.2%
1,300 AG Edwards, Inc. 49,725
3,600 Allmerica Financial Corp. * 132,768
11,500 Allstate Corp. (The) 524,745
1,800 AMBAC Financial Group, Inc. 140,760
2,300 American Financial Group, Inc. 69,184
400 American National Insurance 37,840
3,700 AmeriCredit Corp. * 70,374
2,600 AmerUs Group Co. 101,348
3,600 AmSouth Bancorp 91,080
3,400 Annaly Mortgage Management, Inc. REIT 69,360
3,100 AON Corp. 81,313
3,000 Astoria Financial Corp. 121,020
1,300 Bank of America Corp. 106,496
5,000 Bank of New York Co. (The), Inc. 165,000
3,100 BB&T Corp. 115,165
3,780 Bear Stearns Cos. (The), Inc. 332,035
8,800 Capital One Financial Corp. 622,336
2,876 Charter One Financial, Inc. 104,169
7,300 Cigna Corp. 404,639
2,200 CIT Group, Inc. 86,834
32,500 Citigroup, Inc. 1,633,450
2,700 CNA Financial Corp. * 74,250
8,400 Comerica, Inc. 483,336
700 Commerce Group, Inc. 32,564
5,866 Countrywide Financial Corp. 537,502
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
1,300 Downey Financial Corp. 69,979
6,000 E*Trade Financial Corp. * 85,860
20,000 Fannie Mae 1,498,000
8,938 Fidelity National Financial, Inc. 349,546
4,300 First American Corp. 131,365
3,500 Flagstar Bancorp, Inc. 90,475
17,984 FleetBoston Financial Corp. 809,819
6,800 Freddie Mac 421,056
1,900 GATX Corp. 44,688
200 Global Payments, Inc. 8,652
4,500 Greater Bay Bancorp 124,020
3,900 Greenpoint Financial Corp. 170,118
7,800 Hartford Financial Services Group, Inc. 510,900
900 Hudson City Bancorp, Inc. 34,974
800 Independence Community Bank Corp. 31,656
2,800 IndyMac Bancorp, Inc. 98,560
1,900 John Hancock Financial Services, Inc. 80,066
47,880 JP Morgan Chase & Co. 1,964,038
10,800 KeyCorp 350,136
1,000 Lehman Brothers Holdings, Inc. 86,710
3,900 Lincoln National Corp. 181,077
10,600 Loews Corp. 639,074
2,000 MBIA, Inc. 131,580
24,900 MBNA Corp. 680,517
5,000 Merrill Lynch & Co., Inc. 306,050
3,300 Metlife, Inc. 115,995
5,100 MGIC Investment Corp. 337,518
10,500 Morgan Stanley 627,480
8,700 National City Corp. 310,590
1,600 National Processing, Inc. * 31,680
3,800 Nationwide Financial Services-Class A 144,552
2,400 New York Community Bancorp, Inc. 84,288
1,200 Northern Trust Corp. 59,580
6,600 Old Republic International Corp. 155,760
5,800 PMI Group (The), Inc. 229,680
5,800 PNC Financial Services Group, Inc. 339,996
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
3,200 Provident Financial Group, Inc. 128,224
16,100 Providian Financial Corp. * 208,173
4,800 Radian Group, Inc. 209,760
5,800 Regions Financial Corp. 214,020
2,600 Ryder System, Inc. 95,784
2,400 Silicon Valley Bancshares * 82,200
5,600 Sovereign Bancorp, Inc. 124,040
500 Student Loan Corp. 76,805
2,700 Suntrust Banks, Inc. 195,237
1,400 Synovus Financial Corp. 35,070
4,700 Torchmark Corp. 244,964
10,600 Travelers Property Casualty Corp.-Class A 192,496
2,000 Union Planters Corp. 59,960
20,900 UnumProvident Corp. 309,738
800 Vornado Realty Trust REIT 45,520
7,800 Wachovia Corp. 374,166
18,800 Washington Mutual, Inc. 844,872
800 Zions Bancorp 46,616
---------------
21.010,973
---------------
HEALTH CARE -- 7.2%
1,100 Aetna, Inc. 88,869
3,400 Baxter International, Inc. 99,008
3,300 Cardinal Health, Inc. 215,259
6,800 Guidant Corp. 463,352
6,000 Health Net, Inc. * 165,600
1,400 Humana, Inc. * 30,688
900 Invitrogen Corp. * 66,330
100 Manor Care, Inc. 3,541
3,600 McKesson Corp. 98,316
25,900 Merck & Co., Inc. 1,245,272
3,400 Millennium Pharmaceuticals, Inc. * 60,554
2,200 Pacificare Health Systems * 78,540
52,300 Pfizer, Inc. 1,916,795
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
33,600 Schering-Plough Corp. 603,456
1,700 Valeant Pharmaceuticals International 37,281
---------------
5,172,861
---------------
INTEGRATED OILS -- 4.4%
2,900 Amerada Hess Corp. 186,615
900 ChevronTexaco Corp. 79,515
21,509 ConocoPhillips 1,481,325
22,300 Exxon Mobil Corp. 940,391
14,300 Marathon Oil Corp. 502,502
---------------
3,190,348
---------------
MATERIALS & PROCESSING -- 2.7%
9,300 Alcoa, Inc. 348,471
4,400 Allegheny Technologies, Inc. 55,880
3,300 Ashland, Inc. 158,103
566 Eagle Materials, Inc.-Class B * 31,837
3,000 Engelhard Corp. 87,060
3,400 Georgia-Pacific Corp. 108,970
3,600 Lafarge North America, Inc. 148,248
2,400 Lubrizol Corp. 75,024
5,500 Monsanto Co. 181,720
8,100 Owens-IIlinois, Inc. * 108,378
2,000 Precision Castparts Corp. 90,300
2,200 Sealed Air Corp. * 109,670
2,500 Sonoco Products Co. 62,375
10,300 United States Steel Corp. 378,525
---------------
1,944,561
---------------
OTHER -- 1.6%
5,300 Brunswick Corp. 208,608
2,400 FMC Corp. * 90,000
14,800 Honeywell International, Inc. 518,740
2,800 Johnson Controls, Inc. 163,296
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
OTHER -- CONTINUED
600 Lancaster Colony Corp. 25,434
3,200 Textron, Inc. 177,088
---------------
1,183,166
---------------
OTHER ENERGY -- 1.8%
32,100 Calpine Corp. * 176,871
6,100 Chesapeake Energy Corp. 78,202
4,100 Devon Energy Corp. 232,798
49,900 EL Paso Corp. 371,256
12,700 Reliant Resources, Inc. * 96,520
4,000 Valero Energy Corp. 240,000
9,800 Williams Cos., Inc. 92,806
---------------
1,288,453
---------------
PRODUCER DURABLES -- 6.1%
7,000 Agilent Technologies, Inc. * 239,330
6,100 American Power Conversion Corp. 137,982
3,900 American Tower Corp.-Class A * 43,095
14,000 Boeing Co. (The) 607,180
3,500 Caterpillar, Inc. 265,125
3,800 Centex Corp. 405,840
3,200 Crane Co. 102,848
4,300 Crown Castle International Corp. * 51,815
2,500 Cummins, Inc. 123,500
12,150 D.R. Horton, Inc. 386,248
5,000 Goodrich Corp. 147,450
2,300 KB Home 166,405
5,000 Lennar Corp.-Class A 247,250
1,700 MDC Holdings, Inc. 119,731
2,600 Northrop Grumman Corp. 262,886
3,000 Polycom, Inc. * 66,210
8,000 Pulte Homes, Inc. 422,080
1,800 Ryland Group, Inc. 154,296
2,600 Steelcase, Inc.-Class A 36,660
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
4,300 Toll Brothers, Inc. * 188,770
15,800 Xerox Corp. * 223,412
---------------
4,398,113
---------------
TECHNOLOGY -- 7.9%
1,400 Adaptec, Inc. * 12,782
4,000 Advanced Micro Devices, Inc. * 60,000
3,500 Apple Computer, Inc. * 83,755
5,000 Arrow Electronics, Inc. * 123,000
8,000 Avaya, Inc. * 137,200
2,500 Avnet, Inc. * 58,875
400 Avocent Corp. * 15,468
2,300 AVX Corp. 38,732
6,900 BMC Software, Inc. * 135,240
4,300 Cadence Design Systems, Inc. * 66,349
7,600 Ceridian Corp. * 143,868
13,800 Ciena Corp. * 79,074
9,300 Cisco Systems, Inc. * 214,830
27,100 Computer Associates International, Inc. 719,776
3,000 Comverse Technology, Inc. * 59,160
48,000 Corning, Inc. * 602,400
3,400 Cypress Semiconductor Corp. * 73,372
17,000 Electronic Data Systems Corp. 325,550
3,500 EMC Corp., Massachusetts * 50,120
2,500 Fairchild Semiconductor International, Inc. * 64,500
1,100 General Dynamics Corp. 101,332
30,887 Hewlett-Packard Co. 701,444
8,900 Ingram Micro, Inc.-Class A * 168,922
1,400 International Rectifier Corp. * 64,624
5,200 Maxtor Corp. * 53,300
4,300 Micron Technology, Inc. * 64,672
10,700 Motorola, Inc. 197,415
1,800 National Semiconductor Corp. * 70,848
15,900 Oracle Corp. * 204,792
3,800 PerkinElmer, Inc. 79,192
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
5,200 Rockwell Automation, Inc. 158,392
8,000 Sanmina-SCI Corp. * 101,520
3,300 Scientific-Atlanta, Inc. 109,230
5,500 Siebel Systems, Inc. * 71,830
9,700 Solectron Corp. * 61,983
17,200 Sun Microsystems, Inc. * 91,848
1,200 Symbol Technologies, Inc. 20,424
15,700 Tellabs, Inc. * 152,290
1,300 Texas Instruments, Inc. 39,845
3,200 Vishay Intertechnology, Inc. * 72,032
---------------
5,649,986
---------------
UTILITIES -- 14.9%
16,600 AES Corp. (The) * 150,396
3,300 Allegheny Energy, Inc. * 43,527
2,300 Alliant Energy Corp. 59,225
1,100 Ameren Corp. 52,140
8,100 American Electric Power Co., Inc. 279,450
31,791 AT&T Corp. 636,774
16,500 AT&T Wireless Services, Inc. * 224,070
42,300 BellSouth Corp. 1,165,788
12,700 Centerpoint Energy, Inc. 132,842
900 Citizens Communications Co. * 11,862
8,200 CMS Energy Corp. * 75,440
2,600 Consolidated Edison, Inc. 114,842
3,500 Constellation Energy Group, Inc. 139,125
2,300 Cox Communications, Inc.-Class A * 74,520
300 DTE Energy Co. 12,138
16,600 Duke Energy Corp. 364,536
2,300 Duquesne Light Holdings, Inc. 45,839
10,100 Edison International 233,209
2,600 Energy East Corp. 62,816
800 FirstEnergy Corp. 30,904
800 FPL Group, Inc. 52,520
2,600 Great Plains Energy, Inc. 90,090
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES / UNITS DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
UTILITIES -- CONTINUED
1,500 Kinder Morgan, Inc. 92,565
1,300 Nicor, Inc. 46,982
3,000 OGE Energy Corp. 77,250
24,700 PG&E Corp. * 695,799
2,800 Pinnacle West Capital Corp. 109,452
3,800 PPL Corp. 176,814
7,500 Public Service Enterprise Group, Inc. 353,550
3,300 Puget Energy, Inc. 74,250
94,253 SBC Communications, Inc. 2,263,015
7,100 Sempra Energy 225,070
34,100 Sprint Corp.-FON Group 604,593
6,800 TECO Energy, Inc. 102,476
300 Telephone & Data Systems, Inc. 21,615
4,600 TXU Corp. 129,398
11,500 UnitedGlobalCom, Inc.-Class A * 109,135
32,552 Verizon Communications, Inc. 1,247,718
2,000 Wisconsin Energy Corp. 64,640
13,900 Xcel Energy, Inc. 242,833
---------------
10,689,208
---------------
TOTAL COMMON STOCKS (COST $58,843,509) 70,315,604
---------------
MUTUAL FUNDS -- 1.0%
475,223 Merrimac Money Market Fund (a) 475,223
248,633 Dreyfus Money Market Fund (a) 248,633
---------------
TOTAL MUTUAL FUNDS (COST $723,856) 723,856
---------------
RIGHTS AND WARRANTS -- 0.0%
COMPUTERS & INFORMATION -- 0.0%
800 Seagate Technology Inc., Rights (b) 8
---------------
TOTAL RIGHTS AND WARRANTS (COST $0) 8
---------------
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.5%
CASH EQUIVALENTS -- 1.7%
1,224,059 Harris Trust & Savings Bank Eurodollar Time
Deposit, 1.01%, due 3/30/04 (a) 1,224,059
---------------
U.S. GOVERNMENT -- 0.2%
100,000 U.S. Treasury Bill, 1.01%, due 04/22/04 99,856
---------------
REPURCHASE AGREEMENTS -- 3.6%
2,603,178 Citigroup Global Markets Repurchase
Agreement, dated 2/27/04, due 3/01/04, with a
maturity value of $2,603,319, and an
effective yield of .65%, collateralized by a
U.S. Treasury Bill with a rate of .915%,
maturity date of 5/20/04, and a market value,
including accrued interest of $2,655,502. 2,603,178
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,927,093) 3,927,093
---------------
TOTAL INVESTMENTS -- 104.2%
(Cost $63,494,458) 74,966,561
Other Assets and Liabilities (net) -- (4.2%) (3,035,634)
---------------
TOTAL NET ASSETS -- 100.0% $ 71,930,927
===============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Represents investment of security lending collateral
(Note 2).
(b) Security valued at fair value using methods determined
in good faith by or at the direction of the Trustees
(Note 2).
See accompanying notes to the financial statements.
11
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $1,849,670 (cost
$63,494,458) (Note 2) $ 74,966,561
Cash 185
Receivable for investments sold 4,185,746
Dividends and interest receivable 111,396
Receivable for variation margin on closed futures contracts (Note 2) 1,258
Receivable for expenses reimbursed by Manager (Note 3) 6,741
---------------
Total assets 79,271,887
---------------
LIABILITIES:
Payable for investments purchased 321,061
Payable upon return of securities loaned (Note 2) 1,947,915
Payable for Fund shares repurchased 5,000,000
Payable to affiliate for (Note 3):
Management fee 19,983
Shareholder service fee 9,083
Trustees fee 143
Accrued expenses 42,775
---------------
Total liabilities 7,340,960
---------------
NET ASSETS $ 71,930,927
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 60,819,091
Accumulated undistributed net investment income 176,685
Accumulated net realized loss (536,952)
Net unrealized appreciation 11,472,103
---------------
$ 71,930,927
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 71,930,927
===============
SHARES OUTSTANDING:
Class III 6,334,682
===============
NET ASSET VALUE PER SHARE:
Class III $ 11.36
===============
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $105) $ 1,487,271
Interest (including securities lending income of $4,031) 9,832
---------------
Total income 1,497,103
---------------
EXPENSES:
Management fee (Note 3) 219,631
Shareholder service fee (Note 3) - Class III 99,832
Custodian and transfer agent fees 35,888
Audit and tax fees 42,535
Legal fees 3,447
Trustees fees and related expenses (Note 3) 1,448
Registration fees 6,689
Miscellaneous 2,788
---------------
Total expenses 412,258
Fees and expenses reimbursed by Manager (Note 3) (91,347)
---------------
Net expenses 320,911
---------------
Net investment income 1,176,192
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 1,000,605
Closed futures contracts 295,436
---------------
Net realized gain 1,296,041
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 22,345,780
Open futures contracts (13,069)
---------------
Net unrealized gain 22,332,711
---------------
Net realized and unrealized gain 23,628,752
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 24,804,944
===============
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
2004 2003
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,176,192 $ 808,311
Net realized gain (loss) 1,296,041 (546,050)
Change in net unrealized appreciation
(depreciation) 22,332,711 (11,858,189)
--------------- ---------------
Net increase (decrease) in net assets from operations 24,804,944 (11,595,928)
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III (1,160,172) (856,517)
Net realized gains
Class III -- (1,978,445)
--------------- ---------------
(1,160,172) (2,834,962)
--------------- ---------------
Net share transactions (Note 7):
Class III (13,637,016) (21,268,403)
--------------- ---------------
Decrease in net assets resulting from net share transactions (13,637,016) (21,268,403)
--------------- ---------------
Total increase (decrease) in net assets 10,007,756 (35,699,293)
NET ASSETS:
Beginning of period 61,923,171 97,622,464
--------------- ---------------
End of period (including accumulated undistributed net investment income
of $176,685 and $171,441, respectively) $ 71,930,927 $ 61,923,171
=============== ===============
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------
2004 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 0.17+ 0.15+ 0.18+ 0.20 0.11+
Net realized and unrealized gain (loss) 3.31 (2.36) 0.05 2.06 (1.24)
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.48 (2.21) 0.23 2.26 (1.13)
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.17) (0.15) (0.20) (0.14) (0.08)
From net realized gains -- (0.32) (0.14) (0.07) --
---------- ---------- ---------- ---------- ----------
Total distributions (0.17) (0.47) (0.34) (0.21) (0.08)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 11.36 $ 8.05 $ 10.73 $ 10.84 $ 8.79
========== ========== ========== ========== ==========
TOTAL RETURN (a) 43.68% (21.05)% 2.16% 26.00% (11.36)%(
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 71,931 $ 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 1.77% 1.56% 1.67% 2.04% 1.94%**
Portfolio turnover rate 65% 114% 61% 89% 26%(
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.14% 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.
See accompanying notes to the financial statements.
15
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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.
16
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The payable or receivable is liquidated on the following business day.
Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Under certain circumstances, futures
exchanges may establish daily limits on the amount that the price of a
futures contract can vary from the previous day's settlement price, thereby
effectively preventing liquidation of unfavorable positions. Losses may
arise from the changes in the value of the underlying instrument, if the
Fund is unable to liquidate a futures position due to an illiquid secondary
market for the contracts or the imposition of price limits, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. At February 29, 2004, 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. 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 on swap contracts 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 February 29, 2004, 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
17
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. See Schedule of Investments for open repurchase
agreement at February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$1,849,670 collateralized by cash in the amount of $1,947,915 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid was as follows: ordinary income -
$1,160,172 and $1,451,043, respectively and long term capital gains - $0
and $1,383,919, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $470,258 of undistributed ordinary income.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the
18
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under U.S. federal
tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
-------------------- --------------- ------------------
$ (10,776) $ 9,211 $ 1,565
</Table>
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.
3. 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 .33% of the average daily net assets.
19
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $886. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$41,558,812 and $54,882,506, respectively.
At February 29, 2004, 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
--------------- ---------------- ---------------- ---------------
$ 64,324,983 $ 11,995,387 $ (1,353,809) $ 10,641,578
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 92.6% 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. At February 29, 2004, .10% of the Fund was
held by two related parties.
20
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
--------------------------------- ---------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 1,132,766 $ 10,691,859 3,468,670 $ 30,846,300
Shares issued to shareholders
in reinvestment of distributions 77,313 743,095 213,208 2,062,934
Shares repurchased (2,568,153) (25,071,970) (5,090,081) (54,177,637)
--------------- --------------- --------------- ---------------
Net decrease (1,358,074) $ (13,637,016) (1,408,203) $ (21,268,403)
=============== =============== =============== ===============
</Table>
21
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INTRINSIC VALUE FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Intrinsic Value Fund (the "Fund") (a series of GMO Trust) at February 29,
2004, and the results of its operations, the changes in its net assets and
the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
22
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distribution to shareholders included:
For taxable, non-corporate shareholders, 99.58% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
23
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
24
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
25
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ---------------------- ------------------ ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since Otterloo & Co. LLC (June
40 Rowes Wharf March 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
26
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Growth Fund returned +36.9% for the fiscal year
ended February 29, 2004, as compared to +37.2% for the Russell 1000 Growth
Index. Consistent with the Fund's investment objectives and policies, the Fund
was invested substantially in U.S. equity securities throughout the period.
Sector selection hindered portfolio performance for the period. Overweight
positions in both health care and energy proved costly, as did an underweight
position in producer durables. The portfolio benefited from an overweight
position in utilities.
Stock selection was positive for the year, as the portfolio benefited from
strong selection in both consumer discretionary and consumer staples securities.
The portfolio's overweight position in American Eagle Outfitters, a consumer
discretionary stock, contributed to relative performance. Selection within
financial services was ineffective for the period.
For the year, the estimate revision momentum stock selection strategy added
value, while both the price to intrinsic value and price momentum strategies
underperformed.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
GROWTH FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO GROWTH FUND RUSSELL 1000 GROWTH INDEX
2/28/1994 5,000,000 5,000,000
3/31/1994 4,758,455 4,758,255
6/30/1994 4,807,045 4,708,995
9/30/1994 5,196,345 5,071,450
12/31/1994 5,219,240 5,108,315
3/31/1995 5,717,495 5,594,745
6/30/1995 6,236,065 6,144,445
9/30/1995 6,924,055 6,702,100
12/31/1995 7,298,950 7,007,355
3/31/1996 7,609,830 7,383,655
6/30/1996 8,152,015 7,853,365
9/30/1996 8,379,915 8,136,320
12/31/1996 8,787,555 8,627,630
3/31/1997 8,841,355 8,673,985
6/30/1997 10,341,270 10,314,405
9/30/1997 11,726,065 11,089,650
12/31/1997 11,367,070 11,258,110
3/31/1998 13,073,575 12,963,920
6/30/1998 13,557,180 13,552,495
9/30/1998 12,244,645 12,321,315
12/31/1998 15,606,825 15,615,750
3/31/1999 16,509,390 16,608,345
6/30/1999 17,623,935 17,247,530
9/30/1999 17,126,335 16,615,705
12/31/1999 21,699,535 20,793,620
3/31/2000 24,120,745 22,275,365
6/30/2000 23,769,010 21,673,980
9/30/2000 23,678,580 20,508,310
12/31/2000 19,050,010 16,130,775
3/31/2001 14,961,650 12,759,375
6/30/2001 16,358,755 13,833,040
9/30/2001 13,508,450 11,148,385
12/31/2001 15,126,630 12,836,370
3/31/2002 14,928,015 12,504,255
6/30/2002 12,848,705 10,169,330
9/30/2002 10,860,250 8,639,250
12/31/2002 11,710,305 9,257,155
3/31/2003 11,526,455 9,158,335
6/30/2003 13,258,505 10,468,595
9/30/2003 13,586,735 10,878,195
12/31/2003 15,057,575 12,010,975
2/29/2004 15,641,140 12,334,150
</Table>
Average Annual Returns
Inception 12/30/1988
<Table>
<Caption>
1YR 5YR 10YR(ITD)
36.93 0.09 12.08
</Table>
GROWTH FUND-CLASS M
As Of: 2/29/2004
Average Annual Returns
Inception 9/11/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
36.58 N/A 18.28
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Performance for Class M may vary due to different
fees. Past performance is not indicative of future performance. Information is
unaudited. Current performance of the Fund may be lower or higher than the
performance quoted. Performance data current to the most recent month end may be
obtained by visiting www.gmo.com.
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
COMMON STOCKS -- 98.2%
AUTO & TRANSPORTATION -- 2.0%
100,600 AMR Corp. * 1,529,120
12,300 ArvinMeritor, Inc. 277,488
135,900 Ford Motor Co. 1,868,625
26,900 General Motors Corp. 1,294,428
95,100 Harley-Davidson, Inc. 5,051,712
22,700 Navistar International Corp. * 1,057,820
34,350 Paccar, Inc. 1,903,333
---------------
12,982,526
---------------
CONSUMER DISCRETIONARY -- 18.6%
52,400 Abercrombie & Fitch Co.-Class A * 1,652,172
32,800 Advance Auto Parts * 1,293,960
76,500 Amazon.com, Inc. * 3,300,975
18,900 American Eagle Outfitters * 460,971
18,400 Apollo Group, Inc.-Class A * 1,401,160
56,200 Applebee's International, Inc. 2,299,142
25,000 Avon Products, Inc. 1,765,000
65,400 Bed Bath & Beyond, Inc. * 2,673,552
124,600 Best Buy Co., Inc. 6,634,950
51,300 BJ's Wholesale Club, Inc. * 1,218,375
5,100 Blyth, Inc. 173,145
31,100 Career Education Corp. * 1,554,689
17,400 CBRL Group, Inc. 660,852
42,100 CDW Corp. 2,912,478
277,500 Cendant Corp. 6,299,250
36,500 Chico's FAS, Inc. * 1,560,375
36,700 Claire's Stores, Inc. 742,074
49,300 Coach, Inc. * 1,953,759
56,200 Convergys Corp. * 913,812
7,800 Dollar General Corp. 170,742
71,800 Dollar Tree Stores, Inc. * 2,218,620
59,600 Federated Department Stores 3,121,252
52,600 Gap (The), Inc. 1,094,080
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
40,700 Gillette Co. (The) 1,566,543
15,100 Harman International Industries, Inc. 1,177,649
682,000 Home Depot, Inc. 24,763,420
76,600 InterActiveCorp * 2,494,862
18,300 Kimberly Clark Corp. 1,183,644
83,800 Lowe's Cos., Inc. 4,692,800
37,100 May Department Stores Co. (The) 1,306,662
119,900 McDonald's Corp. 3,393,170
28,800 Monster Worldwide, Inc. * 633,600
10,700 Nike, Inc.-Class B 783,775
31,900 Nordstrom, Inc. 1,248,566
33,600 Outback Steakhouse, Inc. 1,625,904
41,950 Pacific Sunwear of California, Inc. * 1,005,542
39,400 Pier 1 Imports, Inc. 922,354
36,500 Rent-A-Center, Inc. * 1,186,615
2,200 Rollins, Inc. 51,106
86,700 Ross Stores, Inc. 2,778,735
600 Russ Berrie & Co., Inc. 21,600
45,300 Sears Roebuck & Co. 2,129,553
24,400 Starbucks Corp. * 912,560
6,700 Starwood Hotels & Resorts Worldwide, Inc. 261,367
10,900 Tech Data Corp. * 441,123
336,300 Time Warner, Inc. * 5,801,175
17,400 TJX Cos., Inc. 409,770
109,300 VeriSign, Inc. * 1,902,913
25,900 Wal-Mart Stores, Inc. 1,542,604
80,500 XM Satellite Radio Holdings, Inc.-Class A * 1,970,640
132,300 Yahoo!, Inc. * 5,874,120
---------------
118,157,757
---------------
CONSUMER STAPLES -- 4.0%
315,984 Altria Group, Inc. 18,184,879
38,200 Coca-Cola Co. (The) 1,908,472
1,100 CVS Corp. 41,250
32,700 Procter & Gamble Co. 3,352,077
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
CONSUMER STAPLES -- CONTINUED
84,726 Safeway, Inc. * 1,937,684
1,100 Sara Lee Corp. 24,002
600 Weis Markets, Inc. 19,476
---------------
25,467,840
---------------
FINANCIAL SERVICES -- 15.2%
31,600 Aflac, Inc. 1,283,276
24,400 Allstate Corp. (The) 1,113,372
140,500 AmeriCredit Corp. * 2,672,310
54,200 Bank of America Corp. 4,440,064
76,500 Capital One Financial Corp. 5,410,080
137,400 Citigroup, Inc. 6,905,724
21,033 Countrywide Financial Corp. 1,927,254
148,000 E*Trade Financial Corp. * 2,117,880
247,100 Fannie Mae 18,507,790
15,300 First American Corp. 467,415
60,100 First Data Corp. 2,462,898
35,300 Franklin Resources, Inc. 1,994,450
139,300 Freddie Mac 8,625,456
8,800 Golden West Financial Corp. 1,015,696
21,800 Goldman Sachs Group, Inc. 2,307,966
29,500 Hartford Financial Services Group, Inc. 1,932,250
200,600 JP Morgan Chase & Co. 8,228,612
10,900 Legg Mason, Inc. 1,028,306
12,500 Lehman Brothers Holdings, Inc. 1,083,875
290,400 MBNA Corp. 7,936,632
56,200 Merrill Lynch & Co., Inc. 3,440,002
15,300 Moody's Corp. 1,022,958
13,600 Progressive Corp. (The) 1,124,176
213,800 Providian Financial Corp. * 2,764,434
29,000 SEI Investments Co. 1,035,590
23,100 State Street Corp. 1,241,163
16,800 T. Rowe Price Group, Inc. 883,512
76,800 Wachovia Corp. 3,684,096
---------------
96,657,237
---------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
HEALTH CARE -- 20.1%
15,900 Aetna, Inc. 1,284,561
42,200 AmerisourceBergen Corp. 2,448,866
139,200 Amgen, Inc. * 8,843,376
20,000 Anthem, Inc. * 1,719,000
78,300 Baxter International, Inc. 2,280,096
10,400 Biomet, Inc. 405,392
19,000 Boston Scientific Corp. * 776,150
91,500 Cardinal Health, Inc. 5,968,545
24,700 Coventry Health Care, Inc. * 1,076,179
118,700 Genentech, Inc. * 12,806,543
116,600 Guidant Corp. 7,945,124
93,400 Health Management Associates, Inc.-Class A 2,081,886
47,400 Health Net, Inc. * 1,308,240
24,300 Icos Corp. * 930,204
63,100 ImClone Systems, Inc. * 2,648,938
25,500 Inamed Corp. * 1,221,450
19,800 Invitrogen Corp. * 1,459,260
146,664 Johnson & Johnson 7,906,656
61,100 Lincare Holdings, Inc. * 1,975,974
20,800 Martek Biosciences Corp. * 1,236,768
38,400 Medco Health Solutions, Inc. * 1,254,144
266,800 Merck & Co., Inc. 12,827,744
158,100 Millennium Pharmaceuticals, Inc. * 2,815,761
22,200 Patterson Dental Co. * 1,504,494
807,376 Pfizer, Inc. 29,590,330
200,300 Schering-Plough Corp. 3,597,388
40,400 Sepracor, Inc. * 1,148,168
31,600 Stryker Corp. 2,803,868
107,700 Tenet Healthcare Corp. * 1,294,554
53,550 UnitedHealth Group, Inc. 3,320,100
13,300 WellPoint Health Networks * 1,446,641
---------------
127,926,400
---------------
INTEGRATED OILS -- 0.9%
18,600 ChevronTexaco Corp. 1,643,310
92,900 Exxon Mobil Corp. 3,917,593
---------------
5,560,903
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 1.1%
61,000 Alcoa, Inc. 2,285,670
13,000 American Standard Cos., Inc. * 1,416,480
46,700 Freeport-McMoran Copper & Gold, Inc.-Class B 1,991,755
12,000 Georgia-Pacific Corp. 384,600
23,600 Monsanto Co. 779,744
---------------
6,858,249
---------------
OTHER -- 1.7%
27,900 3M Co. 2,176,758
17,500 Fortune Brands, Inc. 1,250,900
173,800 General Electric Co. 5,651,976
47,000 Honeywell International, Inc. 1,647,350
---------------
10,726,984
---------------
OTHER ENERGY -- 0.3%
8,100 Enron Corp. *(a) 575
15,600 Pogo Producing Co. 707,772
132,700 Williams Cos., Inc. 1,256,669
---------------
1,965,016
---------------
PRODUCER DURABLES -- 5.5%
134,600 Agilent Technologies, Inc. * 4,601,974
155,900 American Tower Corp.-Class A * 1,722,695
258,000 Applied Materials, Inc. * 5,479,920
56,700 Boeing Co. (The) 2,459,079
28,300 Caterpillar, Inc. 2,143,725
129,700 Crown Castle International Corp. * 1,562,885
117,750 D.R. Horton, Inc. 3,743,273
13,300 Danaher Corp. 1,192,079
600 HON Industries, Inc. 22,662
11,800 Illinois Tool Works, Inc. 938,336
41,600 KLA-Tencor Corp. * 2,196,480
54,800 Lam Research Corp. * 1,401,236
34,400 Lennar Corp.-Class A 1,701,080
15,300 Lexmark International, Inc. * 1,259,037
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
17,700 Polycom, Inc. * 390,639
15,200 Ryland Group, Inc. 1,302,944
59,100 Teradyne, Inc. * 1,456,815
800 United Industrial Corp. 13,944
45,200 Waters Corp. * 1,669,688
---------------
35,258,491
---------------
TECHNOLOGY -- 26.5%
38,300 Adaptec, Inc. * 349,679
39,100 Adobe Systems, Inc. 1,456,084
41,100 Adtran, Inc. 1,338,216
95,700 Altera Corp. * 2,113,056
57,900 Amkor Technology, Inc. * 895,713
62,700 Analog Devices, Inc. 3,128,730
147,300 Avaya, Inc. * 2,526,195
59,800 Broadcom Corp.-Class A * 2,426,684
641,800 Cisco Systems, Inc. * 14,825,580
11,000 Cognizant Technology Solutions Corp. * 521,840
121,600 Computer Associates International, Inc. 3,229,696
206,100 Compuware Corp. * 1,615,824
53,000 Comverse Technology, Inc. * 1,045,160
459,200 Corning, Inc. * 5,762,960
78,200 Cypress Semiconductor Corp. * 1,687,556
170,300 Dell, Inc. * 5,560,295
42,800 Electronic Data Systems Corp. 819,620
409,400 EMC Corp., Massachusetts * 5,862,608
1,400 General Dynamics Corp. 128,968
1,118,708 Intel Corp. 32,699,835
85,800 International Business Machines Corp. 8,279,700
19,100 International Rectifier Corp. * 881,656
35,300 Intersil Corp.-Class A 832,727
204,400 Juniper Networks, Inc. * 5,287,828
39,900 Linear Technology Corp. 1,595,601
23,900 Maxtor Corp. * 244,975
815,300 Microsoft Corp. 21,605,450
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
79,300 Motorola, Inc. 1,463,085
68,700 National Semiconductor Corp. * 2,704,032
1,200 NCR Corp. * 53,712
68,800 Network Appliance, Inc. * 1,490,208
605,500 Oracle Corp. * 7,798,840
31,200 PerkinElmer, Inc. 650,208
106,200 PMC-Sierra, Inc. * 2,113,380
2,200 ProcureNet, Inc. *(b) --
64,200 Sandisk Corp. * 1,628,112
165,800 Sanmina-SCI Corp. * 2,104,002
62,300 Scientific-Atlanta, Inc. 2,062,130
92,000 Siebel Systems, Inc. * 1,201,520
101,100 Sonus Networks, Inc. * 599,523
15,500 Symantec Corp. * 637,670
145,400 Tellabs, Inc. * 1,410,380
270,500 Texas Instruments, Inc. 8,290,825
25,800 Utstarcom, Inc. * 854,780
129,800 Veritas Software Corp. * 3,948,516
154,200 Vitesse Semiconductor Corp. * 1,232,058
41,900 Xilinx, Inc. * 1,761,476
---------------
168,726,693
---------------
UTILITIES -- 2.3%
215,100 AES Corp. (The) * 1,948,806
248,700 AT&T Wireless Services, Inc. * 3,377,346
65,100 Citizens Communications Co. * 858,018
30,100 Edison International 695,009
149,900 Nextel Communications, Inc.-Class A * 3,970,851
74,600 PG&E Corp. * 2,101,482
11,700 UGI Corp. 387,270
87,300 Xcel Energy, Inc. 1,525,131
---------------
14,863,913
---------------
TOTAL COMMON STOCKS (COST $553,480,225) 625,152,009
---------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
MUTUAL FUNDS -- 1.4%
3,117,829 Dreyfus Money Market Fund (c) 3,117,829
5,959,228 Merrimac Money Market Fund (c) 5,959,228
---------------
TOTAL MUTUAL FUNDS (COST $9,077,057) 9,077,057
---------------
SHORT-TERM INVESTMENTS -- 7.7%
CASH EQUIVALENTS -- 2.4%
15,349,528 Harris Trust & Savings Bank Eurodollar
Time Deposit, 1.01%, due 3/30/04(c) 15,349,528
---------------
U.S. GOVERNMENT -- 0.2%
1,000,000 U.S. Treasury Bill, 1.01%, due 04/22/04 (d) 998,555
---------------
REPURCHASE AGREEMENTS -- 5.1%
32,353,896 Citigroup Global Markets Repurchase
Agreement, dated 2/27/04, due 3/01/04, with
a maturity value of $32,355,649, and an
effective yield of 0.65%, collateralized by
a U.S. Treasury Bill with a rate of 0.915%,
maturity date of 05/20/04, and a market
value, including accrued interest of
$33,004,211. 32,353,896
396,337 Morgan Stanley Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value
of $396,360, and an effective yield of
0.70%, collateralized by a U.S. Treasury
Bond with a rate of 8.875%, maturity date of
8/15/17, and a market value, including
accrued interest of $404,303. 396,337
---------------
32,750,233
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $49,098,316) 49,098,316
---------------
TOTAL INVESTMENTS -- 107.3%
(Cost $611,655,598) 683,327,382
Other Assets and Liabilities (net) -- (7.3%) (46,262,435)
---------------
TOTAL NET ASSETS -- 100.0% $ 637,064,947
===============
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) Bankrupt issuer.
(b) Security valued at fair value using methods determined
in good faith by or at the direction of the Trustees
(Note 2).
(c) Represents investment of security lending
collateral (Note 2).
(d) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts (Note 8).
See accompanying notes to the financial statements.
9
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $23,387,170 (cost
$611,655,598) (Note 2) $ 683,327,382
Cash 3,598
Receivable for investments sold 19,171,259
Receivable for Fund shares sold 262,146
Dividends and interest receivable 481,949
Receivable for variation margin on open futures contracts
(Notes 2 and 8) 88,147
Receivable for expenses reimbursed by Manager (Note 3) 21,644
--------------
Total assets 703,356,125
--------------
LIABILITIES:
Payable for investments purchased 31,946,052
Payable upon return of securities loaned (Note 2) 24,426,585
Payable for Fund shares repurchased 9,529,244
Payable to affiliate for (Note 3):
Management fee 164,025
Shareholder service fee 52,265
12b-1 fee - Class M 56,362
Administration fee - Class M 29,723
Trustees fee 978
Accrued expenses 85,944
--------------
Total liabilities 66,291,178
--------------
NET ASSETS $ 637,064,947
==============
NET ASSETS CONSIST OF:
Paid-in capital $ 586,354,248
Accumulated net realized loss (20,938,961)
Net unrealized appreciation 71,649,660
--------------
$ 637,064,947
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 437,199,517
==============
Class M shares $ 199,865,430
==============
SHARES OUTSTANDING:
Class III 22,975,931
==============
Class M 10,536,437
==============
NET ASSET VALUE PER SHARE:
Class III $ 19.03
==============
Class M
$ 18.97
==============
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $1,147) $ 4,628,272
Interest (including securities lending income of $32,761) 83,952
--------------
Total income 4,712,224
--------------
EXPENSES:
Management fee (Note 3) 1,423,641
Shareholder service fee (Note 3) - Class III 523,131
12b-1 fee (Note 3) - Class M 206,631
Administration fee (Note 3) - Class M 165,305
Custodian and transfer agent fees 103,616
Audit and tax fees 44,921
Legal fees 21,386
Trustees fees and related expenses (Note 3) 9,344
Registration fees 51,817
Miscellaneous 11,747
--------------
Total expenses 2,561,539
Fees and expenses reimbursed by Manager (Note 3) (233,487)
--------------
Net expenses 2,328,052
--------------
Net investment income 2,384,172
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 32,560,485
Closed futures contracts 3,229,562
--------------
Net realized gain 35,790,047
--------------
Change in net unrealized appreciation (depreciation) on:
Investments 95,234,712
Open futures contracts (22,290)
--------------
Net unrealized gain 95,212,422
--------------
Net realized and unrealized gain 131,002,469
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 133,386,641
==============
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED
YEAR ENDED FEBRUARY 28,
FEBRUARY 29, 2004 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,384,172 $ 994,016
Net realized gain (loss) 35,790,047 (13,874,093)
Change in net unrealized appreciation (depreciation) 95,212,422 (17,285,444)
----------------- -----------------
Net increase (decrease) in net assets from
operations 133,386,641 (30,165,521)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (2,827,789) (676,350)
Class M (434,159) (53,573)
----------------- -----------------
Total distributions from net investment
income (3,261,948) (729,923)
----------------- -----------------
Net realized gains
Class III (8,019,206) --
Class M (1,698,158) --
----------------- -----------------
Total distributions from net realized
gains (9,717,364) --
----------------- -----------------
(12,979,312) (729,923)
----------------- -----------------
Net share transactions (Note 7):
Class III 37,594,845 216,475,101
Class M 156,705,819 20,471,432
----------------- -----------------
Increase in net assets resulting from net
share transactions 194,300,664 236,946,533
----------------- -----------------
Total increase in net assets 314,707,993 206,051,089
NET ASSETS:
Beginning of period 322,356,954 116,305,865
----------------- -----------------
End of period (including accumulated
undistributed net investment income of $0
and $360,430, respectively) $ 637,064,947 $ 322,356,954
================= =================
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------
2004 2003 2002 2001* 2000*
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.29 $ 18.23 $ 21.19 $ 54.45 $ 45.54
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.10 0.10 0.10 0.14 0.22
Net realized and unrealized gain (loss) 5.14 (3.94) (2.97) (10.78) 18.84
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.24 (3.84) (2.87) (10.64) 19.06
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.14) (0.10) (0.09) (0.15) (0.26)
From net realized gains (0.36) -- -- (22.47) (9.89)
---------- ---------- ---------- ---------- ----------
Total distributions (0.50) (0.10) (0.09) (22.62) (10.15)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 19.03 $ 14.29 $ 18.23 $ 21.19 $ 54.45
========== ========== ========== ========== ==========
TOTAL RETURN (a) 36.93% (21.13)% (13.57)% (25.76)% 45.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 437,200 $ 302,051 $ 116,306 $ 114,988 $ 204,662
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 0.62% 0.72% 0.54% 0.27% 0.50%
Portfolio turnover rate 97% 72% 101% 111% 48%
Fees and expenses reimbursed by
the Manager to average daily net
assets: 0.05% 0.09% 0.07% 0.07% 0.06%
</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.
See accompanying notes to the financial statements.
13
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------
2004 2003 (b)
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.25 $ 15.27
------------ ------------
Income from investment operations:
Net investment income 0.09 0.04
Net realized and unrealized gain (loss) 5.09 (1.01)
------------ ------------
Total from investment operations 5.18 (0.97)
------------ ------------
Less distributions to shareholders:
From net investment income (0.10) (0.05)
From net realized gains (0.36) --
------------ ------------
Total distributions (0.46) (0.05)
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 18.97 $ 14.25
============ ============
TOTAL RETURN (a) 36.58% (6.31)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 199,865 $ 20,306
Net expenses to average daily net assets 0.78% 0.78%*
Net investment income to average daily net assets 0.29% 0.51%*
Portfolio turnover rate 97% 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 periods shown.
(b) Period from September 11, 2002 (commencement of operations) through
February 28, 2003.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements.
14
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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 year ended February 29, 2004, 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 3). The principal economic difference
between the classes of shares is the level of fees borne by the classes.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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
15
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 8 for
all open futures contracts as of February 29, 2004.
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. 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 on swap contracts 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 February 29, 2004, the Fund held no open swap agreements.
16
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. See Schedule of
Investments for open repurchase agreements as of February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$23,387,170 collateralized by cash in the amount of $24,426,585 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $12,979,312
and $729,923, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $19,875,575 and $3,775,810 of undistributed ordinary
income and undistributed long-term capital gains, respectively.
17
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $29,677,991, $10,843,791, and $782,016, expiring in 2010, 2011 and 2012,
respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET UNDISTRIBUTED NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ----------------- ---------------
$ 517,346 $ (517,347) $ 1
</Table>
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.
3. 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.
18
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 year ended February 29, 2004 was $5,902. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$588,257,879 and $407,618,188, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 614,964,270 $ 74,287,516 $ (5,924,404) $ 68,363,112
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
19
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 52.9% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund. At February 29, 2004, .01% of the Fund was
held by one related party.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------- --------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
Shares sold 4,941,266 $ 89,848,240 15,300,314 $ 224,944,617
Shares issued to shareholders
in reinvestment of distributions 577,098 10,293,178 35,730 556,653
Shares repurchased (3,682,608) (62,546,573) (574,513) (9,026,169)
---------- ------------- ---------- -------------
Net increase 1,835,756 $ 37,594,845 14,761,531 $ 216,475,101
========== ============= ========== =============
</Table>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------- --------------------------
CLASS M: SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
Shares sold 9,595,449 $ 164,701,580 1,537,897 $ 22,128,809
Shares issued to shareholders
in reinvestment of distributions 119,910 2,132,317 3,862 53,573
Shares repurchased (603,850) (10,128,078) (116,831) (1,710,950)
--------- ------------- ---------- -------------
Net increase 9,111,509 $ 156,705,819 1,424,928 $ 20,471,432
========= ============= ========== =============
</Table>
20
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF CONTRACT NET UNREALIZED
CONTRACTS TYPE DATE VALUE DEPRECIATION
------------ -------------------------- ------------ ------------ --------------
Buys
10 S&P 500 March 2004 $ 2,861,500 $ (22,124)
=========
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
21
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Growth Fund (the "Fund") (a
series of GMO Trust) at February 29, 2004, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
22
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$10,279,276 from short-term capital gains.
For taxable, non-corporate shareholders, 100% of the Fund's income and
short-term capital gains represents qualified dividend income subject to the
15% rate category.
For corporate shareholders, 13.29% of the Fund's income and short-term
capital gains qualified for the dividends-received deduction.
23
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA and Senior
02110 Associate Dean,
DOB: 10/03/1941 Harvard
University.
Donald W. Trustee Since Advisory Counsel,
Glazer, Esq. December 2000 Goodwin Procter 41 None
c/o GMO Trust LLP; Secretary
40 Rowes Wharf and Consultant,
Boston, MA Provant, Inc.
02110 (provider of
DOB: 07/26/1944 performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
24
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA October 2002;
02110 President
DOB: 10/06/1938 Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
25
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- --------------------- ------------------- ------------------- --------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer
Boston, MA 02110 Vice President from (2000 - present) and
DOB: 01/20/1956 August 1998 - October Member, Grantham, Mayo,
2002. Van Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo,
c/o GMO Trust Officer and Officer since Van Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Vice President Vice President since General Counsel, Anti-Money
Esq. and Clerk February 1997; Clerk Laundering Reporting
c/o GMO Trust since March 2001 - Officer (July 2002 -
40 Rowes Wharf present and May 1999 February 2003) and Member,
Boston, MA 02110 - August 1999. Grantham, Mayo, Van
DOB: 07/20/1965 Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since March Otterloo & Co. LLC (June
40 Rowes Wharf 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office, or
until he or she resigns or is removed from office.
26
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Small Cap Value Fund returned +61.1% for the fiscal year ended February
29, 2004, as compared to +61.4% for the Russell 2500 Value Index. Consistent
with the Fund's investment objectives and policies, the Fund was invested
substantially in U.S. equity securities throughout the period.
Sector selection added to relative performance for the period. Overweight
positions in producer durables and consumer discretionary stocks, and an
underweight position in utilities all benefited the portfolio. Detractors
included underweight positions in both health care and technology.
Stock selection within sectors had mixed results for the year. Selection within
technology was ineffective, as was the case with consumer discretionary stocks.
Meanwhile, selections in financial services and producer durables were strong
performers for the period.
For the year, all three of the portfolio's stock selection strategies - price to
intrinsic value, price to normalized earnings, and price momentum - added value.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SMALL CAP VALUE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO SMALL CAP VALUE FUND RUSSELL 2500 VALUE INDEX RUSSELL 2500 VALUE + INDEX*
2/28/1994 4,975,000 5,000,000 5,000,000
3/31/1994 4,769,880 4,756,495 4,799,400
6/30/1994 4,616,540 4,588,485 4,753,620
9/30/1994 5,025,915 4,921,815 4,982,565
12/31/1994 5,003,310 4,817,120 4,812,545
3/31/1995 5,308,855 5,173,010 5,113,985
6/30/1995 5,677,240 5,634,240 5,568,450
9/30/1995 6,225,890 6,175,560 6,013,520
12/31/1995 6,367,970 6,344,310 6,244,730
3/31/1996 6,748,715 6,715,665 6,527,030
6/30/1996 6,978,125 6,995,270 6,727,330
9/30/1996 7,161,495 7,152,860 6,935,955
12/31/1996 7,651,635 7,550,900 7,631,405
3/31/1997 7,592,165 7,611,690 7,693,290
6/30/1997 8,766,285 8,690,270 8,783,695
9/30/1997 10,042,990 9,771,570 9,877,185
12/31/1997 9,926,025 10,049,490 10,157,000
3/31/1998 11,032,135 11,008,480 11,126,250
6/30/1998 10,659,210 10,613,380 10,727,885
9/30/1998 8,707,445 8,864,735 8,960,990
12/31/1998 9,929,195 9,855,535 9,961,690
3/31/1999 8,964,070 9,066,130 9,164,550
6/30/1999 10,599,245 10,517,880 10,632,710
9/30/1999 9,648,535 9,608,310 9,714,000
12/31/1999 10,222,180 10,000,610 10,110,400
3/31/2000 10,504,115 10,468,025 10,582,100
6/30/2000 10,435,865 10,405,295 10,519,170
9/30/2000 11,276,735 11,121,565 11,243,470
12/31/2000 12,165,575 12,079,650 12,212,055
3/31/2001 11,962,960 11,840,675 11,971,160
6/30/2001 13,075,480 13,027,605 13,171,165
9/30/2001 11,541,415 11,400,880 11,526,510
12/31/2001 13,371,090 13,255,440 13,401,505
3/31/2002 14,680,340 14,383,320 14,541,810
6/30/2002 14,074,145 13,881,115 14,034,075
9/30/2002 11,300,000 11,330,435 11,455,290
12/31/2002 11,835,775 11,946,475 12,078,120
3/31/2003 11,376,135 11,377,070 11,502,445
6/30/2003 14,017,445 13,798,370 13,950,425
9/30/2003 14,792,475 14,871,020 15,034,900
12/31/2003 17,192,400 17,314,155 17,504,960
2/29/2004 18,073,630 18,237,890 18,438,875
</Table>
Average Annual Returns
Inception 12/31/1991
<Table>
<Caption>
1YR 5YR 10YR(ITD)
59.53 14.78 13.71
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 50 bp on the purchase and 50 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
* The Russell 2500 Value + Index is comprised of the Russell 2500 Index from
12/31/91 to 12/31/96 and the Russell 2500 Value Index from 12/31/96 to the
present.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
COMMON STOCKS -- 98.1%
AUTO & TRANSPORTATION -- 5.8%
17,900 American Axle & Manufacturing Holdings, Inc. * 680,379
36,200 AMR Corp. * 550,240
7,025 Arctic Cat, Inc. 177,451
44,750 ArvinMeritor, Inc. 1,009,560
37,000 Atlantic Coast Airlines Holdings, Inc. * 269,730
5,500 Bandag, Inc. 264,550
6,800 BorgWarner, Inc. 613,360
23,000 Continental Airlines, Inc.-Class B * 336,950
25,500 Cooper Tire & Rubber Co. 508,725
72,300 Dana Corp. 1,546,497
16,500 Dura Automotive Systems, Inc. * 211,200
45,900 Goodyear Tire & Rubber Co. (The) * 386,478
29,900 Lear Corp. 1,842,737
5,600 Navistar International Corp. * 260,960
26,500 Northwest Airlines Corp.-Class A * 287,260
5,950 Old Dominion Freight Line, Inc. * 198,789
8,800 Skywest, Inc. 170,280
6,200 Superior Industries International, Inc. 212,040
6,800 USF Corp. 240,380
23,500 Visteon Corp. 237,350
6,400 Winnebago Industries, Inc. 427,456
---------------
10,432,372
---------------
CONSUMER DISCRETIONARY -- 20.3%
37,700 Abercrombie & Fitch Co.-Class A * 1,188,681
28,200 Allied Waste Industries, Inc. * 356,166
5,800 Amerco, Inc. * 132,240
31,600 American Eagle Outfitters * 770,724
4,700 American Woodmark Corp. 298,920
4,200 America's Car Mart, Inc. * 110,376
17,350 Applebee's International, Inc. 709,788
1,900 Argosy Gaming Co. * 58,786
20,300 Bally Total Fitness Holding Corp. * 124,439
11,450 Banta Corp. 507,922
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
10,900 Bebe Stores, Inc. * 308,470
32,500 BJ's Wholesale Club, Inc. * 771,875
14,200 Blockbuster, Inc.-Class A 243,956
16,200 Blyth, Inc. 549,990
12,100 Bombay Co. (The), Inc. * 83,248
5,500 Brown Shoe Co., Inc. 216,645
29,500 Callaway Golf Co. 550,765
22,900 Catalina Marketing Corp. * 400,063
8,800 CEC Entertainment, Inc. * 480,216
3,200 Central European Distribution Corp. * 110,720
1,400 Central Garden & Pet Co. * 48,356
14,700 Charlotte Russe Holding, Inc. * 223,146
19,200 Chico's FAS, Inc. * 820,800
5,800 Children's Place * 177,712
44,900 Circuit City Stores, Inc. 501,982
8,200 Consolidated Graphics, Inc. * 305,532
49,700 Convergys Corp. * 808,122
9,500 Cornell Cos., Inc. * 116,660
27,215 Corrections Corp. of America * 913,608
7,400 CPI Corp. 162,874
8,500 Dave & Buster's, Inc. * 123,080
20,500 Earthlink, Inc. * 187,165
8,500 Ethan Allen Interiors, Inc. 369,495
9,300 Finish Line-Class A * 321,873
23,600 Foot Locker, Inc. 618,320
16,050 Fossil, Inc. * 557,898
22,100 Furniture Brands International, Inc. 725,985
32,100 Gemstar-TV Guide International, Inc. * 232,404
12,900 Genesco, Inc. * 259,548
8,100 Group 1 Automotive, Inc. * 294,840
13,000 Handleman Co. 290,940
24,700 Hasbro, Inc. 540,189
6,900 IHOP Corp. 260,406
64,100 Ikon Office Solutions, Inc. 753,175
19,700 Insight Enterprises, Inc. * 419,019
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
14,800 Isle of Capri Casinos, Inc. * 340,104
8,200 ITT Educational Services, Inc. * 311,354
9,800 J. Jill Group (The), Inc. * 151,312
22,600 Jack in the Box, Inc. * 562,062
8,200 Lithia Motors, Inc.-Class A 226,156
4,100 Lone Star Steakhouse & Saloon, Inc. 111,397
8,900 Maximus, Inc. * 310,610
15,200 Maytag Corp. 429,096
7,300 Men's Wearhouse, Inc. * 190,749
19,200 Nautilus Group, Inc. 313,728
8,800 Neiman-Marcus Group, Inc.-Class A 497,024
6,600 Nordstrom, Inc. 258,324
17,000 Nu Skin Enterprises, Inc.-Class A 325,550
30,500 Oakley, Inc. 460,245
11,200 O'Charley's, Inc. * 204,400
17,400 Outback Steakhouse, Inc. 841,986
12,700 Papa John's International, Inc. * 467,614
38,900 Payless Shoesource, Inc. * 519,315
5,200 PDI, Inc. * 130,000
21,100 Pier 1 Imports, Inc. 493,951
4,700 Polo Ralph Lauren Corp. 157,779
11,200 Regis Corp. 484,064
27,500 Rent-A-Center, Inc. * 894,025
31,400 Ross Stores, Inc. 1,006,370
22,300 Ryan's Family Steak House, Inc. * 388,020
19,200 Sabre Holdings Corp. 435,648
14,600 Salton, Inc. * 148,628
34,400 Service Corp. International * 232,888
16,200 Shopko Stores, Inc. * 247,374
19,900 Skechers U.S.A., Inc.-Class A * 250,939
4,600 Snap-On, Inc. 147,200
17,900 Sonic Automotive, Inc. 440,340
8,700 Sonic Corp. * 295,017
11,700 Stanley Works (The) 453,141
11,300 Steven Madden, Ltd. * 216,169
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
24,500 Tech Data Corp. * 991,515
6,000 THQ, Inc. * 113,400
16,700 Too, Inc. * 320,306
30,600 Toys R Us, Inc. * 480,420
15,600 Trans World Entertainment Corp. * 140,400
6,200 Ultimate Electronics, Inc. * 45,322
12,400 United Auto Group, Inc. 351,912
17,400 United Stationers, Inc. * 690,954
19,200 Valueclick, Inc. * 210,240
9,500 Vans, Inc. * 115,520
21,700 Ventiv Health, Inc. * 245,210
42,200 VeriSign, Inc. * 734,702
8,500 World Fuel Services Corp. 300,475
27,500 XM Satellite Radio Holdings, Inc.-Class A * 673,200
---------------
36,363,274
---------------
CONSUMER STAPLES -- 2.9%
20,600 7-Eleven, Inc. * 335,780
11,500 Duane Reade, Inc. * 196,075
10,400 Ingles Markets, Inc.-Class A 115,648
29,800 PepsiAmericas, Inc. 571,564
110,000 Rite Aid Corp. * 613,800
2,250 Sanderson Farms Inc 79,763
560 Seaboard Corp. 187,936
59,400 Supervalu, Inc. 1,681,020
39,100 Tyson Foods, Inc.-Class A 620,908
10,300 Universal Corp. 519,326
34,100 Winn-Dixie Stores, Inc. 208,692
---------------
5,130,512
---------------
FINANCIAL SERVICES -- 27.6%
17,000 Allmerica Financial Corp. * 626,960
29,400 American Financial Group, Inc. 884,352
15,100 American Home Mortgage Investment Corp. REIT 400,150
54,200 AmeriCredit Corp. * 1,030,884
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
21,300 AmerUs Group Co. 830,274
9,900 AMLI Residential Properties Trust REIT 283,635
81,900 Annaly Mortgage Management, Inc. REIT 1,670,760
7,200 Anthracite Capital, Inc. REIT 89,568
59,200 Anworth Mortgage Asset Corp. REIT 819,920
10,000 Associated Banc Corp. 443,900
20,600 Astoria Financial Corp. 831,004
11,175 Baldwin & Lyons, Inc.-Class B 289,768
8,249 Bank Mutual Corp. 90,162
11,000 Bedford Property Investors REIT 338,250
25,800 Capstead Mortgage Corp. REIT 446,082
6,400 Central Pacific Financial Corp. 175,552
9,500 Citizens Banking Corp. 315,495
5,000 Coastal Bancorp, Inc. 206,650
18,900 Colonial BancGroup (The), Inc. 348,327
11,400 Commerce Group, Inc. 530,328
18,900 Commercial Federal Corp. 529,956
9,500 Community First Bankshares, Inc. 269,515
6,500 Corus Bankshares, Inc. 263,965
8,800 Cousins Properties, Inc. REIT 270,160
11,298 Delphi Financial Group, Inc.-Class A 440,396
13,900 Downey Financial Corp. 748,237
43,500 E*Trade Financial Corp. * 622,485
23,810 Equity One, Inc. REIT 445,485
6,400 Erie Indemnity Co.-Class A 302,336
60,835 Fidelity National Financial, Inc. 2,379,257
3,900 Financial Federal Corp. * 134,355
42,100 First American Corp. 1,286,155
2,800 First Citizens BancShares, Inc.-Class A 349,916
7,200 FirstFed Financial Corp. * 312,480
16,200 FirstMerit Corp. 429,624
28,200 Flagstar Bancorp, Inc. 728,970
35,500 Fremont General Corp. 796,975
30,700 Friedman Billings Ramsey Group, Inc.-Class A 817,234
16,500 GATX Corp. 388,080
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
11,300 Glimcher Realty Trust REIT 291,201
24,500 Greater Bay Bancorp 675,220
10,200 Hibernia Corp.-Class A 242,148
33,762 Highwoods Properties, Inc. REIT 870,047
26,400 Host Marriott Corp. REIT * 321,024
121,900 HRPT Properties Trust REIT 1,350,652
50,000 IMPAC Mortgage Holdings, Inc. REIT 1,060,000
11,300 IndyMac Bancorp, Inc. 397,760
8,000 Intercept, Inc. * 95,520
16,100 Interpool, Inc. 230,230
14,200 Irwin Financial Corp. 419,610
3,900 John H. Harland Co. 117,663
9,200 Kansas City Life Insurance Co. 415,656
9,200 Kilroy Realty Corp. REIT 307,280
21,900 Kimco Realty Corp. REIT 1,028,205
23,200 Knight Trading Group, Inc. * 321,552
33,000 La Quinta Corp. * 255,090
12,300 Landamerica Financial Group, Inc. 575,640
12,300 Local Financial Corp. * 270,231
2,300 LTC Properties, Inc. REIT 38,893
31,306 Mack-Cali Realty Corp. REIT 1,332,383
6,400 MAF Bancorp, Inc. 284,480
65,600 Meristar Hospitality Corp. REIT * 410,000
71,900 MFA Mortgage Investments, Inc. REIT 747,760
23,600 Nationwide Financial Services-Class A 897,744
34,200 Nationwide Health Properties, Inc. REIT 719,910
11,450 New Century Financial Corp. 561,050
12,300 Omega Healthcare Investors, Inc. REIT 126,198
35,900 PMI Group (The), Inc. 1,421,640
5,800 Post Properties, Inc. REIT 165,416
5,100 ProAssurance Corp. * 172,278
23,800 Protective Life Corp. 905,352
9,100 Provident Financial Group, Inc. 364,637
127,400 Providian Financial Corp. * 1,647,282
11,500 Redwood Trust, Inc. REIT 698,625
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
20,500 Reinsurance Group of America, Inc. 829,225
6,000 Staten Island Bancorp, Inc. 145,920
10,800 Stewart Information Services Corp. 394,200
4,500 Student Loan Corp. 691,245
8,400 Taubman Centers, Inc. REIT 199,920
37,200 Thornburg Mortgage, Inc. REIT 1,095,540
7,700 Triad Guaranty, Inc. * 423,192
17,900 UICI * 244,156
18,700 United Rentals, Inc. * 327,998
26,500 UnumProvident Corp. 392,730
5,300 Value Line, Inc. 277,402
42,600 Ventas, Inc. REIT 1,126,770
22,016 Washington Federal, Inc. 571,535
5,300 Webster Financial Corp. 266,855
5,200 WFS Financial, Inc. 230,672
7,200 World Acceptance Corp. * 154,944
3,500 WSFS Financial Corp. 169,789
---------------
49,448,072
---------------
HEALTH CARE -- 5.3%
18,600 Abgenix, Inc. * 274,164
4,700 Alpharma, Inc.-Class A 100,862
7,500 American Medical Security Group, Inc. * 176,925
49,700 Beverly Enterprises, Inc. * 397,600
9,200 Chronimed, Inc. * 85,293
7,700 CryoLife, Inc. * 49,280
6,800 Curative Health Services, Inc. * 82,212
2,838 Eli Lilly & Co. 209,822
18,200 First Health Group Corp. * 385,476
47,500 Humana, Inc. * 1,041,200
7,500 Icos Corp. * 287,100
7,800 Invitrogen Corp. * 574,860
19,500 Orthodontic Centers of America, Inc. * 146,055
3,900 Owens & Minor, Inc. 96,603
18,500 Oxford Health Plans, Inc. 887,260
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
33,700 Pacificare Health Systems * 1,203,090
9,600 Patterson Dental Co. * 650,592
15,100 PolyMedica Corp. 383,691
24,800 Praecis Pharmaceuticals, Inc. * 146,816
5,500 RehabCare Group, Inc. * 122,375
11,800 Renal Care Group, Inc. * 550,588
26,200 Res-Care, Inc. * 256,760
9,600 Sierra Health Services, Inc. * 320,928
11,200 Sola International, Inc. * 261,968
7,100 Universal Health Services, Inc.-Class B 382,903
17,500 Valeant Pharmaceuticals International 383,775
---------------
9,458,198
---------------
MATERIALS & PROCESSING -- 7.5%
19,800 Ashland, Inc. 948,618
9,000 Commercial Metals Co. 267,300
11,600 Cytec Industries, Inc. 403,564
7,800 Dycom Industries, Inc. * 202,176
1,100 Eagle Materials, Inc. 64,185
3,609 Eagle Materials, Inc.-Class B * 203,006
8,700 Emcor Group, Inc. * 325,815
10,300 Fluor Corp. 424,669
5,200 Greif, Inc.-Class A 186,160
2,200 Harsco Corp. 99,946
12,000 Jacobs Engineering Group, Inc. * 529,560
26,900 Lafarge North America, Inc. 1,107,742
19,100 LNR Property Corp. 1,006,570
13,400 Louisiana-Pacific Corp. 331,382
10,300 Lubrizol Corp. 321,978
7,000 Mueller Industries, Inc. 225,680
80,700 Owens-IIlinois, Inc. * 1,079,766
25,700 Precision Castparts Corp. 1,160,355
6,800 Quanex Corp. 316,540
14,400 Rock-Tenn Co.-Class A 211,680
15,100 Sealed Air Corp. * 752,735
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- CONTINUED
25,100 Shaw Group (The), Inc. * 302,204
9,500 Steel Technologies, Inc. 163,115
9,000 Stepan Co. 220,500
11,300 United States Steel Corp. 415,275
9,300 Universal Forest Products, Inc. 293,043
16,500 URS Corp. * 504,900
33,100 USG Corp. * 573,292
7,600 WCI Communities, Inc. * 174,344
15,800 York International Corp. 589,814
---------------
13,405,914
---------------
OTHER -- 1.0%
13,300 FMC Corp. * 498,750
22,420 Jacuzzi Brands, Inc. * 201,556
15,500 Kaman Corp.-Class A 218,550
9,800 Lancaster Colony Corp. 415,422
8,600 SPX Corp. * 361,200
16,600 Walter Industries, Inc. 189,074
---------------
1,884,552
---------------
OTHER ENERGY -- 1.6%
132,100 Calpine Corp. * 727,871
30,900 Chesapeake Energy Corp. 396,138
5,800 Clayton Williams Energy, Inc. * 191,400
3,500 Comstock Resources, Inc. * 67,550
400 Dynegy, Inc.-Class A * 1,636
12,200 Sunoco, Inc. 750,300
20,600 Tesoro Petroleum Corp. * 375,950
43,500 Williams Cos., Inc. 411,945
---------------
2,922,790
---------------
PRODUCER DURABLES -- 9.9%
34,900 American Tower Corp.-Class A * 385,645
6,200 Applied Films Corp. * 215,884
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
12,700 Artesyn Technologies, Inc. * 138,430
8,800 Beazer Homes USA, Inc. 940,720
15,900 Cable Design Technologies Corp. * 155,025
23,500 CellStar Corp. * 299,625
19,800 Centex Corp. 2,114,640
21,400 Crown Castle International Corp. * 257,870
5,600 Cummins, Inc. 276,640
3,600 Dionex Corp. * 190,440
5,700 EnPro Industries, Inc. * 111,720
9,200 Esterline Technologies Corp. * 255,760
20,600 Flowserve Corp. * 447,638
28,700 General Cable Corp. * 205,205
8,500 Genlyte Group, Inc. * 478,295
33,200 Goodrich Corp. 979,068
4,700 Hovnanian Enterprises, Inc. * 379,243
24,900 KB Home 1,801,515
7,800 Kimball International, Inc.-Class B 132,054
10,900 M/I Schottenstein Homes, Inc. 490,064
12,590 MDC Holdings, Inc. 886,714
5,300 Meritage Corp. * 392,624
3,400 NACCO Industries, Inc.-Class A 277,440
800 NVR, Inc. * 370,000
13,000 Polycom, Inc. * 286,910
28,256 Pulte Homes, Inc. 1,490,787
11,600 Ryland Group, Inc. 994,352
19,500 Standard-Pacific Corp. 1,020,045
7,900 Standex International Corp. 214,959
31,800 Toll Brothers, Inc. * 1,396,020
6,500 Watts Water Technologies, Inc.-Class A 150,410
5,300 Zomax Inc., MN * 23,214
---------------
17,758,956
---------------
TECHNOLOGY -- 10.1%
18,300 Advanced Micro Devices, Inc. * 274,500
25,000 American Management Systems, Inc. * 382,250
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
30,400 Applied Micro Circuits Corp. * 196,384
11,200 Arrow Electronics, Inc. * 275,520
10,900 Ascential Software Corp. * 245,904
19,200 Aspen Technology, Inc. * 168,384
27,500 Atmel Corp. * 190,300
70,200 Avaya, Inc. * 1,203,930
13,100 Avnet, Inc. * 308,505
10,900 Black Box Corp. 561,459
1,700 Centillium Communications, Inc. * 8,347
57,600 Ciena Corp. * 330,048
27,100 Cirrus Logic, Inc. * 199,456
175,500 Compuware Corp. * 1,375,920
3,450 Comtech Telecommunications * 97,704
27,400 Comverse Technology, Inc. * 540,328
43,700 Corning, Inc. * 548,435
11,100 CSG Systems International, Inc. * 155,400
13,200 Cypress Semiconductor Corp. * 284,856
6,500 Ditech Communications Corp. * 121,485
16,400 ESS Technology * 258,792
10,400 Fairchild Semiconductor International, Inc. * 268,320
46,300 Ingram Micro, Inc.-Class A * 878,774
15,700 Integrated Device Technology, Inc. * 258,893
11,900 Integrated Silicon Solutions, Inc. * 191,352
6,200 International Rectifier Corp. * 286,192
14,100 Iomega Corp. 78,960
12,400 Lawson Software, Inc. * 108,748
50,300 LSI Logic Corp. * 508,030
27,300 Manugistics Group, Inc. * 199,563
25,000 Maxtor Corp. * 256,250
20,900 Microsemi Corp. * 326,040
8,500 MSC.Software Corp. * 81,855
8,800 Nanometrics, Inc. * 156,728
8,300 NCR Corp. * 371,508
27,900 Novell, Inc. * 284,022
34,800 Nvidia Corp. * 774,300
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
22,700 PerkinElmer, Inc. 473,068
14,200 Pixelworks, Inc. * 234,016
7,600 Plato Learning, Inc. * 99,940
10,000 Plexus Corp. * 191,600
7,800 PLX Technology, Inc. * 75,660
15,300 Pomeroy IT Solutions, Inc. 227,358
4,800 Radisys Corp. * 98,448
13,300 Remec, Inc. * 93,100
76,300 Sanmina-SCI Corp. * 968,247
23,400 Scientific-Atlanta, Inc. 774,540
9,100 SeaChange International, Inc. * 156,884
23,900 SonicWall, Inc. * 229,440
13,500 Stellent, Inc. * 119,475
5,200 Talx Corp. 99,528
76,000 Tellabs, Inc. * 737,200
12,400 UNOVA, Inc. * 270,072
9,200 Viasat, Inc. * 246,100
14,600 Vishay Intertechnology, Inc. * 328,646
---------------
18,180,764
---------------
UTILITIES -- 6.1%
125,800 AES Corp. (The) * 1,139,748
40,400 Allegheny Energy, Inc. * 532,876
21,900 Alliant Energy Corp. 563,925
82,100 Centerpoint Energy, Inc. 858,766
49,900 CMS Energy Corp. * 459,080
32,600 DPL, Inc. 652,000
2,600 Duquesne Light Holdings, Inc. 51,818
14,200 EL Paso Electric Co. * 193,262
3,900 General Communication-Class A * 36,426
10,000 Great Plains Energy, Inc. 346,500
3,600 Hawaiian Electric Industries, Inc. 190,620
15,800 MDU Resources Group, Inc. 366,086
13,300 National Fuel Gas Co. 336,490
3,800 New Jersey Resources Corp. 147,820
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES / UNITS DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
UTILITIES -- CONTINUED
8,500 NSTAR 434,775
7,500 NTL, Inc. * 514,200
24,200 OGE Energy Corp. 623,150
8,600 Pinnacle West Capital Corp. 336,174
15,600 PNM Resources, Inc. 475,176
10,800 Puget Energy, Inc. 243,000
2,200 SCANA Corp. 76,978
61,600 TECO Energy, Inc. 928,312
5,400 UIL Holdings Corp. 259,794
7,540 Unisource Energy Corp. 183,599
53,800 UnitedGlobalCom, Inc.-Class A * 510,562
11,900 Westar Energy, Inc. 229,075
6,000 Wisconsin Energy Corp. 193,920
---------------
10,884,132
---------------
TOTAL COMMON STOCKS (COST $137,376,213) 175,869,536
---------------
MUTUAL FUNDS -- 2.2%
1,393,210 Dreyfus Money Market Fund (a) 1,393,210
2,662,896 Merrimac Money Market Fund (a) 2,662,896
---------------
TOTAL MUTUAL FUNDS (COST $4,056,106) 4,056,106
---------------
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 8.5%
CASH EQUIVALENTS -- 3.8%
6,858,976 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.01%, due 3/30/04 (a) 6,858,976
---------------
U.S. GOVERNMENT -- 0.4%
600,000 U.S. Treasury Bill, 1.01%, due 04/22/04 599,133
---------------
REPURCHASE AGREEMENTS -- 4.3%
7,713,084 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $7,713,502
and an effective yield of 0.65%, collaterized by a U.S.
Treasury Bill with a rate of 0.915%, maturity date of
5/20/04 and market value, including acrrued interest
of $7,868,138. 7,713,084
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $15,171,193) 15,171,193
---------------
TOTAL INVESTMENTS -- 108.8%
(Cost $156,603,512) 195,096,835
Other Assets and Liabilities (net) -- (8.8%) (15,828,444)
---------------
TOTAL NET ASSETS -- 100.0% $ 179,268,391
===============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Represents investment of security lending collateral
(Note 2).
See accompanying notes to the financial statements.
14
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $10,370,855 (cost
$156,603,512) (Note 2) $ 195,096,835
Cash 2,211
Receivable for investments sold 5,610,252
Receivable for Fund shares sold 149,964
Dividends and interest receivable 198,963
Receivable for variation margin on closed futures contracts (Note 2) 544
Receivable for expenses reimbursed by Manager (Note 3) 13,229
--------------
Total assets 201,071,998
--------------
LIABILITIES:
Payable for investments purchased 2,284,081
Payable upon return of securities loaned (Note 2) 10,915,082
Payable for Fund shares repurchased 8,447,617
Payable to affiliate for (Note 3):
Management fee 59,929
Shareholder service fee 27,241
Trustees fee 437
Accrued expenses 69,220
--------------
Total liabilities 21,803,607
--------------
NET ASSETS $ 179,268,391
==============
NET ASSETS CONSIST OF:
Paid-in capital $ 125,921,258
Accumulated undistributed net investment income 561,783
Accumulated net realized gain 14,292,027
Net unrealized appreciation 38,493,323
--------------
$ 179,268,391
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 179,268,391
==============
SHARES OUTSTANDING:
Class III 11,556,176
==============
NET ASSET VALUE PER SHARE:
Class III $ 15.51
==============
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $675) $ 3,230,216
Interest (including securities lending income of $46,030) 72,256
--------------
Total income 3,302,472
--------------
EXPENSES:
Management fee (Note 3) 642,404
Shareholder service fee (Note 3) - Class III 292,002
Custodian and transfer agent fees 60,283
Audit and tax fees 44,396
Legal fees 8,925
Trustees fees and related expenses (Note 3) 3,740
Registration fees 37,185
Miscellaneous 3,693
--------------
Total expenses 1,092,628
Fees and expenses reimbursed by Manager (Note 3) (154,482)
--------------
Net expenses 938,146
--------------
Net investment income 2,364,326
--------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 33,841,710
Closed futures contracts 2,118,631
--------------
Net realized gain 35,960,341
--------------
Change in net unrealized appreciation (depreciation) on:
Investments 49,130,933
Open futures contracts 74,173
--------------
Net unrealized gain 49,205,106
--------------
Net realized and unrealized gain 85,165,447
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 87,529,773
==============
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,364,326 $ 2,229,695
Net realized gain 35,960,341 21,563,824
Change in net unrealized appreciation (depreciation) 49,205,106 (48,741,791)
----------------- -----------------
Net increase (decrease) in net assets from operations 87,529,773 (24,948,272)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (2,339,392) (2,143,600)
Net realized gains
Class III (1,587,884) (28,451,497)
(3,927,276) (30,595,097)
----------------- -----------------
Net share transactions (Note 7):
Class III (51,249,097) (111,137,97)
----------------- -----------------
Decrease in net assets resulting from net share transactions (51,249,097) (111,137,97)
----------------- -----------------
Total increase (decrease) in net assets 32,353,400 (166,681,34)
NET ASSETS:
Beginning of period 146,914,991 313,596,333
----------------- -----------------
End of period (including accumulated undistributed
net investment income of $561,783 and $592,822, respectively) $ 179,268,391 $ 146,914,991
================= =================
</Table>
See accompanying notes to the financial statements.
17
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.81 $ 14.91 $ 13.86 $ 12.41 $ 11.69
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.17 0.18 0.23 0.23 0.15
Net realized and unrealized gain (loss) 5.78 (2.74) 1.58 2.38 1.11
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.95 (2.56) 1.81 2.61 1.26
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.15) (0.17) (0.21) (0.20) (0.14)
From net realized gains (0.10) (2.37) (0.55) (0.96) (0.40)
---------- ---------- ---------- ---------- ----------
Total distributions (0.25) (2.54) (0.76) (1.16) (0.54)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 15.51 $ 9.81 $ 14.91 $ 13.86 $ 12.41
========== ========== ========== ========== ==========
TOTAL RETURN (a) 61.14% (18.58)% 13.39% 22.14% 10.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 179,268 $ 146,915 $ 313,596 $ 305,178 $ 265,778
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 1.21% 1.21% 1.60% 1.73% 1.12%
Portfolio turnover rate 86% 69% 59% 111% 50%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.08% 0.08% 0.04% 0.06% 0.06%
Purchase and redemption fees consisted
of the following per share amounts: (b) $ 0.04 $ 0.08 $ 0.01 $ 0.03 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 which are borne by shareholders.
(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.
See accompanying notes to the financial statements.
18
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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
19
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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. 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 on swap contracts 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 February 29, 2004, 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
20
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. See Schedule of Investments for the open repurchase agreement as
of February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$10,370,855, collateralized by cash in the amount of $10,915,082, 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $3,791,634
and $2,434,739, respectively. For the years ended February 29, 2004 and
February 28, 2003, the distributions paid from long-term capital gains were
$135,642 and $28,160,358, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $8,620,809 and $6,958,035 of undistributable ordinary
income and undistributed capital gains, respectively. The temporary
differences between book and tax basis distributable earnings are primarily
due to losses on wash sale transactions.
21
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to differing treatments for
redemption in-kind transactions. Net gains resulting from redemption
in-kind transactions were $12,837,592. The financial highlights exclude
these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
------------------- --------------- ---------------
$ (55,973) $ (11,132,704) $ 11,188,677
</Table>
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 years
ended February 29, 2004 and February 28, 2003, the Fund received $327,767
and $202,204 in purchase premiums, respectively and $354,211 and $891,984
in redemption fees, respectively. There is no premium for reinvested
distributions or in-kind transactions.
22
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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 .33% of the average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $2,200. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$156,482,055 and $206,418,364, respectively.
At February 29, 2004, 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
---------------- ----------------- ----------------- ----------------
$ 157,404,596 $ 39,948,398 $ (2,256,159) $ 37,692,239
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
23
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 27.9% 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. At February 29, 2004, .84% of the Fund was
held by twelve related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 5,966,991 $ 75,990,027 3,311,518 $ 40,822,521
Shares issued to shareholders in
reinvestment of distributions 278,145 3,686,317 2,715,424 30,055,774
Shares repurchased (9,663,812) (130,925,441) (12,087,686) (182,016,268)
------------- ------------- ------------- -------------
Net decrease (3,418,676) $ (51,249,097) (6,060,744) $(111,137,973)
============= ============= ============= =============
</Table>
24
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO SMALL CAP VALUE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Small Cap Value Fund (the
"Fund") (a series of GMO Trust) at February 29, 2004, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
25
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$1,452,242 from short-term capital gains,
$135,642 from long-term capital gains, all of which was subject to the 20%
rate gains category.
For taxable, non-corporate shareholders, 51.57% of the Fund's income and
short-term capital gains represents qualified dividend income subject to the 15%
rate category.
For corporate shareholders, 17.48% of the Fund's income and short-term capital
gains qualified for the dividends-received deduction.
26
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ------------------ ------------------ ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of 41 *(2)
c/o GMO Trust Business
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory 41 None
Glazer, Esq. December 2000 Counsel, Goodwin
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training services
and products)(1998
- present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
27
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ------------------ ------------------ ------------- --------------
R. Jeremy Chairman of Since September Chairman, Grantham, 41 None
Grantham(3) the Board of 1985. Mayo, Van
c/o GMO Trust Trustees President from Otterloo & Co. LLC
40 Rowes Wharf February 2002 -
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
28
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ --------------------- --------------------- ----------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Treasurer Officer since Otterloo & Co. LLC.
40 Rowes Wharf February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van Otterloo
40 Rowes Wharf Secretary since March & Co. LLC (June 1999 -
Boston, MA 02110 2001. present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Laundering Reporting Officer (February
40 Rowes Wharf Compliance Officer 2003 - present) and
Boston, MA 02110 Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
29
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Small Cap Growth Fund returned +61.2% for the fiscal year ended February
29, 2004, as compared to +61.0% for the Russell 2500 Growth Index. Consistent
with the Fund's investment objectives and policies, the Fund was invested
substantially in U.S. equity securities throughout the period.
The portfolio's outperformance for the fiscal year is primarily attributed to
stock selection, where selections in financial services, consumer discretionary,
and producer durables issues proved beneficial. Selections in technology and
utilities securities detracted from relative performance.
Sector selection was negative for the year, and was mostly attributable to the
portfolio's overweight position in energy stocks. Underweight positions in
producer durables and autos & transportation also detracted from relative
performance. An underweight position in financial services, and an overweight
position in consumer discretionary stocks benefited the portfolio.
For the year, all three stock selection strategies - price momentum, estimate
revision momentum, and price to intrinsic value - added value to the portfolio.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SMALL CAP GROWTH FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO SMALL CAP GROWTH FUND RUSSELL 2500 GROWTH INDEX
12/31/1996 4,975,000 5,000,000
3/31/1997 4,751,125 4,599,910
6/30/1997 5,603,670 5,347,530
9/30/1997 6,694,065 6,237,165
12/31/1997 6,203,320 5,737,805
3/31/1998 6,991,645 6,377,310
6/30/1998 6,877,855 6,066,205
9/30/1998 5,359,085 4,719,125
12/31/1998 6,562,460 5,915,640
3/31/1999 6,190,680 5,853,340
6/30/1999 6,895,435 6,837,005
9/30/1999 6,738,335 6,599,785
12/31/1999 8,556,315 9,197,700
3/31/2000 9,771,700 10,590,930
6/30/2000 9,194,390 9,859,155
9/30/2000 9,201,510 9,569,340
12/31/2000 7,670,120 7,717,770
3/31/2001 6,218,725 6,180,760
6/30/2001 7,328,825 7,497,495
9/30/2001 5,524,715 5,465,865
12/31/2001 6,652,150 6,881,630
3/31/2002 6,913,095 6,678,495
6/30/2002 6,169,205 5,567,760
9/30/2002 5,133,215 4,506,310
12/31/2002 5,479,845 4,879,430
3/31/2003 5,398,055 4,723,265
6/30/2003 6,625,350 5,796,380
9/30/2003 7,291,390 6,374,260
12/31/2003 8,060,410 7,139,345
2/29/2004 8,446,710 7,506,120
</Table>
Average Annual Returns
Inception 12/31/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
59.61 6.52 7.59
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 50 bp on the purchase and 50 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
COMMON STOCKS -- 98.2%
AUTO & TRANSPORTATION -- 3.6%
11,700 Airtran Holdings, Inc. * 144,846
2,700 America West Holdings Corp.-Class B * 29,511
11,000 AMR Corp. * 167,200
1,500 ArvinMeritor, Inc. 33,840
6,200 Atlantic Coast Airlines Holdings, Inc. * 45,198
7,900 Continental Airlines, Inc.-Class B * 115,735
1,600 EGL, Inc. * 25,584
2,500 Frontier Airlines, Inc. * 25,375
1,200 Gentex Corp. 48,912
3,100 JB Hunt Transport Services, Inc. * 84,940
7,800 JetBlue Airways Corp. * 185,640
1,600 Landstar System, Inc. * 57,104
1,300 Lear Corp. 80,119
7,900 Mesa Air Group, Inc. * 71,021
1,600 Navistar International Corp. * 74,560
900 Oshkosh Truck Corp. 52,965
1,500 Superior Industries International, Inc. 51,300
3,800 Thor Industries, Inc. 112,822
1,400 Wabash National Corp. * 39,830
1,000 Winnebago Industries, Inc. 66,790
---------------
1,513,292
---------------
CONSUMER DISCRETIONARY -- 29.0%
1,200 99 Cents Only Stores * 31,020
5,200 Abercrombie & Fitch Co.-Class A * 163,956
4,600 Advance Auto Parts * 181,470
6,900 Aeropostale, Inc. * 236,670
4,200 American Eagle Outfitters * 102,438
1,100 American Woodmark Corp. 69,960
2,700 AnnTaylor Stores Corp. * 123,660
6,650 Applebee's International, Inc. 272,051
2,200 Aramark Corp.-Class B 60,390
1,100 Argosy Gaming Co. * 34,034
7,800 Ask Jeeves, Inc. * 157,482
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
5,200 Bally Total Fitness Holding Corp. * 31,876
3,900 Bebe Stores, Inc. * 110,370
5,500 BJ's Wholesale Club, Inc. * 130,625
3,200 Blyth, Inc. 108,640
1,500 Bob Evans Farms, Inc. 50,745
4,050 Brightpoint, Inc. * 68,971
1,300 Brinker International, Inc. * 48,919
1,500 Callaway Golf Co. 28,005
5,900 Career Education Corp. * 294,941
2,600 Carmax, Inc. * 88,400
4,000 Catalina Marketing Corp. * 69,880
4,100 CBRL Group, Inc. 155,718
2,500 CEC Entertainment, Inc. * 136,425
25,900 Charter Communications, Inc.-Class A * 117,586
6,250 Chico's FAS, Inc. * 267,187
3,400 Children's Place * 104,176
2,200 Choice Hotels International, Inc. 96,470
9,200 Claire's Stores, Inc. 186,024
19,500 CNET Networks, Inc. * 193,830
3,600 Columbia Sportswear Co. * 187,236
3,400 Convergys Corp. * 55,284
3,000 Corinthian Colleges, Inc. * 180,450
1,700 Cost Plus, Inc. * 65,858
6,100 DeVry, Inc. * 181,292
1,500 Dollar Tree Stores, Inc. * 46,350
6,700 Earthlink, Inc. * 61,171
4,400 Education Management Corp. * 140,844
2,500 Electronics Boutique Holdings Corp. * 68,025
2,300 Ethan Allen Interiors, Inc. 99,981
4,400 FindWhat.com * 73,964
2,800 Finish Line-Class A * 96,908
2,600 Fisher Scientific International * 138,450
4,600 Foot Locker, Inc. 120,520
2,700 Fossil, Inc. * 93,852
4,200 Fred's, Inc. 117,012
1,550 FTI Consulting, Inc. * 25,451
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
10,300 Gemstar-TV Guide International, Inc. * 74,572
2,300 Genesco, Inc. * 46,276
1,300 Getty Images, Inc. * 66,248
500 Global Imaging Systems, Inc. * 15,080
3,100 GTECH Holdings Corp. 182,063
800 Harman International Industries, Inc. 62,392
2,600 HOT Topic, Inc. * 75,478
1,100 IHOP Corp. 41,514
1,100 Insight Enterprises, Inc. * 23,397
3,000 Isle of Capri Casinos, Inc. * 68,940
5,800 ITT Educational Services, Inc. * 220,226
2,600 J. Jill Group (The), Inc. * 40,144
2,400 Jack in the Box, Inc. * 59,688
3,250 Jarden Corp. * 115,375
1,700 Kenneth Cole Productions, Inc.-Class A 57,392
3,400 K-Swiss, Inc.-Class A 81,770
2,200 Manpower, Inc. 98,450
3,800 Marvel Enterprises, Inc. * 130,150
1,600 Maximus, Inc. * 55,840
2,500 Maytag Corp. 70,575
10,000 Monster Worldwide, Inc. * 220,000
3,700 Movie Gallery, Inc. 74,000
2,763 Nautilus Group, Inc. 45,139
500 Neiman-Marcus Group, Inc.-Class A 28,240
5,000 NetFlix, Inc. * 172,000
8,100 Nordstrom, Inc. 317,034
2,600 Nu Skin Enterprises, Inc.-Class A 49,790
5,000 Oakley, Inc. 75,450
1,100 O'Reilly Automotive, Inc. * 44,693
3,300 Outback Steakhouse, Inc. 159,687
8,025 Pacific Sunwear of California, Inc. * 192,359
1,700 Papa John's International, Inc. * 62,594
2,600 Payless Shoesource, Inc. * 34,710
5,600 Petsmart, Inc. 151,984
1,600 PF Chang's China Bistro, Inc. * 77,872
5,300 Pier 1 Imports, Inc. 124,073
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
1,800 Pre-Paid Legal Services, Inc. * 42,714
3,200 Priceline.com, Inc. * 73,632
6,800 Quiksilver, Inc. * 133,416
3,000 Readers Digest Association (The), Inc. 40,500
3,500 Reebok International, Ltd. 139,335
3,900 Regis Corp. 168,558
5,950 Rent-A-Center, Inc. * 193,435
4,200 Ross Stores, Inc. 134,610
4,100 Ruby Tuesday, Inc. 129,888
500 SCP Pool Corp. * 18,125
2,400 Select Comfort Corp. * 64,968
2,400 Sharper Image Corp. * 85,512
1,000 Shuffle Master, Inc. * 41,680
5,100 Skechers U.S.A., Inc.-Class A * 64,311
2,300 Sonic Automotive, Inc. 56,580
1,300 Sonic Corp. * 44,083
1,200 Stanley Works (The) 46,476
3,100 Station Casinos, Inc. 116,560
2,300 Steven Madden, Ltd. * 43,999
300 Strayer Education, Inc. 32,598
1,200 Sylvan Learning Systems, Inc. * 37,080
3,400 Take-Two Interactive Software, Inc. * 106,420
4,600 TeleTech Holdings, Inc. * 35,650
500 Timberland Co.-Class A * 30,870
9,300 Tivo, Inc. * 99,417
3,200 Too, Inc. * 61,376
3,500 Topps Co. (The), Inc. 32,165
1,800 Tractor Supply Co. * 77,076
1,800 Tuesday Morning Corp. * 59,400
1,900 Tupperware Corp. 36,290
2,100 United Stationers, Inc. * 83,391
4,600 Urban Outfitters, Inc. * 200,606
1,800 USANA Health Sciences, Inc. * 54,594
4,300 Valueclick, Inc. * 47,085
5,400 VeriSign, Inc. * 94,014
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
3,600 West Corp. * 89,424
14,700 XM Satellite Radio Holdings, Inc.-Class A * 359,856
---------------
12,065,456
---------------
CONSUMER STAPLES -- 1.1%
1,100 Chiquita Brands International, Inc. * 25,003
2,800 Constellation Brands, Inc.-Class A * 88,760
2,500 JM Smucker Co. (The) 126,450
1,200 NBTY, Inc. * 39,912
15,300 Rite Aid Corp. * 85,374
1,800 Supervalu, Inc. 50,940
700 Universal Corp. 35,294
---------------
451,733
---------------
FINANCIAL SERVICES -- 9.0%
4,000 Accredited Home Lenders Holding Co. * 134,480
1,400 Affiliated Managers Group * 118,300
400 Alliance Data Systems Corp. * 11,980
2,400 Allmerica Financial Corp. * 88,512
3,400 American Home Mortgage Investment Corp. REIT 90,100
9,800 AmeriCredit Corp. * 186,396
1,900 Arthur J. Gallagher & Co. 63,935
1,700 Brown & Brown, Inc. 62,730
1,600 Checkfree Corp. * 46,448
1,800 Chicago Mercantile Exchange 167,850
2,200 Commerce Bancorp, Inc. 133,474
500 Commercial Capital Bancorp, Inc. * 10,355
100 Community First Bankshares, Inc. 2,837
6,400 CompuCredit Corp. * 138,624
25,000 E*Trade Financial Corp. * 357,750
1,900 East-West Bancorp, Inc. 100,985
4,600 eSpeed, Inc.-Class A * 92,874
3,800 Factset Research Systems, Inc. 139,954
1,800 Fair Isaac Corp. 107,352
1,900 Federated Investors, Inc.-Class B 61,313
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
5,400 First American Corp. 164,970
2,300 First Niagara Financial Group, Inc. 33,534
7,300 Flagstar Bancorp, Inc. 188,705
7,200 Fremont General Corp. 161,640
3,400 Friedman Billings Ramsey Group, Inc.-Class A 90,508
100 Global Payments, Inc. 4,326
600 Independence Community Bank Corp. 23,742
1,300 IndyMac Bancorp, Inc. 45,760
1,800 Investment Technology Group, Inc. * 26,064
2,000 Irwin Financial Corp. 59,100
600 John H. Harland Co. 18,102
15,800 Knight Trading Group, Inc. * 218,988
1,300 Mcgrath Rentcorp 39,624
3,800 New Century Financial Corp. 186,200
2,500 Nuveen Investments, Inc.-Class A 70,300
1,300 Provident Financial Group, Inc. 52,091
7,800 Providian Financial Corp. * 100,854
1,300 SEI Investments Co. 46,423
1,000 Triad Guaranty, Inc. * 54,960
1,900 United Rentals, Inc. * 33,326
---------------
3,735,466
---------------
HEALTH CARE -- 18.0%
8,200 Abgenix, Inc. * 120,868
3,500 Able Laboratories, Inc. * 64,785
1,500 Accredo Health, Inc. * 53,535
4,400 Adolor Corp. * 68,332
2,550 Advanced Neuromodulation Systems, Inc. * 109,395
1,900 Align Technology, Inc. * 37,487
6,800 Alkermes, Inc. * 96,900
3,400 American Healthways, Inc. * 95,948
3,100 American Pharmaceutical Partners, Inc. * 110,670
2,700 Apogent Technologies, Inc. * 76,140
2,300 Aspect Medical Systems, Inc. * 40,020
1,600 Bausch & Lomb, Inc. 95,024
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
2,300 Beckman Coulter, Inc. 120,934
1,600 Biolase Technology, Inc. * 29,648
5,600 BioMarin Pharmaceuticals, Inc. * 42,840
1,900 Bradley Pharmaceuticals, Inc. * 46,740
2,200 Celgene Corp. * 90,178
8,200 Cell Therapeutics, Inc. * 72,488
3,400 Chattem, Inc. * 78,302
3,000 Cooper Cos., Inc. 141,930
2,600 Covance, Inc. * 78,000
5,850 Coventry Health Care, Inc. * 254,885
2,800 Curative Health Services, Inc. * 33,852
3,000 DaVita, Inc. * 136,530
1,300 Dentsply International, Inc. 56,953
3,100 Digene Corp. * 117,800
9,100 Eclipsys Corp. * 127,218
2,900 Encysive Pharmaceuticals, Inc. * 28,072
2,900 Endo Pharmaceuticals Holdings, Inc. * 70,383
1,400 Eon Labs, Inc. * 81,060
6,300 eResearch Technology, Inc. * 195,048
3,000 First Health Group Corp. * 63,540
3,900 Hanger Orthopedic Group, Inc. * 63,180
3,400 Henry Schein, Inc. * 243,100
6,400 Humana, Inc. * 140,288
1,600 Ilex Oncology, Inc. * 40,000
6,900 ImClone Systems, Inc. * 289,662
2,400 Impax Laboratories, Inc. * 51,960
3,300 Inamed Corp. * 158,070
3,500 Invitrogen Corp. * 257,950
3,400 KOS Pharmaceuticals, Inc. * 149,634
1,500 Kyphon, Inc. * 37,875
5,500 Ligand Pharmaceuticals, Inc.-Class B * 84,645
3,800 Lincare Holdings, Inc. * 122,892
2,800 Martek Biosciences Corp. * 166,488
1,500 Medicines Co. * 40,740
2,600 Mentor Corp. 74,282
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
3,600 MGI Pharma, Inc. * 176,832
1,500 Neurocrine Biosciences, Inc. * 83,400
4,800 Odyssey HealthCare, Inc. * 104,160
3,700 Omnicare, Inc. 170,422
1,700 Onyx Pharmaceuticals, Inc. * 62,560
4,600 OSI Pharmaceuticals, Inc. * 150,650
900 Oxford Health Plans, Inc. 43,164
2,400 Patterson Dental Co. * 162,648
2,400 Pediatrix Medical Group, Inc. * 149,400
2,100 Pharmaceutical Resources, Inc. * 131,019
2,200 PolyMedica Corp. 55,902
2,400 Priority Healthcare Corp.-Class B * 53,040
2,600 Renal Care Group, Inc. * 121,316
1,600 Resmed, Inc. * 75,296
8,900 Select Medical Corp. 142,133
6,600 Sepracor, Inc. * 187,572
4,600 Sierra Health Services, Inc. * 153,778
1,700 Stericycle, Inc. * 78,608
3,400 Steris Corp. * 85,646
200 Sybron Dental Specialties, Inc. * 5,682
3,200 Synovis Life Technologies, Inc. * 46,752
900 Techne Corp. * 36,441
3,700 Thoratec Corp. * 48,100
1,600 Tularik, Inc. * 29,440
3,200 United Surgical Partners International, Inc. * 116,704
2,378 UnitedHealth Group, Inc. 147,436
1,400 Universal Health Services, Inc.-Class B 75,502
5,600 WebMD Corp. * 47,936
---------------
7,497,810
---------------
MATERIALS & PROCESSING -- 1.6%
3,900 Energizer Holdings, Inc. * 182,013
1,000 Fluor Corp. 41,230
1,800 Jacobs Engineering Group, Inc. * 79,434
3,100 Louisiana-Pacific Corp. 76,663
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- CONTINUED
3,300 OM Group, Inc. * 101,376
1,100 Potlatch Corp. 46,640
1,100 Trex Co., Inc. * 38,643
4,400 WCI Communities, Inc. * 100,936
---------------
666,935
---------------
OTHER -- 0.4%
2,500 FMC Corp. * 93,750
1,700 Lancaster Colony Corp. 72,063
---------------
165,813
---------------
OTHER ENERGY -- 2.2%
13,900 Calpine Corp. * 76,589
14,100 Chesapeake Energy Corp. 180,762
2,600 Clayton Williams Energy, Inc. * 85,800
16,000 Dynegy, Inc.-Class A * 65,440
1,900 Evergreen Resources, Inc. * 62,510
612 Patina Oil & Gas Corp. 31,249
2,500 Peabody Energy Corp. 107,000
3,000 Pogo Producing Co. 136,110
2,100 Stone Energy Corp. * 94,584
4,700 Vintage Petroleum, Inc. 68,291
---------------
908,335
---------------
PRODUCER DURABLES -- 7.2%
18,600 American Tower Corp.-Class A * 205,530
1,400 Ametek, Inc. 69,510
500 Briggs & Stratton Corp. 34,175
15,000 Crown Castle International Corp. * 180,750
1,100 Donaldson Co., Inc. 62,733
3,150 Engineered Support Systems, Inc. 164,430
2,300 Hovnanian Enterprises, Inc. * 185,587
1,900 Joy Global, Inc. 52,421
800 KB Home 57,880
6,100 Kulicke and Soffa Industries, Inc. * 75,945
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
9,600 Lam Research Corp. * 245,472
2,900 LTX Corp. * 44,921
1,800 Manitowoc Co. 55,800
900 MDC Holdings, Inc. 63,387
1,700 Meritage Corp. * 125,936
2,600 Metrologic Instruments, Inc. * 66,794
400 NVR, Inc. * 185,000
3,700 Plantronics, Inc. * 147,704
11,300 Polycom, Inc. * 249,391
3,200 Rayovac Corp. * 83,136
2,500 Ryland Group, Inc. 214,300
1,300 Tektronix, Inc. 41,665
1,700 Terex Corp. * 59,551
2,700 Toll Brothers, Inc. * 118,530
1,700 Ultratech, Inc. * 42,177
2,100 Varian Semiconductor Equipment Associates, Inc. * 85,659
2,800 Veeco Instruments, Inc. * 81,676
---------------
3,000,060
---------------
TECHNOLOGY -- 23.2%
6,700 Adaptec, Inc. * 61,171
8,800 Adtran, Inc. 286,528
3,600 Advanced Digital Information Corp. * 45,288
8,300 Advanced Micro Devices, Inc. * 124,500
17,200 Akamai Technologies, Inc. * 258,000
2,400 American Management Systems, Inc. * 36,696
17,800 Amkor Technology, Inc. * 275,366
1,100 Amphenol Corp.-Class A * 68,035
1,000 Ansys, Inc. * 40,130
2,700 Anteon International Corp. * 78,975
2,100 Artisan Components, Inc. * 40,047
3,000 Aspen Technology, Inc. * 26,310
12,400 Atmel Corp. * 85,808
35,500 Avaya, Inc. * 608,825
4,200 Avid Technology, Inc. * 178,374
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
2,500 Avnet, Inc. * 58,875
2,900 Avocent Corp. * 112,143
700 Black Box Corp. 36,057
400 CACI International, Inc.-Class A * 17,740
2,400 Ceridian Corp. * 45,432
5,800 ChipPAC, Inc.-Class A * 49,474
2,900 Ciber, Inc. * 27,550
5,300 Cirrus Logic, Inc. * 39,008
1,700 Citrix Systems, Inc. * 36,006
5,600 Cognizant Technology Solutions Corp. * 265,664
11,800 Compuware Corp. * 92,512
10,500 Comverse Technology, Inc. * 207,060
19,300 Conexant Systems, Inc. * 141,855
12,800 Cypress Semiconductor Corp. * 276,224
3,600 Digital River, Inc. * 78,804
1,000 Ditech Communications Corp. * 18,690
5,100 eCollege.com, Inc. * 102,255
4,600 Electronics for Imaging * 116,702
3,400 ESS Technology * 53,652
10,400 Foundry Networks, Inc. * 245,440
14,200 GlobespanVirata, Inc. * 125,954
700 Harris Corp. 33,075
1,200 Hutchinson Technology, Inc. * 34,164
3,400 Integrated Device Technology, Inc. * 56,066
1,600 International Rectifier Corp. * 73,856
2,700 KVH Industries, Inc. * 43,848
6,400 Lexar Media, Inc. * 88,320
18,600 LSI Logic Corp. * 187,860
4,900 Macromedia, Inc. * 100,450
6,500 Manugistics Group, Inc. * 47,515
13,700 Maxtor Corp. * 140,425
7,900 McData Corp.-Class A * 63,674
8,500 Mentor Graphics Corp. * 142,715
2,500 Mercury Computer Systems, Inc. * 73,200
400 Micros Systems, Inc. * 17,456
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
12,800 Microsemi Corp. * 199,680
2,200 MicroStrategy, Inc.-Class A * 137,368
2,200 NCR Corp. * 98,472
3,500 Netegrity, Inc. * 32,025
4,800 Omnivision Technologies, Inc. * 135,600
1,900 OSI Systems, Inc. * 37,050
1,900 Overland Storage, Inc. * 34,219
11,000 PerkinElmer, Inc. 229,240
6,800 Pixelworks, Inc. * 112,064
17,500 PMC-Sierra, Inc. * 348,250
700 Radisys Corp. * 14,357
7,300 RSA Security, Inc. * 121,399
15,800 Sandisk Corp. * 400,688
37,800 Sanmina-SCI Corp. * 479,682
300 ScanSource, Inc. * 14,298
9,800 Scientific-Atlanta, Inc. 324,380
2,500 Secure Computing Corp. * 36,150
1,600 Siliconix, Inc. * 75,216
36,100 Sonus Networks, Inc. * 214,073
2,100 SPSS, Inc. * 42,945
1,400 SRA International, Inc.-Class A * 53,900
3,700 Storage Technology Corp. * 108,669
2,550 Stratasys, Inc. * 44,421
4,400 Syntel, Inc. 117,876
4,400 Tekelec * 85,228
6,900 Trident Microsystems, Inc. * 112,746
4,800 Trimble Navigation, Ltd. * 159,072
1,000 UNOVA, Inc. * 21,780
6,700 Utstarcom, Inc. * 221,978
21,800 Vitesse Semiconductor Corp. * 174,182
---------------
9,650,782
---------------
UTILITIES -- 2.9%
11,200 AES Corp. (The) * 101,472
600 Commonwealth Telephone Enterprises, Inc. * 24,630
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES / UNITS DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
UTILITIES -- CONTINUED
2,600 DPL, Inc. 52,000
3,500 Energen Corp. 145,320
3,000 Intrado, Inc. * 59,550
2,300 NII Holdings, Inc.-Class B * 249,205
3,500 NTL, Inc. * 239,960
2,350 UGI Corp. 77,785
11,300 UnitedGlobalCom, Inc.-Class A * 107,237
7,200 Western Wireless Corp.-Class A * 173,448
---------------
1,230,607
---------------
TOTAL COMMON STOCKS (COST $33,749,101) 40,886,289
---------------
MUTUAL FUNDS -- 2.4%
346,730 Dreyfus Money Market Fund (a) 346,730
662,719 Merrimac Money Market Fund (a) 662,719
---------------
TOTAL MUTUAL FUNDS (COST $1,009,449) 1,009,449
---------------
RIGHTS AND WARRANTS -- 0.1%
MEDIA - BROADCASTING & PUBLISHING -- 0.1%
806 InterActiveCorp. Warrants, Expires 2/4/2009 31,636
---------------
TOTAL RIGHTS AND WARRANTS (COST $5,846) 31,636
---------------
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.8%
CASH EQUIVALENTS -- 4.1%
1,707,003 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.01%, due 3/30/04 (a) 1,707,003
---------------
U.S. GOVERNMENT -- 0.2%
100,000 U.S. Treasury Bill, 1.01%, due 04/22/04 (b) 99,856
---------------
REPURCHASE AGREEMENTS -- 3.5%
1,458,326 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $1,458,405
and an effective yield of 0.65%, collateralized by a U.S.
Treasury Bill with a rate of 0.915%, maturity date of
5/20/04 and a market value, including accrued interest
of $1,487,639. 1,458,326
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,265,185) 3,265,185
---------------
TOTAL INVESTMENTS -- 108.5%
(Cost $38,029,581) 45,192,559
Other Assets and Liabilities (net) -- (8.5%) (3,530,951)
---------------
TOTAL NET ASSETS -- 100.0% $ 41,661,608
===============
NOTES TO THE SCHEDULE OF INVESTMENTS:
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Represents investment of security lending
collateral (Note 2).
(b) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts (Note 8).
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $2,604,817 (cost
$38,029,581) (Note 2) $ 45,192,559
Cash 2,083
Receivable for investments sold 918,325
Dividends and interest receivable 10,013
Receivable for variation margin on open futures contracts (Notes 2 and 8) 3,528
Receivable for expenses reimbursed by Manager (Note 3) 6,667
--------------
Total assets 46,133,175
--------------
LIABILITIES:
Payable for investments purchased 1,701,228
Payable upon return of securities loaned (Note 2) 2,716,452
Payable to affiliate for (Note 3):
Management fee 10,853
Shareholder service fee 4,933
Trustees fee 88
Accrued expenses 38,013
--------------
Total liabilities 4,471,567
--------------
NET ASSETS $ 41,661,608
==============
NET ASSETS CONSIST OF:
Paid-in capital $ 33,638,207
Accumulated net realized gain 862,921
Net unrealized appreciation 7,160,480
--------------
$ 41,661,608
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 41,661,608
==============
SHARES OUTSTANDING:
Class III 1,912,734
==============
NET ASSET VALUE PER SHARE:
Class III $ 21.78
==============
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $103) $ 137,571
Interest (including securities lending income of $25,075) 28,558
--------------
Total income 166,129
--------------
EXPENSES:
Management fee (Note 3) 109,672
Shareholder service fee (Note 3) - Class III 49,851
Custodian and transfer agent fees 37,091
Audit and tax fees 37,846
Legal fees 732
Trustees fees and related expenses (Note 3) 737
Registration fees 4,598
Miscellaneous 1,120
--------------
Total expenses 241,647
Fees and expenses reimbursed by Manager (Note 3) (81,387)
--------------
Net expenses 160,260
--------------
Net investment income 5,869
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 6,399,775
Closed futures contracts 178,068
--------------
Net realized gain 6,577,843
--------------
Change in net unrealized appreciation (depreciation) on:
Investments 7,454,443
Open futures contracts (1,237)
--------------
Net unrealized gain 7,453,206
--------------
Net realized and unrealized gain 14,031,049
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 14,036,918
==============
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss) $ 5,869 $ (8,876)
Net realized gain (loss) 6,577,843 (1,478,297)
Change in net unrealized appreciation (depreciation) 7,453,206 (1,379,882)
----------------- -----------------
Net increase (decrease) in net assets from operations 14,036,918 (2,867,055)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (29,020) --
----------------- -----------------
Net share transactions (Note 7):
Class III 9,984,937 3,486,588
----------------- -----------------
Increase in net assets resulting from net share transactions 9,984,937 3,486,588
----------------- -----------------
Total increase in net assets 23,992,835 619,533
NET ASSETS:
Beginning of period 17,668,773 17,049,240
----------------- -----------------
End of period $ 41,661,608 $ 17,668,773
================= =================
</Table>
See accompanying notes to the financial statements.
17
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------
2004 2003 2002 2001++ 2000++
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.52 $ 16.48 $ 19.08 $ 168.70 $ 108.80
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) --(c)+ (0.01)+ 0.01+ (0.04) 0.10
Net realized and unrealized gain (loss) 8.28 (2.95) (1.12) (37.26) 70.20
---------- ---------- ---------- ---------- ----------
Total from investment operations 8.28 (2.96) (1.11) (37.30) 70.30
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.02) -- -- -- (0.30)
From net realized gains -- -- (1.49) (112.32) (10.10)
---------- ---------- ---------- ---------- ----------
Total distributions (0.02) -- (1.49) (112.32) (10.40)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 21.78 $ 13.52 $ 16.48 $ 19.08 $ 168.70
========== ========== ========== ========== ==========
TOTAL RETURN (a) 61.22% (17.96)% (6.36)% (33.14)% 67.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 41,662 $ 17,669 $ 17,049 $ 19,957 $ 137,290
Net expenses to average daily net assets 0.48% 0.49% 0.48% 0.48% 0.48%
Net investment income to average daily net assets 0.02% (0.06)% 0.07% (0.09)% 0.09%
Portfolio turnover rate 97% 116% 118% 147% 122%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.24% 0.37% 0.33% 0.19% 0.11%
Purchase and redemption fees consisted of the
following per share amounts: (b) $ 0.06 $ 0.03 $ 0.02 $ 0.87 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 which are borne by the shareholders.
(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) 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.
See accompanying notes to the financial statements.
18
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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
19
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 8 for all open futures contracts as of February 29, 2004.
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. 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 on swap contracts 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 February 29, 2004, 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
20
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. See Schedule of Investments for the open repurchase
agreement as of February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$2,604,817 collateralized by cash in the amount of $2,716,452, 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $29,020 and
$0, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $1,667,560 and $2,068,584 of undistributed ordinary
income and undistributed long-term capital gains, respectively.
At February 29, 2004, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $1,301,640 and $1,513,997 expiring in 2010 and 2011, respectively.
21
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
-------------------- -------------------- -------------------
$ 23,151 $ (23,152) $ 1
</Table>
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 years
ended February 29, 2004 and February 28, 2003, the Fund received $76,859
and $25,921 in purchase premiums and $27,104 and $8,521 in redemption fees,
respectively. There is no premium for reinvested distributions or in-kind
transactions.
22
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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 .33% of the average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $438. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$40,474,798 and $30,567,079, respectively.
At February 29, 2004, 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
----------------- ----------------- ----------------- -----------------
$ 38,089,596 $ 8,069,658 $ (966,695) $ 7,102,963
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
23
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 61.0% 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. At February 29, 2004, .09% of the Fund was held by three related
parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 928,784 $ 15,521,846 373,781 $ 5,184,289
Shares issued to shareholders in
reinvestment of distributions 1,050 20,632 -- --
Shares repurchased (323,661) (5,557,541) (101,766) (1,697,701)
------------- ------------- ------------- -------------
Net increase 606,173 $ 9,984,937 272,015 $ 3,486,588
============= ============= ============= =============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FINANCIAL FUTURES
FUTURES CONTRACTS
<Table>
<Caption>
NET
NUMBER OF CONTRACT UNREALIZED
CONTRACTS TYPE EXPIRATION DATE VALUE DEPRECIATION
------------ -------------------------- --------------- ----------- --------------
Buys 1 Russell 2000 March 2004 $ 292,800 $ (2,498)
==========
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
24
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO SMALL CAP GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Small Cap Growth Fund (the "Fund") (a series of GMO Trust) at February 29,
2004, and the results of its operations, the changes in its net assets and
the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
25
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 100% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, 7.66% of the Fund's income qualified for the
dividends-received deduction.
26
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF PRINCIPAL FUND OTHER
OFFICE(1) AND OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) LENGTH OF TIME DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ------------------ ------------------ ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
27
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
PRINCIPAL IN FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ------------------ ------------------ ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo & Co.
40 Rowes Wharf February 2002 - LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
28
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ -------------------- ---------------------- -----------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary since Otterloo & Co. LLC (June
Boston, MA 02110 March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
29
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Active Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Real Estate Fund returned +44.6% for the fiscal year ended February 29,
2004, as compared to +46.6% for the Morgan Stanley REIT Index. Consistent with
the Fund's investment objectives and policies, the Fund was invested
substantially in REIT stocks throughout the period.
During the period, stock selection was positive in Apartment REITS, while
Office-CBD selection was negative.
Underweighting Apartment shares during the fiscal year aided sector selection,
but was offset by overweighting Office-CBD.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
REAL ESTATE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO REAL ESTATE FUND MORGAN STANLEY REIT INDEX S&P 500 INDEX
5/31/1996 5,000,000 5,000,000 5,000,000
6/30/1996 5,070,000 5,093,735 5,019,075
9/30/1996 5,420,000 5,424,355 5,174,240
12/31/1996 6,403,985 6,507,615 5,605,525
3/31/1997 6,470,165 6,522,035 5,755,780
6/30/1997 6,775,600 6,843,325 6,760,645
9/30/1997 7,556,465 7,641,560 7,267,020
12/31/1997 7,643,295 7,716,635 7,475,715
3/31/1998 7,506,910 7,661,075 8,518,520
6/30/1998 7,092,070 7,324,520 8,799,820
9/30/1998 5,937,970 6,549,400 7,924,495
12/31/1998 5,781,490 6,412,190 9,612,165
3/31/1999 5,565,535 6,102,565 10,091,080
6/30/1999 6,182,555 6,707,395 10,802,325
9/30/1999 5,524,690 6,165,975 10,127,785
12/31/1999 5,511,970 6,120,380 11,634,715
3/31/2000 5,648,470 6,283,040 11,901,490
6/30/2000 6,330,965 6,934,735 11,585,385
9/30/2000 6,814,825 7,476,365 11,473,160
12/31/2000 7,101,050 7,761,390 10,575,450
3/31/2001 7,046,530 7,723,855 9,321,680
6/30/2001 7,837,050 8,567,475 9,867,235
9/30/2001 7,511,320 8,345,225 8,418,905
12/31/2001 7,790,655 8,757,280 9,318,475
3/31/2002 8,498,895 9,484,050 9,344,175
6/30/2002 8,849,440 9,943,395 8,092,235
9/30/2002 7,983,095 9,059,695 6,694,230
12/31/2002 7,959,925 9,076,450 7,259,070
3/31/2003 7,989,735 9,173,365 7,030,390
6/30/2003 8,966,095 10,332,335 8,112,640
9/30/2003 9,756,445 11,334,375 8,327,265
12/31/2003 10,654,480 12,411,485 9,340,855
2/29/2004 11,302,545 13,172,185 9,644,955
</Table>
Average Annual Returns
Inception 5/31/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
44.56 14.94 11.1
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENTS -- 95.8%
REAL ESTATE INVESTMENT TRUSTS -- 95.8%
APARTMENTS -- 15.6%
15,900 AMLI Residential Properties Trust 455,536
33,900 Apartment Investment & Management Co, Class A 1,098,360
233,200 Archstone-Smith Trust 6,529,600
19,000 Associated Estates Realty Corp 156,940
55,500 Avalonbay Communities Inc 2,796,090
50,000 BRE Properties Inc 1,635,000
25,800 Camden Property Trust 1,127,460
35,100 Cornerstone Realty Income Trust 318,006
298,200 Equity Residential Properties Trust 8,871,450
16,100 Essex Property Trust Inc 1,013,817
21,100 Gables Residential Trust 740,188
20,500 Home Properties of NY Inc 831,275
23,300 Investors Real Estate Trust 236,961
9,400 Mid America Apartment Community 337,084
52,800 Post Properties 1,505,856
27,300 Summit Properties Inc 607,425
17,600 Town & Country Trust 458,480
60,100 United Dominion Realty Trust Inc 1,134,086
----------------
29,853,614
----------------
DIVERSIFIED -- 6.4%
17,800 Colonial Properties Trust 711,644
36,700 Cousins Properties Inc 1,126,690
45,000 Crescent Real Estate Equities 797,400
13,400 Glenborough Realty Trust Inc 281,400
20,300 Pennsylvania Real Estate 739,935
131,100 Vornado Realty Trust 7,459,590
34,400 Washington Real Estate Investment Trust 1,047,480
----------------
12,164,139
----------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------
HEALTH CARE -- 5.9%
47,200 Health Care Inc 1,782,272
50,500 Health Care Property Investors Inc 2,811,840
44,200 Healthcare Realty Trust Inc 1,761,370
68,000 Nationwide Health Properties 1,431,400
69,300 Senior Housing Properties Trust 1,285,515
12,400 Universal Health Realty Income 417,260
68,200 Ventas Inc 1,803,890
----------------
11,293,547
----------------
HOTELS -- 4.1%
12,000 Boykin Lodging Co 110,760
21,300 Equity Inns Inc 196,812
26,600 Felcor Lodging Trust Inc * 285,684
70,000 Hospitality Properties Trust 3,045,000
123,600 Host Marriott Corp * 1,502,976
23,300 Innkeepers USA Trust 209,700
11,800 Lasalle Hotel Properties 241,310
22,400 Meristar Hospitality Corp * 140,000
46,400 Starwood Hotels & Resorts Worldwide, Inc. 1,810,064
21,700 Winston Hotels Inc 229,586
----------------
7,771,892
----------------
INDUSTRIAL -- 5.5%
59,200 AMB Property Corp 2,096,864
12,000 Centerpoint Properties Corp 928,200
11,800 Eastgroup Properties Inc 398,250
29,400 First Industrial Realty Trust 1,105,440
25,800 Keystone Property Trust 580,500
166,600 Prologis 5,519,458
----------------
10,628,712
----------------
MANUFACTURED HOUSING -- 0.7%
6,600 American Land Lease Inc 139,590
17,200 Manufactured Home Communities 575,340
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING -- CONTINUED
14,500 Sun Communities Inc 596,675
4,200 United Mobile Homes Inc 70,686
----------------
1,382,291
----------------
OFFICE CENTRAL BUSINESS DISTRICT -- 10.6%
97,700 Boston Properties Inc 5,005,171
440,700 Equity Office Properties Trust 12,577,578
30,500 SL Green Realty Corp 1,342,000
84,900 Trizec Properties Inc 1,382,172
----------------
20,306,921
----------------
OFFICE SUBURBAN -- 12.4%
18,200 Alexandria Real Estate Equity Inc 1,117,116
42,500 Arden Realty Group Inc 1,343,000
19,400 Bedford Property Investors 596,550
43,300 Brandywine Realty Trust 1,234,050
32,900 CarrAmerica Realty Corp 1,059,380
18,600 Corporate Office Properties 428,544
97,400 Duke Realty Investments 3,155,760
17,800 Great Lakes Inc 271,094
22,400 Highwood Properties Inc 577,248
185,400 HRPT Properties Trust 2,054,232
35,400 Kilroy Realty Corp 1,182,360
13,600 Koger Equity Inc 323,000
90,500 Liberty Property Trust 3,826,340
74,600 Mack-Cali Realty Corp 3,174,976
17,600 Mission West Properties 232,320
8,400 Parkway Properties Inc 397,320
37,800 Prentiss Properties Trust 1,317,330
15,500 PS Business Parks Inc 705,250
29,200 Reckson Associates Realty Corp 781,976
----------------
23,777,846
----------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------
OUTLETS -- 1.4%
40,700 Chelsea Property Group Inc 2,415,545
6,200 Tanger Factory Outlet Centers Inc 262,818
----------------
2,678,363
----------------
REGIONAL MALLS -- 14.4%
33,700 CBL & Associates Properties Inc 1,939,435
239,000 General Growth Properties 7,471,140
22,700 Glimcher Realty Trust 584,979
51,100 Macerich Co 2,524,340
48,800 Mills Corp 2,433,168
136,200 Simon Property Group Inc 7,421,538
16,600 Taubman Centers Inc 395,080
97,000 The Rouse Co 4,850,000
----------------
27,619,680
----------------
SHOPPING CENTERS -- 11.6%
12,400 Acadia Realty Trust 171,244
80,000 Developers Diversified Realty Corp 2,941,600
85,400 Equity One Inc 1,597,834
31,300 Federal Realty Investment Trust 1,325,555
22,800 Heritage Property Investment Trust 678,528
126,600 Kimco Realty Corp 5,943,870
11,400 Kramont Realty Trust 224,238
81,300 New Plan Excel Realty Trust 2,111,361
40,100 Pan Pacific Retail Property Inc 1,984,950
6,400 Ramco-Gershenson Properties 179,008
62,100 Regency Centers Corp 2,605,095
13,200 Saul Centers Inc 368,016
7,700 Urstadt Biddle Properties Inc 113,498
40,800 Weingarten Realty 2,021,640
----------------
22,266,437
----------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------
STORAGE -- 3.6%
97,600 Public Storage Inc 4,658,448
40,700 Shurgard Storage Centers Inc 1,516,075
17,200 Sovran Self Storage 652,740
----------------
6,827,263
----------------
TRIPLE NET -- 3.6%
34,400 Capital Automotive 1,174,416
53,000 Commercial Net Lease Realty 1,025,550
7,200 Correctional Properties Trust 206,640
25,500 Corrections Corporation of America * 856,035
17,400 Entertainment Properties Trust 660,330
21,800 Getty Realty Corp 583,150
39,700 Lexington Corporate Properties Trust 843,228
33,200 Realty Income Corp 1,437,560
6,900 U.S. Restaurant Properties Inc 129,030
----------------
6,915,939
----------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(COST $145,548,866) 183,486,644
----------------
TOTAL REAL ESTATE INVESTMENTS
(COST $145,548,866) 183,486,644
----------------
MUTUAL FUNDS -- 2.1%
19,600 IShares Dow Jones US Real Estate Index Fund 2,061,332
704,123 Dreyfus Money Market Fund (a) 704,123
1,345,817 Merrimac Money Market Fund (a) 1,345,817
----------------
TOTAL MUTUAL FUNDS (COST $4,103,597) 4,111,272
----------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.4%
CASH EQUIVALENTS -- 1.8%
3,466,500 Harris Trust & Savings Bank Eurodollar Time Deposit, 1.01%,
due 3/30/04 (a) 3,466,500
----------------
REPURCHASE AGREEMENTS -- 2.6%
4,886,969 Citigroup Global Markets Repurchase Agreement,
dated 2/27/04, due 3/01/04, with a maturity value
of $4,887,234 and an effective yield of 0.65%,
collateralized by a U.S. Treasury Bill with a rate
of 0.915%, a maturity date of 5/20/04 and a market
value of $4,985,198. 4,886,969
----------------
TOTAL SHORT-TERM INVESTMENTS (COST $8,353,469) 8,353,469
----------------
TOTAL INVESTMENTS -- 102.3%
(Cost $158,005,932) 195,951,385
Other Assets and Liabilities (net) -- (2.3%) (4,493,389)
----------------
TOTAL NET ASSETS -- 100.0% $ 191,457,996
================
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) Represents investment of security lending collateral
(Note 2).
See accompanying notes to the financial statements.
6
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $5,361,975 (cost $158,005,932) (Note 2) $ 195,951,385
Cash 1,114
Receivable for investments sold 5,886,297
Receivable for Fund shares sold 427,985
Dividends and interest receivable 161,021
Receivable for expenses reimbursed by Manager (Note 3) 45,686
----------------
Total assets 202,473,488
----------------
LIABILITIES:
Payable for investments purchased 4,349,486
Payable upon return of securities loaned (Note 2) 5,516,440
Payable for Fund shares repurchased 1,000,000
Payable to affiliate for (Note 3):
Management fee 80,010
Shareholder service fee 22,225
Trustees fee 309
Accrued expenses 47,022
----------------
Total liabilities 11,015,492
----------------
NET ASSETS $ 191,457,996
================
NET ASSETS CONSIST OF:
Paid-in capital $ 171,746,035
Accumulated undistributed net investment income 4,789,446
Accumulated net realized loss (23,022,938)
Net unrealized appreciation 37,945,453
----------------
$ 191,457,996
================
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 191,457,996
================
SHARES OUTSTANDING:
Class III 13,072,930
================
NET ASSET VALUE PER SHARE:
Class III $ 14.65
================
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 9,200,290
Interest (including securities lending income of $2,365) 19,350
----------------
Total income 9,219,640
----------------
EXPENSES:
Management fee (Note 3) 970,641
Shareholder service fee (Note 3) - Class III 269,622
Custodian and transfer agent fees 52,519
Audit and tax fees 43,671
Legal fees 11,488
Trustees fees and related expenses (Note 3) 3,481
Registration fees 9,243
Miscellaneous 8,179
----------------
Total expenses 1,368,844
Fees and expenses reimbursed by Manager (Note 3) (433,696)
----------------
Net expenses 935,148
----------------
Net investment income 8,284,492
----------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 18,615,586
----------------
Change in net unrealized appreciation (depreciation) on investments 38,285,209
----------------
Net realized and unrealized gain 56,900,795
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 65,185,287
================
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 8,284,492 $ 9,628,263
Net realized gain (loss) 18,615,586 (15,461,070)
Change in net unrealized appreciation (depreciation) 38,285,209 (3,555,069)
------------------ ------------------
Net increase (decrease) in net assets from operations 65,185,287 (9,387,876)
------------------ ------------------
Distributions to shareholders from:
Net investment income
Class III (6,612,628) (9,424,727)
------------------ ------------------
Net share transactions (Note 7):
Class III (9,370,702) (31,537,654)
------------------ ------------------
Decrease in net assets resulting from net share transactions (9,370,702) (31,537,654)
------------------ ------------------
Total increase (decrease) in net assets 49,201,957 (50,350,257)
NET ASSETS:
Beginning of period 142,256,039 192,606,296
------------------ ------------------
End of period (including accumulated undistributed net investment
income of $4,789,446 and $4,999,289, respectively) $ 191,457,996 $ 142,256,039
================== ==================
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.49 $ 11.17 $ 10.31 $ 8.26 $ 9.13
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.58+ 0.50+ 0.56+ 0.60 0.51+
Net realized and unrealized gain (loss) 4.01 (0.71) 0.84 1.92 (0.87)
--------- --------- --------- --------- ---------
Total from investment operations 4.59 (0.21) 1.40 2.52 (0.36)
--------- --------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.43) (0.47) (0.54) (0.47) (0.51)
--------- --------- --------- --------- ---------
Total distributions (0.43) (0.47) (0.54) (0.47) (0.51)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 14.65 $ 10.49 $ 11.17 $ 10.31 $ 8.26
========= ========= ========= ========= =========
TOTAL RETURN (a) 44.56% (2.16)% 13.73% 30.86% (4.69)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 191,458 $ 142,256 $ 192,606 $ 133,420 $ 120,508
Net expenses to average daily net assets 0.52% 0.69% 0.69% 0.69% 0.69%
Net investment income to average daily net assets 4.61% 4.47% 5.18% 5.85% 5.64%
Portfolio turnover rate 56% 61% 6% 11% 13%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.24% 0.04% 0.05% 0.05% 0.06%
</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.
See accompanying notes to the financial statements.
10
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Real Estate Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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.
11
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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. See Schedule of
Investments for the open repurchase agreement as of February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$5,361,975, collateralized by cash in the amount of $5,516,440, 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
12
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
effect to any available capital loss carryovers for U.S. federal income tax
purposes. Therefore, no provision for U.S. federal income or excise tax is
necessary.
The Fund's policy is to declare and pay distributions from net investment
income 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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income was $6,612,628 and
$9,424,727, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $4,789,446 of undistributed ordinary income.
At February 29, 2004, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $1,159,465, $15,979,464, $3,875,337 and $323,175 expiring in 2007, 2008,
2009 and 2010, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- ------------- ---------------
$ (1,881,707) $ 1,881,711 $ (4)
</Table>
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 return of capital is conclusively determined. In determining
the net gain or loss on securities sold, the cost of securities is
determined on the identified cost basis.
13
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 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.
3. 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
February 29, 2004, GMO had temporarily agreed to waive .21% of the Fund's
management fee. This waiver remains in effect. 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. 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 .54% of the average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $2,019. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
14
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$96,074,149 and $101,404,055, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 159,691,429 $ 36,585,021 $ (325,065) $ 36,259,956
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDER
At February 29, 2004, 35.7% 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. At February 29, 2004, 4.88% of the Fund was
held by sixteen related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------------------------- -----------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
---------------- ---------------- ---------------- ----------------
Shares sold 9,152,479 $ 115,177,669 8,496,059 $ 98,980,288
Shares issued to shareholders
in reinvestment of distributions 412,921 5,097,864 608,527 6,861,914
Shares repurchased (10,050,988) (129,646,235) (12,782,580) (137,379,856)
---------------- ---------------- ---------------- ----------------
Net decrease (485,588) $ (9,370,702) (3,677,994) $ (31,537,654)
================ ================ ================ ================
</Table>
15
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO REAL ESTATE FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Real Estate Fund (the "Fund") (a series of GMO Trust) at February 29, 2004,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
16
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For corporate shareholders, 0.01% of the Fund's income qualified for the
dividends-received deduction.
17
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- -------------------------- --------------- ----------------- ----------------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of Business 41 *(2)
c/o GMO Trust Administration and
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Glazer, Esq. Trustee Since December Advisory Counsel, 41 None
c/o GMO Trust 2000 Goodwin Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant, Provant,
DOB: 07/26/1944 Inc. (provider of
performance improvement
training services and
products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
18
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- -------------------------- --------------- ----------------- ----------------------- ------------- -------------
R. Jeremy Grantham(3) Chairman of the Since September Chairman, Grantham,
c/o GMO Trust Board of 1985. Mayo, Van Otterloo & 41 None
40 Rowes Wharf Trustees President from Co. LLC
Boston, MA 02110 February 2002 -
DOB: 10/06/1938 October 2002;
President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
19
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------- ---------------------- ------------------------------ ------------------------------------------
Scott Eston President and Chief President and Chief Executive Chief Financial Officer (1997-present),
c/o GMO Trust Executive Officer Officer since October 2002; Chief Operating Officer (2000 - present)
40 Rowes Wharf Vice President from August and Member, Grantham, Mayo, Van Otterloo &
Boston, MA 02110 1998 - October 2002. Co. LLC.
DOB: 01/20/1956
Susan Randall Harbert Chief Financial Chief Financial Officer since Member, Grantham, Mayo, Van Otterloo & Co.
c/o GMO Trust Officer and Treasurer February 2000; Treasurer since LLC.
40 Rowes Wharf February 1998.
Boston, MA 02110
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator, Grantham, Mayo,
c/o GMO Trust Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since February General Counsel, Anti-Money Laundering
c/o GMO Trust Clerk 1997; Clerk since March 2001 - Reporting Officer (July 2002 - February
40 Rowes Wharf present and May 1999 - August 2003) and Member, Grantham, Mayo, Van
Boston, MA 02110 1999. Otterloo & Co. LLC.
DOB: 07/20/1965
Elaine M. Hartnett, Esq. Vice President and Vice President since August Associate General Counsel, Grantham, Mayo,
c/o GMO Trust Secretary 1999; Secretary since March Van Otterloo & Co. LLC (June 1999 -
40 Rowes Wharf 2001. present); Associate/Junior Partner, Hale
Boston, MA 02110 and Dorr LLP (1991 - 1999).
DOB: 02/18/1945
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting Officer
c/o GMO Trust Anti-Money Laundering (February 2003 - present) and Compliance
40 Rowes Wharf Compliance Officer Officer, Grantham, Mayo, Van Otterloo &
Boston, MA 02110 Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since February Member, Grantham, Mayo, Van Otterloo & Co.
c/o GMO Trust 2004. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
20
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Tax-Managed U.S. Equities Fund returned +36.2% for the fiscal year ended
February 29, 2004, as compared to +38.5% for the S&P 500. On an after-tax basis,
the Fund returned +35.9% compared to the benchmark's +38.3% for the same period.
Consistent with the Fund's investment objectives and policies, the Fund was
invested substantially in U.S. equity securities throughout the period.
The portfolio's underperformance for the fiscal year is primarily attributed to
sector selection, where an overweight of healthcare, the worst performing
sector, proved costly. An underweight in consumer discretionary and materials
processing stocks, and an overweight in utilities also detracted from relative
performance.
Stock selection within sectors had mixed results for the year. Selection within
technology was ineffective, as overweights in Intel and Oracle detracted from
relative performance. Selection within consumer discretionary and producer
durable stocks was strong.
For the year, both the intrinsic value and price-to-normalized stock selection
strategies added value, while the price momentum strategy underperformed.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
TAX-MANAGED U.S. EQUITIES FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO TAX-MANAGED U.S. EQUITIES FUND* S&P 500 INDEX*
7/23/1998 5,000,000 5,000,000
9/30/1998 4,755,000 4,476,450
12/31/1998 5,479,815 5,429,795
3/31/1999 5,484,850 5,700,330
6/30/1999 5,995,455 6,102,105
9/30/1999 5,534,650 5,721,065
12/31/1999 6,409,380 6,572,310
3/31/2000 6,837,350 6,723,005
6/30/2000 6,544,815 6,544,440
9/30/2000 6,915,730 6,481,045
12/31/2000 6,614,815 5,973,940
3/31/2001 5,909,580 5,265,700
6/30/2001 6,183,140 5,573,875
9/30/2001 5,512,935 4,755,730
12/31/2001 5,968,620 5,263,885
3/31/2002 6,057,235 5,278,405
6/30/2002 5,303,930 4,571,200
9/30/2002 4,373,825 3,781,485
12/31/2002 4,793,450 4,100,555
3/31/2003 4,524,215 3,971,375
6/30/2003 5,279,525 4,582,725
9/30/2003 5,340,410 4,703,965
12/31/2003 6,000,505 5,276,530
2/29/2004 6,198,560 5,448,310
</Table>
Average Annual Returns
Inception 7/23/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
36.21 2.9 3.91
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
* Returns are before taxes.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 98.8%
AUTO & TRANSPORTATION -- 2.9%
4,600 Burlington Northern Santa Fe Corp. 148,028
1,900 CSX Corp. 59,907
6,100 Delphi Corp. 62,220
24,769 Ford Motor Co. 340,574
15,741 General Motors Corp. 757,457
5,600 Harley-Davidson, Inc. 297,472
1,200 Lear Corp. 73,956
1,500 Paccar, Inc. 83,115
--------------
1,822,729
--------------
CONSUMER DISCRETIONARY -- 14.6%
3,500 Abercrombie & Fitch Co.-Class A * 110,355
5,000 Amazon.com, Inc. * 215,750
2,300 Apollo Group, Inc.-Class A * 175,145
3,000 Autonation, Inc. * 50,040
7,800 Best Buy Co., Inc. 415,350
400 Black & Decker Corp. 20,616
1,500 CDW Corp. 103,770
8,700 Comcast Corp.-Class A * 254,214
1,700 Convergys Corp. * 27,642
2,800 Dollar Tree Stores, Inc. * 86,520
9,000 Eastman Kodak Co. 256,860
6,700 eBay, Inc. * 461,362
5,700 EchoStar Communications Corp.-Class A * 205,884
6,100 Federated Department Stores 319,457
55,800 Home Depot, Inc. 2,026,098
4,200 InterActiveCorp * 136,794
5,200 International Game Technology 204,048
2,500 JC Penney Co., Inc. Holding Co. 77,175
5,700 Jones Apparel Group, Inc. 212,610
2,300 Kimberly Clark Corp. 148,764
16,300 Liberty Media Corp.-Class A * 185,820
2,300 Liz Claiborne, Inc. 84,870
5,000 May Department Stores Co. (The) 176,100
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
15,200 McDonald's Corp. 430,160
1,700 Mohawk Industries, Inc. * 141,610
1,300 Nike, Inc.-Class B 95,225
900 Omnicom Group 73,620
1,200 Outback Steakhouse, Inc. 58,068
4,300 Ross Stores, Inc. 137,815
1,400 RR Donnelley & Sons Co. 44,464
3,300 Sabre Holdings Corp. 74,877
8,800 Sears Roebuck & Co. 413,688
5,000 Target Corp. 219,800
45,400 Time Warner, Inc. * 783,150
3,900 Toys R Us, Inc. * 61,230
800 VF Corp. 35,944
1,000 Whirlpool Corp. 72,940
8,500 Yahoo!, Inc. * 377,400
1,700 Yum! Brands, Inc. * 62,951
--------------
9,038,186
--------------
CONSUMER STAPLES -- 4.2%
8,200 Albertson's, Inc. 202,868
26,000 Altria Group, Inc. 1,496,300
800 Campbell Soup Co. 22,368
1,300 H.J. Heinz Co. 49,673
7,800 Kroger Co. * 149,916
16,600 Safeway, Inc. * 379,642
7,200 Sara Lee Corp. 157,104
900 Supervalu, Inc. 25,470
4,900 Tyson Foods, Inc.-Class A 77,812
1,500 UST, Inc. 57,120
--------------
2,618,273
--------------
FINANCIAL SERVICES -- 20.9%
7,000 Allstate Corp. (The) 319,410
3,150 AMBAC Financial Group, Inc. 246,330
3,900 Ameritrade Holding Corp. * 63,492
1,300 Arthur J. Gallagher & Co. 43,745
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
2,900 Bank of America Corp. 237,568
1,900 Bank of New York Co. (The), Inc. 62,700
1,100 Bank One Corp. 59,378
2,000 Bear Stearns Cos. (The), Inc. 175,680
5,600 Capital One Financial Corp. 396,032
5,000 Cigna Corp. 277,150
23,300 Citigroup, Inc. 1,171,058
2,200 CNA Financial Corp. * 60,500
3,500 Comerica, Inc. 201,390
4,266 Countrywide Financial Corp. 390,894
7,300 E*Trade Financial Corp. * 104,463
800 Fair Isaac Corp. 47,712
16,000 Fannie Mae 1,198,400
5,857 Fidelity National Financial, Inc. 229,067
3,400 First Data Corp. 139,332
10,110 FleetBoston Financial Corp. 455,253
2,900 Franklin Resources, Inc. 163,850
8,200 Freddie Mac 507,744
400 Golden West Financial Corp. 46,168
1,350 Greenpoint Financial Corp. 58,887
2,800 Hartford Financial Services Group, Inc. 183,400
1,900 Janus Capital Group, Inc. 32,528
3,500 John Hancock Financial Services, Inc. 147,490
30,610 JP Morgan Chase & Co. 1,255,622
3,800 KeyCorp 123,196
1,100 Lehman Brothers Holdings, Inc. 95,381
4,700 Lincoln National Corp. 218,221
5,600 Loews Corp. 337,624
1,200 Marsh & McLennan Cos., Inc. 57,588
3,000 MBIA, Inc. 197,370
11,800 MBNA Corp. 322,494
1,500 Mellon Financial Corp. 48,570
4,900 Merrill Lynch & Co., Inc. 299,929
3,600 Metlife, Inc. 126,540
4,200 MGIC Investment Corp. 277,956
9,100 Morgan Stanley 543,816
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
3,500 National City Corp. 124,950
4,050 Old Republic International Corp. 95,580
4,200 PMI Group (The), Inc. 166,320
2,800 PNC Financial Services Group, Inc. 164,136
3,100 Radian Group, Inc. 135,470
700 Regions Financial Corp. 25,830
3,000 SEI Investments Co. 107,130
800 Sovereign Bancorp, Inc. 17,720
1,600 Suntrust Banks, Inc. 115,696
1,500 T. Rowe Price Group, Inc. 78,885
3,700 Torchmark Corp. 192,844
1,600 Total System Services, Inc. 33,968
6,300 Travelers Property Casualty Corp.-Class A 114,408
8,200 UnumProvident Corp. 121,524
3,700 Wachovia Corp. 177,489
8,800 Washington Mutual, Inc. 395,472
--------------
12,991,350
--------------
HEALTH CARE -- 15.5%
900 Aetna, Inc. 72,711
900 Allergan, Inc. 78,786
2,300 AmerisourceBergen Corp. 133,469
12,000 Amgen, Inc. * 762,360
11,000 Baxter International, Inc. 320,320
2,400 Becton, Dickinson & Co. 116,760
5,000 Biomet, Inc. 194,900
4,600 Boston Scientific Corp. * 187,910
19,300 Bristol-Myers Squibb Co. 536,926
5,100 Cardinal Health, Inc. 332,673
2,900 First Health Group Corp. * 61,422
9,300 Genentech, Inc. * 1,003,377
1,600 Genzyme Corp. * 81,248
1,300 Gilead Sciences, Inc. * 70,473
7,000 Guidant Corp. 476,980
3,400 Health Net, Inc. * 93,840
9,500 Johnson & Johnson 512,145
1,900 Lincare Holdings, Inc. * 61,446
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
2,900 McKesson Corp. 79,199
21,600 Merck & Co., Inc. 1,038,528
7,400 Millennium Pharmaceuticals, Inc. * 131,794
2,250 Mylan Laboratories 52,875
53,330 Pfizer, Inc. 1,954,545
14,300 Schering-Plough Corp. 256,828
3,400 St. Jude Medical, Inc. * 247,010
2,300 Stryker Corp. 204,079
5,900 Tenet Healthcare Corp. * 70,918
400 Watson Pharmaceuticals, Inc. * 18,368
6,500 Wyeth 256,750
2,800 Zimmer Holdings, Inc. * 211,792
--------------
9,620,432
--------------
INTEGRATED OILS -- 1.8%
1,700 Amerada Hess Corp. 109,395
8,883 ConocoPhillips 611,772
7,400 Marathon Oil Corp. 260,036
3,400 Occidental Petroleum Corp. 150,960
--------------
1,132,163
--------------
MATERIALS & PROCESSING -- 1.2%
5,900 Alcoa, Inc. 221,073
1,800 Engelhard Corp. 52,236
3,000 Freeport-McMoran Copper & Gold, Inc.-Class B 127,950
2,700 Georgia-Pacific Corp. 86,535
3,400 Monsanto Co. 112,336
300 PPG Industries, Inc. 17,607
1,200 Sealed Air Corp. * 59,820
2,600 Sherwin-Williams Co. (The) 91,000
--------------
768,557
--------------
OTHER -- 2.2%
17,500 General Electric Co. 569,100
11,100 Honeywell International, Inc. 389,055
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
OTHER -- CONTINUED
4,800 Johnson Controls, Inc. 279,936
1,900 Textron, Inc. 105,146
--------------
1,343,237
--------------
OTHER ENERGY -- 0.8%
25,900 EL Paso Corp. 192,696
2,400 Halliburton Co. 76,704
2,500 Valero Energy Corp. 150,000
4,500 Williams Cos., Inc. 42,615
733 XTO Energy, Inc. 21,873
--------------
483,888
--------------
PRODUCER DURABLES -- 4.5%
9,100 Agilent Technologies, Inc. * 311,129
1,300 American Power Conversion Corp. 29,406
16,000 Applied Materials, Inc. * 339,840
6,900 Boeing Co. (The) 299,253
2,200 Caterpillar, Inc. 166,650
2,600 Centex Corp. 277,680
9,900 D.R. Horton, Inc. 314,721
1,700 KB Home 122,995
1,900 KLA-Tencor Corp. * 100,320
2,800 Lennar Corp.-Class A 138,460
700 Lexmark International, Inc. * 57,603
1,160 Northrop Grumman Corp. 117,288
3,200 Pulte Homes, Inc. 168,832
1,400 United Technologies Corp. 128,954
14,000 Xerox Corp. * 197,960
--------------
2,771,091
--------------
TECHNOLOGY -- 18.4%
2,500 Adobe Systems, Inc. 93,100
4,700 Altera Corp. * 103,776
2,300 Analog Devices, Inc. 114,770
2,400 Applera Corp.-Applied Biosystems Group 54,720
12,100 Avaya, Inc. * 207,515
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
6,400 BEA Systems, Inc. * 88,320
7,000 BMC Software, Inc. * 137,200
4,400 Broadcom Corp.-Class A * 178,552
5,100 Cadence Design Systems, Inc. * 78,693
35,700 Cisco Systems, Inc. * 824,670
4,700 Citrix Systems, Inc. * 99,546
21,100 Computer Associates International, Inc. 560,416
32,300 Corning, Inc. * 405,365
4,700 Dell, Inc. * 153,455
12,400 Electronic Data Systems Corp. 237,460
34,600 EMC Corp., Massachusetts * 495,472
1,000 General Dynamics Corp. 92,120
28,300 Hewlett-Packard Co. 642,693
96,400 Intel Corp. 2,817,772
11,100 International Business Machines Corp. 1,071,150
6,300 Juniper Networks, Inc. * 162,981
1,900 Linear Technology Corp. 75,981
21,100 Microsoft Corp. 559,150
9,600 Motorola, Inc. 177,120
50,400 Oracle Corp. * 649,152
300 Qualcomm, Inc. 19,035
2,400 Rockwell Automation, Inc. 73,104
3,200 Sandisk Corp. * 81,152
6,000 Sanmina-SCI Corp. * 76,140
3,900 Scientific-Atlanta, Inc. 129,090
3,000 Siebel Systems, Inc. * 39,180
13,200 Sun Microsystems, Inc. * 70,488
9,200 Tellabs, Inc. * 89,240
15,400 Texas Instruments, Inc. 472,010
9,100 Veritas Software Corp. * 276,822
--------------
11,407,410
--------------
UTILITIES -- 11.8%
10,900 AES Corp. (The) * 98,754
500 Ameren Corp. 23,700
5,200 American Electric Power Co., Inc. 179,400
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
UTILITIES -- CONTINUED
18,480 AT&T Corp. 370,154
31,600 AT&T Wireless Services, Inc. * 429,128
27,000 BellSouth Corp. 744,120
4,400 Cablevision Systems Corp.-Class A * 112,112
8,100 Citizens Communications Co. * 106,758
1,400 Consolidated Edison, Inc. 61,838
1,700 Constellation Energy Group, Inc. 67,575
7,500 Cox Communications, Inc.-Class A * 243,000
7,900 Duke Energy Corp. 173,484
5,400 Edison International 124,686
1,500 FirstEnergy Corp. 57,945
1,200 FPL Group, Inc. 78,780
2,000 Kinder Morgan, Inc. 123,420
10,600 Nextel Communications, Inc.-Class A * 280,794
17,000 PG&E Corp. * 478,890
1,600 Pinnacle West Capital Corp. 62,544
3,800 PPL Corp. 176,814
2,500 Public Service Enterprise Group, Inc. 117,850
63,126 SBC Communications, Inc. 1,515,655
3,600 Sempra Energy 114,120
20,400 Sprint Corp.-FON Group 361,692
10,200 Sprint Corp.-PCS Group * 91,800
2,700 TXU Corp. 75,951
23,742 Verizon Communications, Inc. 910,031
7,100 Xcel Energy, Inc. 124,037
--------------
7,305,032
--------------
TOTAL COMMON STOCKS (COST $51,714,426) 61,302,348
--------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.2%
REPURCHASE AGREEMENTS -- 1.2%
707,017 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $707,055
and an effective yield of 0.65%, collateralized by a
U.S. Treasury Bill with a rate of 0.915%, maturity date
of 5/20/04 and a market value, including accrued
interest of $721,229. 707,017
------------
TOTAL SHORT-TERM INVESTMENTS (COST $707,017) 707,017
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $52,421,443) 62,009,365
Other Assets and Liabilities (net) -- 0.0% 17,243
------------
TOTAL NET ASSETS -- 100.0% $ 62,026,608
============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
See accompanying notes to the financial statements.
9
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $52,421,443) (Note 2) $ 62,009,365
Cash 19
Dividends and interest receivable 69,863
Receivable for expenses reimbursed by Manager (Note 3) 5,126
--------------
Total assets 62,084,373
--------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 16,208
Shareholder service fee 7,367
Trustees fee 100
Accrued expenses 34,090
--------------
Total liabilities 57,765
--------------
NET ASSETS $ 62,026,608
==============
NET ASSETS CONSIST OF:
Paid-in capital $ 58,296,385
Accumulated undistributed net investment income 97,249
Accumulated net realized loss (5,954,948)
Net unrealized appreciation 9,587,922
--------------
$ 62,026,608
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 62,026,608
==============
SHARES OUTSTANDING:
Class III 5,354,196
==============
NET ASSET VALUE PER SHARE:
Class III $ 11.58
==============
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 924,058
Interest (including securities lending income of $399) 2,782
--------------
Total income 926,840
--------------
EXPENSES:
Management fee (Note 3) 168,016
Shareholder service fee (Note 3) - Class III 76,371
Custodian and transfer agent fees 22,709
Audit and tax fees 37,439
Legal fees 2,428
Trustees fees and related expenses (Note 3) 1,050
Registration fees 3,660
Miscellaneous 1,148
--------------
Total expenses 312,821
Fees and expenses reimbursed by Manager (Note 3) (67,384)
--------------
Net expenses 245,437
--------------
Net investment income 681,403
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (551,929)
Closed futures contracts 18,038
--------------
Net realized loss (533,891)
--------------
Change in net unrealized appreciation (depreciation) on investments 15,258,594
--------------
Net realized and unrealized gain 14,724,703
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,406,106
==============
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED
YEAR ENDED FEBRUARY 28,
FEBRUARY 29, 2004 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 681,403 $ 526,010
Net realized loss (533,891) (4,064,109)
Change in net unrealized appreciation
(depreciation) 15,258,594 (5,886,181)
----------------- -----------------
Net increase (decrease) in net assets
from operations 15,406,106 (9,424,280)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (685,290) (478,306)
----------------- -----------------
Net share transactions (Note 7):
Class III 6,958,552 22,755,004
----------------- -----------------
Increase in net assets resulting from net share
transactions 6,958,552 22,755,004
----------------- -----------------
Total increase in net assets 21,679,368 12,852,418
NET ASSETS:
Beginning of period 40,347,240 27,494,822
----------------- -----------------
End of period (including accumulated
undistributed net investment income of
$97,249 and $104,827, respectively) $ 62,026,608 $ 40,347,240
================= =================
</Table>
See accompanying notes to the financial statements.
12
<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>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.62 $ 11.24 $ 12.08 $ 12.64 $ 10.67
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.14+ 0.14+ 0.16+ 0.15+ 0.13
Net realized and unrealized gain (loss) 2.96 (2.64) (0.86) (0.57) 1.97
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.10 (2.50) (0.70) (0.42) 2.10
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.14) (0.12) (0.14) (0.14) (0.13)
---------- ---------- ---------- ---------- ----------
Total distributions (0.14) (0.12) (0.14) (0.14) (0.13)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 11.58 $ 8.62 $ 11.24 $ 12.08 $ 12.64
========== ========== ========== ========== ==========
TOTAL RETURN (a) 36.21% (22.33)% (5.78)% (3.44)% 19.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 62,027 $ 40,347 $ 27,495 $ 11,418 $ 13,275
Net expenses to average daily net assets 0.48% 0.49% 0.48% 0.48% 0.48%
Net investment income to average daily net assets 1.34% 1.41% 1.36% 1.18% 1.11%
Portfolio turnover rate 70% 63% 45% 161% 19%
Fees and expenses reimbursed by the Manager
to average daily net assets: 0.13% 0.16% 0.36% 0.54% 0.44%
</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.
See accompanying notes to the financial statements.
13
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Tax-Managed U.S. Equities Fund (the "Fund"), is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, non-diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees
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).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United States
of America ("U.S. GAAP") and which are consistently followed by the Fund in
the preparation of its financial statements. The preparation of financial
statements in accordance with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such reported
sale or official closing price, at the most recent quoted bid price. Unlisted
securities for which market quotations are readily available are 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.
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
14
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
accordance with the initial margin requirements of the broker or exchange. In
addition, the Fund maintains cash or securities in an amount that at least
equals the net amount payable in the event the Fund must deliver the full
amount of the contracts. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated on
the following business day. Gains or losses are recognized but not considered
realized until the contracts expire or are closed. Futures contracts involve,
to varying degrees, risk of loss in excess of the variation margin disclosed
in the Statement of Assets and Liabilities. Under certain circumstances,
futures exchanges may establish daily limits on the amount that the price of
a futures contract can vary from the previous day's settlement price, thereby
effectively preventing liquidation of unfavorable positions. Losses may arise
from the changes in the value of the underlying instrument, if the Fund is
unable to liquidate a futures position due to an illiquid secondary market
for the contracts or the imposition of price limits, or if counterparties do
not perform under the contract terms. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they are traded. At February 29, 2004, 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. 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 on swaps
contracts 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 February 29, 2004, the
Fund held no open swap agreements.
15
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. See Schedule of Investments for open repurchase agreement
as of February 29, 2004.
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 February 29, 2004,
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.
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.
During the years ended February 29, 2004 and February 28, 2003, the tax basis
of distributions paid from ordinary income were $685,290 and $478,306,
respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $97,249 of undistributed ordinary income.
At February 29, 2004, 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, $3,063,585 and $1,837,014 expiring in 2008, 2010, 2011
and 2012, respectively.
16
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The following reclassification represents the amount necessary to report the
stated components of net assets on a tax basis, excluding certain temporary
differences, as of February 29, 2004. This reclassification has no impact on
net investment income, realized gain/loss or the net asset value of the Fund
and is primarily attributable to certain differences in the computation of
distributable income and capital gains under U.S. federal tax rules versus
U.S. GAAP. The financial highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- ------------- ---------------
$ (3,691) $ 3,692 $ (1)
</Table>
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.
3. 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 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 .33% of the average daily net assets.
17
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $671. No remuneration is paid to
any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended February 29, 2004, aggregated $41,209,411 and
$34,606,283, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 52,421,443 $ 10,130,580 $ (542,658) $ 9,587,922
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that contain
a variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Fund that have not yet occurred. Based on experience, management is of the
view that the risk of loss in connection with these potential indemnification
obligations is remote; however, there can be no assurance that material
liabilities related to such obligations will not arise in the future that
could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 45.5% 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.
18
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------- ----------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Shares sold 1,462,760 $ 14,921,766 2,413,324 $ 24,569,187
Shares issued to shareholders
in reinvestment of
distributions 10,692 109,995 2,643 24,973
Shares repurchased (799,211) (8,073,209) (181,198) (1,839,156)
------------ ------------ ------------ ------------
Net increase 674,241 $ 6,958,552 2,234,769 $ 22,755,004
============ ============ ============ ============
</Table>
19
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO TAX-MANAGED U.S. EQUITIES FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of GMO Tax-Managed
U.S. Equities Fund (the "Fund") (a series of GMO Trust) at February 29, 2004
and the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
20
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 99.52% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, 85.24% of the Fund's income qualified for the
dividends-received deduction.
21
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------- --------------- ----------------- ---------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)
(1998 -
present);
Consultant
- Business
and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for
the purpose of electing Trustees and until his successor is
elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and
Security Capital European Realty. Neither of these companies has a
class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or subject to the requirements of Section 15(d) of the Exchange
Act and neither of these companies is a registered investment
company.
22
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------- --------------- ----------------- -------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for
the purpose of electing Trustees and until his successor is
elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and
Grantham, Mayo, Van Otterloo & Co. LLC, as defined by the
Investment Company Act of 1940, as amended.
23
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- --------------------- ---------------- ------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van Otterloo
October 2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van Otterloo
c/o GMO Trust Secretary since & Co. LLC (June 1999 -
40 Rowes Wharf March 2001. present); Associate/Junior
Boston, MA 02110 Partner, Hale and Dorr LLP
DOB: 02/18/1945 (1991 - 1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is
elected and qualified to carry out the duties and responsibilities
of their office, or until he or she resigns or is removed from
office.
24
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the U.S.
Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Tax-Managed Small Companies Fund returned +54.2% for the fiscal year
ended February 29, 2004, as compared to +61.2% for the Russell 2500 Index. On an
after-tax basis, the Fund returned +54.1% compared to the benchmark's +60.9% for
the same period. Consistent with the Fund's investment objectives and policies,
the Fund was invested substantially in U.S. equity securities throughout the
period.
Stock selection was the primary cause of the portfolio's underperformance in the
high returning year. The portfolio benefited from overweights in home building
related stocks such as Centex and Toll Brothers, which outperformed. Selection
was also strong within financial services. The portfolio was less successful
selecting stocks within the remaining sectors such as technology or consumer
discretionary sectors.
Sector selection also detracted from relative performance for the year. A 2%
underweight in technology stocks, which returned over 87% for the fiscal year,
proved costly to the portfolio, as did a 1% underweight in health care.
Overweights in producer durables and consumer discretionary stocks, which added
value, were unable to compensate for these allocations.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
TAX-MANAGED SMALL COMPANIES FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO TAX-MANAGED SMALL COMPANIES FUND* RUSSELL 2500 INDEX*
6/1/1999 4,975,000 5,000,000
6/30/1999 5,188,925 5,277,865
9/30/1999 4,796,820 4,937,640
12/31/1999 4,973,710 5,909,065
3/31/2000 5,063,775 6,505,770
6/30/2000 4,644,595 6,245,545
9/30/2000 5,022,120 6,395,545
12/31/2000 5,361,245 6,161,205
3/31/2001 5,219,360 5,627,235
6/30/2001 5,744,095 6,400,245
9/30/2001 5,127,095 5,194,915
12/31/2001 5,858,140 6,236,395
3/31/2002 6,393,035 6,469,500
6/30/2002 6,256,005 5,910,920
9/30/2002 5,094,245 4,807,610
12/31/2002 5,316,695 5,126,660
3/31/2003 5,062,035 4,916,915
6/30/2003 6,097,775 5,994,160
9/30/2003 6,489,355 6,518,745
12/31/2003 7,417,570 7,459,665
2/29/2004 7,741,895 7,851,425
</Table>
Average Annual Returns
Inception 6/1/1999
<Table>
<Caption>
1YR 5YR 10YR(ITD)
53.44 N/A 9.64
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 50 bp on the purchase. Transaction fees are retained by the
Fund to cover trading costs. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
* Returns are before taxes.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
COMMON STOCKS -- 98.7%
AUTO & TRANSPORTATION -- 4.8%
1,800 Airtran Holdings, Inc. * 22,284
3,500 America West Holdings Corp.-Class B * 38,255
1,600 American Axle & Manufacturing Holdings, Inc. * 60,816
3,900 AMR Corp. * 59,280
1,900 Arctic Cat, Inc. 47,994
4,825 ArvinMeritor, Inc. 108,852
1,300 BorgWarner, Inc. 117,260
4,100 Cooper Tire & Rubber Co. 81,795
3,700 Dana Corp. 79,143
3,500 Frontier Airlines, Inc. * 35,525
2,900 Kansas City Southern * 40,745
1,100 Keystone Automotive Industries, Inc. * 29,436
3,500 Lear Corp. 215,705
2,200 Mesa Air Group, Inc. * 19,778
1,000 Navistar International Corp. * 46,600
4,100 Northwest Airlines Corp.-Class A * 44,444
3,000 Offshore Logistics, Inc. * 68,970
1,200 P.A.M. Transportation Services, Inc. * 21,108
1,200 USF Corp. 42,420
-------------
1,180,410
-------------
CONSUMER DISCRETIONARY -- 20.9%
3,600 Abercrombie & Fitch Co.-Class A * 113,508
1,350 Advo, Inc. 43,618
4,900 Allied Waste Industries, Inc. * 61,887
2,200 American Eagle Outfitters * 53,658
3,000 American Greetings Corp.-Class A * 68,010
3,100 Applebee's International, Inc. 126,821
2,700 Ask Jeeves, Inc. * 54,513
1,900 Banta Corp. 84,284
3,100 BJ's Wholesale Club, Inc. * 73,625
1,500 Blyth, Inc. 50,925
1,800 Bob Evans Farms, Inc. 60,894
2,325 Brightpoint, Inc. * 39,595
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
3,500 Callaway Golf Co. 65,345
800 Career Education Corp. * 39,992
2,000 Catalina Marketing Corp. * 34,940
800 CEC Entertainment, Inc. * 43,656
800 Central European Distribution Corp. * 27,680
1,700 Central Garden & Pet Co. * 58,718
11,100 Charter Communications, Inc.-Class A * 50,394
1,800 Children's Place * 55,152
1,800 Claire's Stores, Inc. 36,396
3,800 CNET Networks, Inc. * 37,772
400 Coach, Inc. * 15,852
1,300 Columbia Sportswear Co. * 67,613
2,400 Consolidated Graphics, Inc. * 89,424
2,200 Convergys Corp. * 35,772
1,200 Corrections Corp. of America * 40,284
4,200 Crown Media Holdings, Inc. * 34,818
3,900 DoubleClick, Inc. * 42,315
3,500 Dress Barn, Inc. * 59,255
7,900 Earthlink, Inc. * 72,127
400 Ethan Allen Interiors, Inc. 17,388
1,600 FindWhat.com * 26,896
1,500 Foot Locker, Inc. 39,300
1,600 Fossil, Inc. * 55,616
1,600 Global Imaging Systems, Inc. * 48,256
900 Group 1 Automotive, Inc. * 32,760
2,200 GTECH Holdings Corp. 129,206
3,000 Hasbro, Inc. 65,610
6,700 Ikon Office Solutions, Inc. 78,725
1,700 Infospace, Inc. * 61,812
3,300 InfoUSA, Inc. * 33,660
1,600 Isle of Capri Casinos, Inc. * 36,768
2,100 ITT Educational Services, Inc. * 79,737
2,200 Jack in the Box, Inc. * 54,714
2,700 Lone Star Steakhouse & Saloon, Inc. 73,359
1,500 Marvel Enterprises, Inc. * 51,375
1,400 Maximus, Inc. * 48,860
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
1,700 Maytag Corp. 47,991
3,500 Monster Worldwide, Inc. * 77,000
2,000 MPS Group, Inc. * 19,500
1,500 Neiman-Marcus Group, Inc.-Class A 84,720
2,400 NetFlix, Inc. * 82,560
5,500 Nu Skin Enterprises, Inc.-Class A 105,325
1,200 O'Charley's, Inc. * 21,900
1,400 Outback Steakhouse, Inc. 67,746
3,600 Pacific Sunwear of California, Inc. * 86,292
600 Pantry (The), Inc. * 12,678
1,200 Papa John's International, Inc. * 44,184
3,900 Payless Shoesource, Inc. * 52,065
3,600 Pier 1 Imports, Inc. 84,276
3,000 Polo Ralph Lauren Corp. 100,710
1,500 Prime Hospitality Corp. * 16,035
1,500 R.H. Donnelley Corp. * 65,025
2,500 Reebok International, Ltd. 99,525
800 Regis Corp. 34,576
3,250 Rent-A-Center, Inc. * 105,657
1,800 Rex Stores Corp. * 24,876
4,600 Ross Stores, Inc. 147,430
900 RR Donnelley & Sons Co. 28,584
3,600 Ryan's Family Steak House, Inc. * 62,640
900 Shoe Carnival, Inc. * 13,761
2,000 Shopko Stores, Inc. * 30,540
2,000 Sonic Automotive, Inc. 49,200
1,400 Steinway Musical Instruments, Inc. * 41,146
2,500 Steven Madden, Ltd. * 47,825
2,600 Tech Data Corp. * 105,222
1,700 Tetra Tech, Inc. * 36,210
2,900 Tupperware Corp. 55,390
1,500 United Auto Group, Inc. 42,570
2,400 United Stationers, Inc. * 95,304
900 Universal Electronics, Inc. * 11,475
3,700 Ventiv Health, Inc. * 41,810
7,500 VeriSign, Inc. * 130,575
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
2,000 Whitehall Jewellers, Inc. * 18,780
1,200 WMS Industries, Inc. * 31,884
2,000 World Fuel Services Corp. 70,700
6,600 XM Satellite Radio Holdings, Inc.-Class A * 161,568
-------------
5,128,140
-------------
CONSUMER STAPLES -- 2.5%
1,000 7-Eleven, Inc. * 16,300
1,200 Dean Foods Co. * 43,572
1,700 Ingles Markets, Inc.-Class A 18,904
2,100 Interstate Bakeries 31,500
1,300 Nash Finch Co. 30,160
1,300 Natures Sunshine Products, Inc. 16,211
5,300 PepsiAmericas, Inc. 101,654
7,400 Rite Aid Corp. * 41,292
2,800 Smithfield Foods, Inc. * 71,624
2,000 Standard Commercial Corp. 37,860
3,600 Supervalu, Inc. 101,880
1,800 Universal Corp. 90,756
-------------
601,713
-------------
FINANCIAL SERVICES -- 19.5%
1,100 Amcore Financial, Inc. 32,417
3,100 American Financial Group, Inc. 93,248
5,400 AmeriCredit Corp. * 102,708
2,500 Ameritrade Holding Corp. * 40,700
3,000 AmerUs Group Co. 116,940
400 AMLI Residential Properties Trust REIT 11,460
4,400 Annaly Mortgage Management, Inc. REIT 89,760
3,400 Anworth Mortgage Asset Corp. REIT 47,090
600 Arden Realty, Inc. REIT 18,960
1,600 Astoria Financial Corp. 64,544
1,700 Capstead Mortgage Corp. REIT 29,393
1,200 Checkfree Corp. * 34,836
1,200 Citizens Banking Corp. 39,852
4,800 Colonial BancGroup (The), Inc. 88,464
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
1,900 Commerce Group, Inc. 88,388
1,400 Commercial Federal Corp. 39,256
2,000 Commercial Net Lease Realty REIT 38,700
900 Community First Bankshares, Inc. 25,533
1,704 Delphi Financial Group, Inc.-Class A 66,422
2,000 Downey Financial Corp. 107,660
6,500 E*Trade Financial Corp. * 93,015
1,300 Entertainment Properties Trust REIT 49,335
2,250 Equity One, Inc. REIT 42,098
2,400 eSpeed, Inc.-Class A * 48,456
1,200 Factset Research Systems, Inc. 44,196
5,562 Fidelity National Financial, Inc. 217,514
5,000 First American Corp. 152,750
800 First Industrial Realty Trust, Inc. REIT 30,080
2,500 FirstMerit Corp. 66,300
3,600 Flagstar Bancorp, Inc. 93,060
5,100 Fremont General Corp. 114,495
2,900 Friedman Billings Ramsey Group, Inc.-Class A 77,198
3,700 GATX Corp. 87,024
774 German American Bancorp 13,607
3,100 Greater Bay Bancorp 85,436
1,800 Highwoods Properties, Inc. REIT 46,386
11,400 HRPT Properties Trust REIT 126,312
3,200 IMPAC Mortgage Holdings, Inc. REIT 67,840
1,600 IndyMac Bancorp, Inc. 56,320
2,400 Interpool, Inc. 34,320
900 Kansas City Life Insurance Co. 40,662
1,300 Kimco Realty Corp. REIT 61,035
2,800 La Quinta Corp. * 21,644
1,300 Landamerica Financial Group, Inc. 60,840
2,000 Lexington Corporate Properties Trust REIT 42,480
1,100 Liberty Property Trust REIT 46,508
1,100 Local Financial Corp. * 24,167
2,100 Mack-Cali Realty Corp. REIT 89,376
1,000 MAF Bancorp, Inc. 44,450
6,700 Meristar Hospitality Corp. REIT * 41,875
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
4,200 MFA Mortgage Investments, Inc. REIT 43,680
2,900 National Health Investors, Inc. REIT 80,910
1,100 Nationwide Financial Services-Class A 41,844
1,950 New Century Financial Corp. 95,550
1,400 Novastar Financial, Inc. REIT 73,990
1,200 PMI Group (The), Inc. 47,520
1,400 Post Properties, Inc. REIT 39,928
2,800 Protective Life Corp. 106,512
1,000 Provident Financial Group, Inc. 40,070
14,600 Providian Financial Corp. * 188,778
800 Redwood Trust, Inc. REIT 48,600
1,500 Reinsurance Group of America, Inc. 60,675
2,600 Ryder System, Inc. 95,784
700 Sovran Self Storage, Inc. REIT 26,565
900 Stewart Information Services Corp. 32,850
900 Student Loan Corp. 138,249
2,200 Thornburg Mortgage, Inc. REIT 64,790
1,400 Trustmark Corp. 42,686
2,100 United Rentals, Inc. * 36,834
2,400 Ventas, Inc. REIT 63,480
2,079 Washington Federal, Inc. 53,971
1,000 Webster Financial Corp. 50,350
1,600 WFS Financial, Inc. 70,976
700 WSFS Financial Corp. 33,958
-------------
4,773,660
-------------
HEALTH CARE -- 11.1%
600 Able Laboratories, Inc. * 11,106
3,600 Align Technology, Inc. * 71,028
1,300 American Medical Security Group, Inc. * 30,667
2,850 American Pharmaceutical Partners, Inc. * 101,745
700 Barr Pharmaceuticals, Inc. * 54,187
5,800 Beverly Enterprises, Inc. * 46,400
1,700 Biolase Technology, Inc. * 31,501
700 Bio-Reference Labs, Inc. * 13,230
2,300 Celgene Corp. * 94,277
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
3,600 Covance, Inc. * 108,000
2,100 Cyberonics, Inc. * 51,282
5,200 Cytyc Corp. * 85,696
1,200 Digene Corp. * 45,600
2,700 Discovery Laboratories, Inc. * 32,400
1,200 eResearch Technology, Inc. * 37,152
4,700 Humana, Inc. * 103,024
1,200 Idexx Laboratories, Inc. * 61,284
1,900 ImClone Systems, Inc. * 79,762
2,400 Impax Laboratories, Inc. * 51,960
1,200 Inamed Corp. * 57,480
400 Invacare Corp. 17,872
1,900 Invitrogen Corp. * 140,030
5,800 Ivax Corp. * 129,108
1,300 LCA-Vision, Inc. * 25,663
3,100 Ligand Pharmaceuticals, Inc.-Class B * 47,709
700 Martek Biosciences Corp. * 41,622
3,100 Medicines Co. * 84,196
800 Medicis Pharmaceutical Corp.-Class A 31,496
1,600 MGI Pharma, Inc. * 78,592
2,025 Odyssey HealthCare, Inc. * 43,943
2,300 Omnicell, Inc. * 46,874
1,800 Onyx Pharmaceuticals, Inc. * 66,240
3,100 Orthodontic Centers of America, Inc. * 23,219
4,800 Pacificare Health Systems * 171,360
1,900 Pharmaceutical Resources, Inc. * 118,541
2,600 PolyMedica Corp. 66,066
1,100 Possis Medical, Inc. * 28,369
2,300 Res-Care, Inc. * 22,540
3,000 Select Medical Corp. 47,910
1,600 Sepracor, Inc. * 45,472
2,700 Thoratec Corp. * 35,100
1,200 Varian Medical Systems, Inc. * 100,488
3,300 Watson Pharmaceuticals, Inc. * 151,536
-------------
2,731,727
-------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
INTEGRATED OILS -- 0.1%
1,600 KCS Energy, Inc. * 17,312
-------------
MATERIALS & PROCESSING -- 5.3%
1,900 Ashland, Inc. 91,029
1,100 Ceradyne, Inc. * 40,150
3,000 Commercial Metals Co. 89,100
2,000 Cytec Industries, Inc. 69,580
2,200 DHB Industries, Inc. * 12,430
800 Fluor Corp. 32,984
800 Harsco Corp. 36,344
800 Hughes Supply, Inc. 38,120
3,300 Lafarge North America, Inc. 135,894
800 LNR Property Corp. 42,160
1,300 Lubrizol Corp. 40,638
4,000 Owens-IIlinois, Inc. * 53,520
3,700 Precision Castparts Corp. 167,055
1,100 Quanex Corp. 51,205
1,300 Sealed Air Corp. * 64,805
1,900 Shaw Group (The), Inc. * 22,876
1,800 Sonoco Products Co. 44,910
2,000 United States Steel Corp. 73,500
1,600 URS Corp. * 48,960
1,000 USG Corp. * 17,320
1,500 Wilson Greatbatch Technologies, Inc. * 54,345
2,300 York International Corp. 85,859
-------------
1,312,784
-------------
OTHER -- 0.8%
1,200 FMC Corp. * 45,000
3,200 Kaman Corp.-Class A 45,120
2,000 Lancaster Colony Corp. 84,780
400 SPX Corp. * 16,800
-------------
191,700
-------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
OTHER ENERGY -- 3.1%
19,700 Calpine Corp. * 108,547
12,600 Chesapeake Energy Corp. 161,532
2,600 Comstock Resources, Inc. * 50,180
1,200 Evergreen Resources, Inc. * 39,480
1,700 Massey Energy Co. 35,819
1,300 Peabody Energy Corp. 55,640
1,600 Petroleum Development Corp. * 45,760
1,500 Pogo Producing Co. 68,055
6,600 Reliant Resources, Inc. * 50,160
3,700 Transmontaigne, Inc. * 24,790
4,266 XTO Energy, Inc. 127,297
-------------
767,260
-------------
PRODUCER DURABLES -- 9.8%
3,800 American Power Conversion Corp. 85,956
4,900 American Tower Corp.-Class A * 54,145
1,100 Ametek, Inc. 54,615
800 Applied Films Corp. * 27,856
2,600 Artesyn Technologies, Inc. * 28,340
700 Beazer Homes USA, Inc. 74,830
600 Belden, Inc. 11,868
2,600 Centex Corp. 277,680
6,000 Crown Castle International Corp. * 72,300
900 Dionex Corp. * 47,610
3,300 General Cable Corp. * 23,595
1,700 Goodrich Corp. 50,133
700 Hovnanian Enterprises, Inc. * 56,483
2,900 InterDigital Communications Corp. * 77,024
2,500 KB Home 180,875
700 Kimball International, Inc.-Class B 11,851
2,200 Kulicke and Soffa Industries, Inc. * 27,390
4,000 Lam Research Corp. * 102,280
1,940 MDC Holdings, Inc. 136,634
1,000 Meritage Corp. * 74,080
3,200 Plantronics, Inc. * 127,744
2,300 Polycom, Inc. * 50,761
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
2,800 Pulte Homes, Inc. 147,728
1,800 Ryland Group, Inc. 154,296
2,300 Standard-Pacific Corp. 120,313
1,500 Standex International Corp. 40,815
300 Tecumseh Products Co.-Class A 13,509
4,400 Toll Brothers, Inc. * 193,160
2,100 Watts Water Technologies, Inc.-Class A 48,594
500 William Lyon Homes, Inc. * 41,005
-------------
2,413,470
-------------
TECHNOLOGY -- 14.5%
3,500 Adaptec, Inc. * 31,955
2,600 Adtran, Inc. 84,656
4,800 Akamai Technologies, Inc. * 72,000
1,700 American Management Systems, Inc. * 25,993
2,200 American Superconductor Corp. * 30,536
3,400 Amkor Technology, Inc. * 52,598
2,000 Anadigics, Inc. * 13,078
2,400 Aspen Technology, Inc. * 21,048
8,800 Avaya, Inc. * 150,920
2,000 Avid Technology, Inc. * 84,940
800 Black Box Corp. 41,208
4,700 ChipPAC, Inc.-Class A * 40,091
2,700 Ciber, Inc. * 25,650
10,600 Ciena Corp. * 60,738
10,100 Compuware Corp. * 79,184
4,100 Comverse Technology, Inc. * 80,852
4,800 Cypress Semiconductor Corp. * 103,584
3,000 Digital River, Inc. * 65,670
2,500 Ditech Communications Corp. * 46,725
1,200 eCollege.com, Inc. * 24,060
3,200 Electronics for Imaging * 81,184
3,600 Epicor Software Corp. * 50,760
9,100 Foundry Networks, Inc. * 214,760
3,300 Harmonic, Inc. * 40,392
2,500 Ingram Micro, Inc.-Class A * 47,450
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
6,200 Juniper Networks, Inc. * 160,394
4,000 Kemet Corp. * 58,880
1,100 KVH Industries, Inc. * 17,864
3,200 Lionbridge Technologies, Inc. * 26,464
5,700 LSI Logic Corp. * 57,570
4,700 Manufacturers Services, Ltd. * 31,349
1,400 Mercury Computer Systems, Inc. * 40,992
4,000 Microsemi Corp. * 62,400
900 MicroStrategy, Inc.-Class A * 56,196
3,300 Netegrity, Inc. * 30,195
2,900 NetScreen Technologies, Inc. * 102,805
900 Packeteer, Inc. * 13,014
2,200 PerkinElmer, Inc. 45,848
1,800 Pixelworks, Inc. * 29,664
4,200 PMC-Sierra, Inc. * 83,580
1,500 Quest Software, Inc. * 23,655
4,200 Rambus, Inc. * 136,038
3,000 RSA Security, Inc. * 49,890
1,800 Sandisk Corp. * 45,648
15,800 Sanmina-SCI Corp. * 200,502
4,200 Scientific-Atlanta, Inc. 139,020
1,400 SCO Group (The), Inc. * 17,052
1,300 Siliconix, Inc. * 61,113
5,900 Sonus Networks, Inc. * 34,987
3,000 SPSS, Inc. * 61,350
600 Stratasys, Inc. * 10,452
2,300 Syntel, Inc. 61,617
1,300 Talx Corp. 24,882
5,000 Tekelec * 96,850
800 Trident Microsystems, Inc. * 13,072
1,400 Trimble Navigation, Ltd. * 46,396
1,300 UNOVA, Inc. * 28,314
2,000 Utstarcom, Inc. * 66,262
5,800 Vitesse Semiconductor Corp. * 46,342
1,300 Xicor, Inc. * 18,122
-------------
3,568,811
-------------
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
UTILITIES -- 6.3%
10,400 AES Corp. (The) * 94,224
2,800 Allegheny Energy, Inc. * 36,932
2,500 Alliant Energy Corp. 64,375
2,600 Cablevision Systems Corp.-Class A * 66,248
4,100 Centerpoint Energy, Inc. 42,886
3,500 DPL, Inc. 70,000
1,000 Duquesne Light Holdings, Inc. 19,930
3,900 EL Paso Electric Co. * 53,079
1,800 Energen Corp. 74,736
900 Great Plains Energy, Inc. 31,185
700 Hawaiian Electric Industries, Inc. 37,065
1,350 MDU Resources Group, Inc. 31,280
2,700 National Fuel Gas Co. 68,310
700 NII Holdings, Inc.-Class B * 75,845
1,700 Northeast Utilities 32,708
800 NSTAR 40,920
1,100 NTL, Inc. * 75,416
2,400 OGE Energy Corp. 61,800
500 Peoples Energy Corp. 22,295
2,300 PNM Resources, Inc. 70,058
3,400 Primus Telecommunications GP * 25,738
1,000 Puget Energy, Inc. 22,500
1,300 Questar Corp. 46,605
2,400 Talk America Holdings, Inc. * 28,080
3,600 TECO Energy, Inc. 54,252
3,800 Time Warner Telecom, Inc.-Class A * 26,334
1,950 UGI Corp. 64,545
800 UIL Holdings Corp. 38,488
6,900 UnitedGlobalCom, Inc.-Class A * 65,481
2,100 Western Wireless Corp.-Class A * 50,589
1,400 Wisconsin Energy Corp. 45,248
-------------
1,537,152
-------------
TOTAL COMMON STOCKS (COST $16,407,966) 24,224,139
-------------
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.4%
REPURCHASE AGREEMENTS -- 1.4%
336,909 Citigroup Global Markets Repurchase Agreement, dated
02/27/04, due 03/01/04, with a maturity value of $336,927,
and an effective yield of 0.65%, collateralized by a U.S.
Treasury Bill with a rate of 0.915%, maturity date of
05/20/04, and a market value, including accrued interest
of $343,681. 336,909
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $336,909) 336,909
-------------
TOTAL INVESTMENTS -- 100.1%
(Cost $16,744,875) 24,561,048
Other Assets and Liabilities (net) -- (0.1%) (32,402)
-------------
TOTAL NET ASSETS -- 100.0% $ 24,528,646
=============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
REIT - Real Estate Investment Trust
* Non-income producing security.
See accompanying notes to the financial statements.
13
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $16,744,875) (Note 2) $ 24,561,048
Dividends and interest receivable 14,946
Receivable for expenses reimbursed by Manager (Note 3) 4,506
-------------
Total assets 24,580,500
-------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 10,606
Shareholder service fee 2,892
Trustees fee 43
Accrued expenses 38,313
-------------
Total liabilities 51,854
-------------
NET ASSETS $ 24,528,646
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 23,594,128
Accumulated net realized loss (6,881,655)
Net unrealized appreciation 7,816,173
-------------
$ 24,528,646
=============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 24,528,646
=============
SHARES OUTSTANDING:
Class III 1,657,459
=============
NET ASSET VALUE PER SHARE:
Class III $ 14.80
=============
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $159) $ 290,488
Interest (including securities lending income of $4,846) 5,473
-------------
Total income 295,961
-------------
EXPENSES:
Management fee (Note 3) 123,371
Shareholder service fee (Note 3) - Class III 33,647
Custodian and transfer agent fees 27,208
Audit and tax fees 36,878
Legal fees 1,201
Trustees fees and related expenses (Note 3) 473
Registration fees 4,840
Miscellaneous 184
-------------
Total expenses 227,802
Fees and expenses reimbursed by Manager (Note 3) (70,311)
-------------
Net expenses 157,491
-------------
Net investment income 138,470
-------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 2,525,683
-------------
Change in net unrealized appreciation (depreciation) on investments 7,123,319
-------------
Net realized and unrealized gain 9,649,002
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,787,472
=============
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 138,470 $ 265,960
Net realized gain 2,525,683 1,866,002
Change in net unrealized appreciation (depreciation) 7,123,319 (7,054,887)
--------------- ---------------
Net increase (decrease) in net assets from operations 9,787,472 (4,922,925)
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III (143,023) (261,359)
--------------- ---------------
Net share transactions (Note 7):
Class III (5,838,979) (11,636,058)
--------------- ---------------
Decrease in net assets resulting from net share transactions (5,838,979) (11,636,058)
--------------- ---------------
Total increase (decrease) in net assets 3,805,470 (16,820,342)
NET ASSETS:
Beginning of period 20,723,176 37,543,518
--------------- ---------------
End of period $ 24,528,646 $ 20,723,176
=============== ===============
</Table>
See accompanying notes to the financial statements.
16
<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>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------------
2004 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 0.08 0.11 0.15 0.12 0.08
Net realized and unrealized gain (loss) 5.14 (2.10) 1.23 1.02 (0.50)
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.22 (1.99) 1.38 1.14 (0.42)
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.08) (0.11) (0.16) (0.12) (0.06)
---------- ---------- ---------- ---------- ----------
Total distributions (0.08) (0.11) (0.16) (0.12) (0.06)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.80 $ 9.66 $ 11.76 $ 10.54 $ 9.52
========== ========== ========== ========== ==========
TOTAL RETURN (a) 54.21% (17.00)% 13.25% 12.12% (4.25)%^
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 24,529 $ 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 0.62% 0.90% 1.30% 1.25% 1.08%**
Portfolio turnover rate 66% 55% 65% 131% 18%
Fees and expenses reimbursed by the Manager
to average daily net assets: 0.31% 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
which are borne by the shareholders.
(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.
^ Not Annualized.
See accompanying notes to the financial statements.
17
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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
18
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a futures contract can vary
from the previous day's settlement price, thereby effectively preventing
liquidation of unfavorable positions. Losses may arise from the changes in
the value of the underlying instrument, if the Fund is unable to liquidate
a futures position due to an illiquid secondary market for the contracts or
the imposition of price limits, or if counterparties do not perform under
the contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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. 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 on swap contracts 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
19
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29, 2004,
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. See Schedule of
Investments for open repurchase agreements as of February 29, 2004.
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
February 29, 2004, 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. For the years ended February 29, 2004 and February 28, 2003, the
tax basis of distributions paid from ordinary income were $143,023 and
$261,359, respectively.
20
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $4,900,098, $1,587,943 and $393,614 expiring in 2009, 2010 and 2011,
respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to differing treatments for
redemption in-kind transactions. Net gains resulting from redemptions
in-kind transactions were $1,455,312. The financial highlights exclude
these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
------------------- --------------- -----------------
$ 4,553 $ (1,449,100) $ 1,444,547
</Table>
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 paid-in capital. For
the year ended February 29, 2004 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.
21
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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 .55% of the average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $290. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$14,801,980 and $20,813,974, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 16,744,875 $ 8,039,834 $ (223,661) $ 7,816,173
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
22
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 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. At February 29, 2004, 6.11% of the Fund was
held by one related party.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ ---------- -------------
Class III:
Shares sold -- $ -- 317,367 $ 3,014,863
Shares issued to shareholders in
reinvestment of distributions 5,634 69,114 15,201 154,941
Shares repurchased (493,952) (5,908,093) (1,378,358) (14,805,862)
-------- ------------ ---------- -------------
Net decrease (488,318) $ (5,838,979) (1,045,790) $ (11,636,058)
======== ============ ========== =============
</Table>
23
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO TAX-MANAGED SMALL COMPANIES FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Tax-Managed Small Companies Fund (the "Fund") (a series of GMO Trust) at
February 29, 2004, and the results of its operations, the changes in its
net assets and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 29, 2004 by correspondence
with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
24
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 100% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, 100% of the Fund's income qualified for the
dividends-received deduction.
25
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF PRINCIPAL FUND OTHER
OFFICE(1) AND OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) LENGTH OF TIME DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- --------------- --------------------------- ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and Senior 41 *(2)
40 Rowes Wharf Associate Dean, Harvard
Boston, MA 02110 University.
DOB: 10/03/1941
Donald W. Trustee Since Advisory Counsel, Goodwin
Glazer, Esq. December 2000 Procter LLP; Secretary and 41 None
c/o GMO Trust Consultant, Provant, Inc.
40 Rowes Wharf (provider of performance
Boston, MA 02110 improvement training
DOB: 07/26/1944 services and products)(1998
- present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
26
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ------------------------ -------------- -------------
R. Jeremy Chairman of Since September Chairman, Grantham,
Grantham(3) the Board of 1985. Mayo, Van Otterloo & Co. 41 None
c/o GMO Trust Trustees President from LLC
40 Rowes Wharf February 2002 -
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
27
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ---------------------- ------------------- ---------------------- ----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo,
c/o GMO Trust Officer and Officer since Van Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel,
c/o GMO Trust and Clerk February 1997; Clerk Anti-Money Laundering
40 Rowes Wharf since March 2001 - Reporting Officer (July
Boston, MA 02110 present and May 1999 2002 - February 2003) and
DOB: 07/20/1965 - August 1999. Member, Grantham, Mayo,
Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary since Otterloo & Co. LLC (June
Boston, MA 02110 March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer
40 Rowes Wharf Laundering (February 2003 - present)
Boston, MA 02110 Compliance Officer and Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo,
c/o GMO Trust February 2004. Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
28
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Intrinsic Value Fund returned +55.0% for the fiscal year
ended February 29, 2004, as compared to +53.6% for the MSCI EAFE Index and
+57.8% for the S&P/Citigroup PMI EPAC Value Index. Consistent with the Fund's
investment objectives and policies, the Fund was invested substantially in
international equity securities throughout the period.
Among the portfolio holdings with the largest positive impact to relative
returns during the period were Japanese bank Mizuho Financial Group, Swiss
pharmaceutical Roche, UK aerospace company Rolls Royce, and baby food and
nutrition company Numico. Less successful holdings included Swisscom,
Volkswagen, BT Group (British Telecom), Dutch telecom company KPN, and National
Australia Bank.
Industry weightings had a negative impact against EAFE. During the fiscal year,
an overweight position in utilities and an underweight position in technology
stocks detracted from performance. An overweight to financials and an
underweight to health care were more successful.
For the period, country allocation was positive. Exposure to Germany and Norway
was beneficial, as was overweighting South East Asia and underweighting the UK.
The appreciation of foreign currencies added to the U.S. dollar returns of the
strategy. The MSCI EAFE Index returned nearly 20% higher in U.S. dollar terms
than in local currency.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
INTERNATIONAL INTRINSIC VALUE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO INTERNATIONAL INTRINSIC VALUE FUND MSCI EAFE INDEX S&P/CITIGROUP PMI EPAC VALUE INDEX
2/28/1994 5,000,000 5,000,000 5,000,000
3/31/1994 4,878,715 4,784,645 4,824,230
6/30/1994 4,964,785 5,029,100 5,123,205
9/30/1994 4,990,890 5,033,970 5,139,585
12/31/1994 4,893,615 4,982,615 5,090,095
3/31/1995 4,883,010 5,075,430 5,186,000
6/30/1995 5,097,250 5,112,280 5,233,440
9/30/1995 5,219,985 5,325,410 5,475,080
12/31/1995 5,398,650 5,541,055 5,725,590
3/31/1996 5,518,820 5,701,165 5,868,595
6/30/1996 5,621,185 5,791,370 6,016,375
9/30/1996 5,614,715 5,784,105 6,068,595
12/31/1996 5,914,035 5,876,125 6,218,765
3/31/1997 5,825,300 5,784,090 6,095,900
6/30/1997 6,271,370 6,534,710 6,928,325
9/30/1997 6,420,260 6,488,700 6,950,510
12/31/1997 5,968,585 5,980,600 6,401,705
3/31/1998 6,965,225 6,860,345 7,421,160
6/30/1998 6,937,070 6,933,180 7,527,305
9/30/1998 5,887,135 5,947,705 6,281,910
12/31/1998 6,780,270 7,176,535 7,480,545
3/31/1999 6,678,405 7,276,375 7,718,770
6/30/1999 7,216,370 7,461,275 8,004,435
9/30/1999 7,493,865 7,788,725 8,391,465
12/31/1999 7,771,570 9,111,645 9,226,960
3/31/2000 7,345,225 9,102,065 8,926,275
6/30/2000 7,623,860 8,741,475 9,007,845
9/30/2000 7,266,565 8,036,355 8,537,880
12/31/2000 7,662,955 7,820,710 8,602,725
3/31/2001 7,000,955 6,748,675 7,636,515
6/30/2001 7,252,440 6,678,165 7,762,795
9/30/2001 6,510,595 5,743,225 6,719,790
12/31/2001 6,735,010 6,143,740 7,042,315
3/31/2002 7,096,775 6,174,980 7,190,440
6/30/2002 7,523,965 6,044,100 7,213,305
9/30/2002 6,406,460 4,851,370 5,828,325
12/31/2002 6,694,945 5,164,430 6,121,500
3/31/2003 6,362,400 4,740,250 5,614,335
6/30/2003 7,732,640 5,653,630 6,753,925
9/30/2003 8,226,945 6,113,130 7,376,110
12/31/2003 9,607,960 7,157,165 8,699,660
2/29/2004 10,019,965 7,425,925 9,084,985
</Table>
Average Annual Returns
Inception 3/31/1987
<Table>
<Caption>
1YR 5YR 10YR(ITD)
55.05 9.08 7.2
</Table>
INTERNATIONAL INTRINSIC VALUE FUND-II
As Of: 2/29/2004
Average Annual Returns
Inception 9/26/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
54.99 9.01 8.08
</Table>
INTERNATIONAL INTRINSIC VALUE FUND-IV
As Of: 2/29/2004
Average Annual Returns
Inception 1/9/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
55.15 9.16 9.37
</Table>
INTERNATIONAL INTRINSIC VALUE FUND-CLASS M
As Of: 2/29/2004
Average Annual Returns
Inception 10/2/2003
<Table>
<Caption>
1YR 5YR 10YR(ITD)
N/A N/A 18.06
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Performance for Classes II, IV and M may vary due
to different shareholder servicing fees. Past performance is not indicative of
future performance. Information is unaudited. Current performance of the Fund
may be lower or higher than the performance quoted. Performance data current to
the most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS -- 92.5%
AUSTRALIA -- 3.0%
580,563 Australia and New Zealand Banking Group Ltd 8,058,322
406,209 Boral Ltd 1,924,341
393,595 Caltex Australia Ltd 2,128,784
1,554,756 General Property Trust Units 3,574,725
86,740 Macquarie Bank Ltd 2,215,193
879,229 National Australia Bank Ltd 20,961,606
1,200 National Australia Bank Ltd ADR 143,760
689,013 Santos Ltd 3,226,860
891,679 Stockland 3,687,546
1,907,160 Telstra Corp Ltd 7,033,623
1,507,520 Westfield Trust Units 4,117,470
525,665 Westpac Banking Corp 6,833,970
462,966 Woodside Petroleum Ltd 5,436,606
------------
69,342,806
------------
AUSTRIA -- 2.4%
132,309 Austrian Airlines * 1,985,879
116,004 Boehler Uddeholm (Bearer) 8,792,233
18,880 Erste Bank Der Oesterreichischen Sparkassen AG 2,636,724
82,171 Flughafen Wien AG 4,543,337
60,426 Generali Holding Vienna AG 2,192,316
29,122 Mayr-Melnhof Karton AG (Bearer) 3,547,850
93,052 OMV AG 15,001,320
176,031 RHI AG * 3,783,830
77,595 VA Technologie AG (Bearer) * 3,154,594
157,795 Voestalpine AG 7,224,822
112,170 Wienerberger AG 3,540,029
------------
56,402,934
------------
BELGIUM -- 3.0%
149,584 Almanij NV 9,123,775
8,108 Bekaert SA 467,342
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
BELGIUM -- CONTINUED
19,957 Colruyt SA 2,273,846
93,209 Delhaize Group 5,069,099
383,228 Dexia 7,104,319
30,659 Electrabel SA 10,152,000
749,160 Fortis 17,322,770
277,769 KBC Bancassurance Holding 15,862,082
64,818 UCB SA 2,398,373
------------
69,773,606
------------
CANADA -- 2.3%
58,500 Bank of Montreal 2,370,084
253,500 Bank of Nova Scotia 12,970,207
130,800 BCE Inc 2,855,325
125,000 Canadian Imperial Bank of Commerce 6,394,634
64,700 Canadian Natural Resources 3,532,159
257,000 EnCana Corp 11,078,726
27,400 Magna International Inc Class A 2,161,777
134,000 National Bank of Canada 4,559,046
115,300 Quebecor Inc Class B * 2,358,849
115,500 Royal Bank of Canada 5,461,878
------------
53,742,685
------------
DENMARK -- 0.1%
320 AP Moller - Maersk A/S 2,689,076
------------
FINLAND -- 1.1%
52,300 Finnair Class A 404,843
353,400 Fortum Oyj 3,741,128
181,300 Kesko Oyj Class B 3,638,034
243,750 Nokia Oyj 5,339,411
183,054 Rautaruukki Oyj * 1,537,525
563,200 Sampo Oyj Class A 6,318,977
38,100 Stockmann Oyj AB Class A 887,611
14,650 Stockmann Oyj AB Class B 343,119
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
FINLAND -- CONTINUED
119,600 UPM-Kymmene Oyj 2,355,358
23,400 Wartsila Oyj Class A 527,411
------------
25,093,417
------------
FRANCE -- 4.1%
35,794 Assurances Generales de France 2,299,308
305,480 BNP Paribas 19,300,570
33,008 Bongrain SA 2,091,634
177,681 Cie de Saint-Gobain 9,327,475
23,660 Eurazeo 1,784,431
601,074 France Telecom SA * 16,557,320
5,470 Fromageries Bel Vache qui Rit 781,595
547,167 Havas SA 3,038,952
13,126 Imerys SA 2,875,286
1,123,185 SCOR SA * 2,204,981
199,030 Societe Generale 17,669,212
200,318 Suez SA 4,447,756
416,185 Vivendi Universal SA * 11,919,382
------------
94,297,902
------------
GERMANY -- 7.6%
108,493 Allianz AG (Registered) 13,534,176
116,288 Bankgesellschaft Berlin AG * 274,527
300,242 Bayer AG 8,505,556
189,819 Bayerische Vereinsbank * 4,174,547
248,531 Commerzbank AG 4,817,276
73,888 Continental AG 3,029,593
460,902 DaimlerChrysler AG (Registered) 20,673,414
42 Degussa AG 1,566
150,417 Deutsche Bank AG (Registered) 12,904,970
291,611 Deutsche Post AG 6,956,672
264,585 Deutsche Telekom (Registered) * 5,181,051
42,800 Douglas Holdings AG 1,318,839
542,142 E. On AG 36,610,781
61,767 HeidelbergCement AG * 2,762,838
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
70,781 Metro AG 3,166,034
20,461 Puma AG Rudolf Dassler Sport 4,207,472
55,080 Schwarz Pharma AG 1,632,220
248,475 Siemens AG (Registered) 19,233,891
102,131 Sudzucker AG 1,973,260
347,379 ThyssenKrupp AG 6,703,034
350,279 Volkswagen AG 16,581,945
------------
174,243,662
------------
GREECE -- 0.3%
142,011 Alpha Bank A.E. 4,294,761
126,570 National Bank of Greece SA 3,447,210
------------
7,741,971
------------
HONG KONG -- 2.2%
539,000 Cheung Kong Infrastructure Holdings Ltd 1,374,532
1,328,598 CLP Holdings Ltd 6,844,528
809,409 Great Eagle Holdings Ltd 1,383,010
260,000 Guoco Group 1,970,747
2,226,511 Hang Lung Group Co Ltd 3,504,019
849,100 Hong Kong Aircraft Engineering Co Ltd 4,614,289
1,996,969 Hong Kong Electric Holdings Ltd 8,568,866
515,700 Hong Kong Ferry Co Ltd 576,397
1,000 Hong Kong Land Holdings 1,900
441,762 Jardine Matheson Holdings Ltd 4,174,651
1,095,911 Jardine Strategic Holdings Ltd 5,348,046
1,499,862 Mandarin Oriental International Ltd * 824,924
793,000 Sun Hung Kai Properties Ltd 7,793,637
1,033,900 Yue Yuen Industrial Holdings 2,988,592
------------
49,968,138
------------
IRELAND -- 0.4%
329,066 Allied Irish Banks Plc 4,996,324
379,964 Bank of Ireland 4,971,268
------------
9,967,592
------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
ITALY -- 4.3%
2,336,914 Banca Intesa SPA 8,681,811
1,536,760 Banca Intesa SPA (Savings Shares) 4,363,035
1,069,100 Banca Popolare di Milano 6,894,172
279,686 Banche Popolari Unite Scrl * 4,965,916
860,737 Enel SPA 6,652,077
2,749,292 ENI SPA 53,870,246
131,141 Fiat SPA (Savings Shares) * 648,512
175,179 Fondiaria - SAI 2,453,027
588,000 Grassetto SPA *(a) (b) 7,306
769,302 IFIL SPA * 2,566,478
238,345 Italcementi SPA 1,871,628
29,437 Italmobiliare SPA 1,295,137
88,800 Natuzzi SPA ADR 939,504
1,134,613 Parmalat Finanziaria SPA (a) (b) 14,098
317,024 Sanpaolo IMI SPA 4,076,889
982,472 SMI (Societa Metallurgica Italy) 334,478
------------
99,634,314
------------
JAPAN -- 23.5%
169,910 Acom Co Ltd 10,232,544
1,079,000 Asahi Kasei Corp 5,332,784
76,500 Autobacs Seven 1,921,952
37,000 Canon Inc 1,804,961
229,000 Canon Sales Co Inc 2,450,128
128,000 Casio Computer Co Ltd 1,322,643
382,500 Chubu Electric Power Co Inc 8,174,423
53,000 Chudenko Corp 821,243
182,200 Chugoku Electric Power Co Inc 3,150,062
328,000 Citizen Watch Co Ltd 2,866,923
1,410,000 Cosmo Oil Co Ltd 3,019,769
219,000 Daicel Chemical Industries Ltd 835,832
665,000 Daido Steel Co Ltd 1,302,489
318,000 Daiichi Pharmaceuticals Co Ltd 5,681,274
98,000 Daio Paper Corp 827,878
189,700 Daito Trust Construction Co Ltd 6,545,570
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
546,000 Daiwa House Industry Co Ltd 5,402,032
256,000 Daiwa Kosho Lease Co Ltd 1,145,744
175,000 Denso Corp 3,659,848
264,000 Ezaki Glico Co Ltd 1,882,262
76,100 FamilyMart 2,082,546
71,000 Fast Retailing Co Ltd 4,841,204
1,179,000 Fuji Heavy Industries Ltd 5,794,646
93,400 Fuji Photo Film Co Ltd 2,915,010
509 Fuji Television Network Inc 2,231,475
633,000 Fujitsu Ltd * 3,812,136
189,000 Fukuyama Transporting Co Ltd 747,282
1,408,000 Furukawa Electric Co Ltd 5,038,697
202,000 Gunze Ltd 870,785
271,000 Hino Motors 1,761,029
155,000 Hitachi Kokusai Electric Inc 1,063,976
2,692,000 Hitachi Ltd 17,567,234
214,200 Hokkaido Electric Power 3,577,842
209,000 House Foods Corp 2,463,774
2,047,000 Isuzu Motors Ltd * 3,896,906
1,487,000 Itochu Corp 5,076,432
289,000 Itoham Foods Inc 1,179,700
51,000 Ito-Yokado Co Ltd 1,923,119
35,000 Japan Airport Terminal Co Ltd 265,880
199,000 Japan Securities Finance Co 1,052,737
424 Japan Tobacco Inc 3,034,670
112,600 JFE Holdings Inc 2,844,371
1,562,000 Kajima Corp 5,461,139
549,000 Kamigumi Co Ltd 3,683,114
264,000 Kandenko Co 1,191,214
168,000 Kaneka Corp 1,443,822
348,800 Kansai Electric Power Co Inc 6,320,923
187,000 Kao Corp 3,945,039
3,639,000 Kawasaki Heavy Industries Ltd 4,662,823
1,004,000 Kawasaki Kisen Kaisha Ltd 4,833,461
1,053 KDDI Corp 5,464,498
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
159,000 Kinden Corp 812,026
806,000 Kirin Brewery Co Ltd 7,347,392
159,000 Kissei Pharmaceutical Co Ltd 3,063,289
4,775,000 Kobe Steel Ltd * 5,768,808
97,800 Konami Corp 2,542,120
254,900 Kyushu Electric Power Co Inc 4,437,304
465,000 Maeda Corp 1,664,058
128,000 Maeda Road Construction 712,283
159,000 Makita Corp 1,888,907
133,000 Marui Co Ltd 1,959,821
83,000 Maruichi Steel Tube 1,033,132
1,775,000 Mazda Motor Corp 5,474,785
1,445,000 Mitsubishi Electric Corp 6,930,075
2,867,000 Mitsubishi Materials Corp * 5,589,154
1,418,000 Mitsubishi Motors Corp * 3,322,424
1 Mitsubishi Tokyo Finance Group Inc 1,538
472,000 Mitsui Marine & Fire Insurance 4,147,172
547,000 Mitsui Mining & Smelting Co Ltd 2,172,781
856,000 Mitsui OSK Lines Ltd 4,105,290
11,281 Mizuho Financial Group Inc * 33,968,964
1,152,000 Mizuho Trust & Banking Co Ltd * 1,792,422
113,000 Nagase & Co 800,494
582,000 NEC Corp 4,282,702
118,000 Nippo Corp 622,076
629,000 Nippon Express Co Ltd 3,448,389
1,492,000 Nippon Light Metal 3,263,665
86,000 Nippon Meat Packers Inc 934,303
1,052,500 Nippon Mining Holdings Inc 3,670,167
1,017,000 Nippon Shinpan Co 3,583,608
605,000 Nippon Suisan Kaisha Ltd 1,434,148
862 Nippon Telegraph & Telephone Corp 3,992,056
1 Nippon Unipac Holding 1,852
807,000 Nishimatsu Construction 2,851,016
218,000 Nisshin Oillio Group Ltd 676,387
1,727,000 Nisshin Steel Co Ltd 2,987,397
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
306,000 Nisshinbo Industries Inc 1,621,582
240,300 Nissho Iwai-Nichimen Holdings Corp * 1,038,089
128,300 Nissin Food Products 3,147,025
1,150,000 Obayashi Corp 5,273,202
162,000 Okumura Corp 771,005
138,000 Ono Pharmaceutical Co Ltd 5,999,451
955,000 Orient Corp * 2,263,820
1,475,000 Osaka Gas Co Ltd 4,252,471
63,000 PanaHome Corp 360,956
214,800 Promise Co 13,014,607
87,000 Royal Co Ltd 936,409
116,000 Ryosan Co 2,176,460
66,400 Sammy Corp 1,890,024
33,200 Sammy Corp *(c) 911,587
659,000 Sankyo Co Ltd 14,264,461
337,000 Seino Transportation Co Ltd 2,917,829
564,000 Sekisui Chemical Co Ltd 2,911,367
497,000 Sharp Corp 8,242,394
22,900 Shikoku Electric Power Co Inc 405,560
926,000 Shimizu Corp 4,135,896
226,000 Sompo Japan Insurance Inc 1,917,463
319,000 Sumitomo Electric Industries Ltd 2,735,704
178,000 Sumitomo Forestry Co Ltd 1,645,433
5,950,000 Sumitomo Metal Industries Ltd 5,609,098
1,181 Sumitomo Mitsui Financial Group Inc 6,571,920
727,000 Sumitomo Trust & Banking 3,912,466
1,688,000 Taiheiyo Cement Corp 4,279,480
1,668,000 Taisei Corp 5,801,208
329,000 Taisho Pharmaceutical Co Ltd 5,931,997
778,300 Takeda Chemical Industries Ltd 32,055,189
139,700 Takefuji Corp 9,998,664
16,700 TDK Corp 1,164,690
103,500 Terumo Corp 2,155,066
197,000 Toagosei Co Ltd 414,699
481,600 Tohoku Electric Power Co Inc 8,061,929
636,200 Tokyo Electric Power Co Inc 13,974,739
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
536,000 TonenGeneral Sekiyu KK 4,302,325
404,000 Toppan Printing Co Ltd 4,729,233
965,000 Toray Industries Inc 3,674,172
1,358,000 Toshiba Corp 5,580,652
407,000 Toshiba TEC Corp 1,631,576
169,000 Toto Ltd 1,472,524
205,000 Toyo Ink Manufacturing Co Ltd 891,223
123,000 Toyo Seikan Kaisha 2,031,988
580,000 Toyota Motor Corp 20,012,813
223,000 Wacoal Corp 2,004,265
73,000 Yamaha Corp 1,352,965
179,000 Yamazaki Baking Co Ltd 1,562,932
------------
542,720,458
------------
MALAYSIA -- 0.0%
751,000 Promet Berhad *(a)(b) 1,976
234,000 Saship Holdings *(a)(b) 616
------------
2,592
------------
NETHERLANDS -- 5.1%
1,487,346 ABN Amro Holdings NV 34,354,829
744,070 Aegon NV 11,010,878
84,555 Corio NV 3,589,886
45,626 DSM NV 2,160,468
13,510 Gamma Holdings NV 658,857
1,891,044 ING Groep NV 46,240,564
201,225 Koninklijke Numico NV * 6,630,585
278,214 Koninklijke Wessanen NV 3,767,922
287,653 OCE NV 5,539,837
38,143 Wereldhave NV 3,168,200
------------
117,122,026
------------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
NORWAY -- 2.8%
179,992 Aker Kvaerner ASA * 3,592,451
1,736,569 DNB Holdings Class A 10,953,081
37,560 Elkem ASA Class A 1,168,506
204,028 Fred Olsen Energy * 1,536,126
105,800 Frontline Ltd 3,381,656
178,837 Norsk Hydro ASA 12,842,211
205,614 Norske Skogindustrier ASA Class A 4,191,465
268,704 Orkla ASA 7,634,233
122,950 Smedvig ASA Class A 1,213,877
1,074,233 Statoil ASA 12,742,253
391,200 Storebrand * 2,661,924
530,200 Telenor ASA 3,645,410
------------
65,563,193
------------
SINGAPORE -- 1.9%
6,263,249 ComfortDelgro Corp Ltd 3,477,028
552,000 DBS Group Holdings Ltd 4,766,867
480,000 Fraser & Neave Ltd 4,004,112
594,193 Haw Par Corp Ltd 1,703,429
741,104 Hotel Properties Ltd 452,782
72,000 Keppel Corp Ltd 308,768
2,506,000 Neptune Orient Lines Ltd * 3,091,555
734,000 Oversea-Chinese Banking Corp 5,476,164
1,981,000 SembCorp Industries Ltd 1,664,168
179,000 Singapore Land Ltd 433,238
11,719,000 Singapore Telecom Ltd 16,040,693
1,946,201 Straits Trading Co Ltd 2,149,425
1,409,960 United Industrial Corp Ltd 687,482
------------
44,255,711
------------
SPAIN -- 3.2%
127,714 Altadis SA 4,109,932
581,613 Banco Santander Central Hispano SA 6,735,137
162,767 Corporacion Mapfre SA 2,390,453
764,249 Endesa SA 14,955,875
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
SPAIN -- CONTINUED
96,502 Iberdrola SA 1,990,402
1,833,225 Repsol YPF SA 37,583,404
287,094 Sacyr Vallehermoso SA 4,911,956
------------
72,677,159
------------
SWEDEN -- 1.8%
170,100 Holmen AB Class B 5,895,301
438,200 Investor AB 4,650,305
2,781,300 Nordea AB 19,241,416
114,317 SAS AB * 1,051,922
171,900 Svenska Handelsbanken Class A 3,232,852
666,000 Swedish Match AB 6,352,059
------------
40,423,855
------------
SWITZERLAND -- 4.5%
4,137 Banque Cantonale Vaudoise * 534,206
665,348 Credit Suisse Group 24,203,045
1,282 Pargesa Holdings SA (Bearer) 3,654,061
14,879 Roche Holding AG (Bearer) 2,108,752
351,238 Roche Holding AG (Non Voting) 36,228,635
3,363 SIG Holding AG (Registered) 500,458
2,632 Sika AG (Bearer) 1,274,501
55,885 Swisscom AG (Registered) 18,590,931
29,955 UBS AG (Registered) 2,200,544
8,421 Valora Holding AG 2,191,363
69,601 Zurich Financial Services AG * 11,398,770
------------
102,885,266
------------
UNITED KINGDOM -- 18.9%
1,619,382 Abbey National Plc 14,575,458
1,200 Abbey National Plc ADR 22,020
288,836 Alliance & Leicester Plc 4,655,350
3,557,006 Aviva Plc 37,230,157
211,897 AWG Plc * 2,198,203
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
376,930 BAA Plc 3,672,410
4,136,692 Barclays Plc 37,136,873
806,652 Barratt Developments Plc 8,300,781
999,066 Boots Group Plc 13,766,445
944,703 BP Plc 7,586,886
229,372 British Energy Plc * 31,925
511,082 British Energy Plc (Deferred Shares) *(a) --
6,477,301 BT Group Plc 21,246,367
2,947,529 Cable & Wireless * 7,671,709
647,851 EMI Group Plc 3,041,773
788,938 GlaxoSmithKline Plc 16,412,686
492,080 Great Portland Estates Plc 2,273,873
541,996 GUS Plc 7,352,662
167,246 HBOS Plc 2,267,290
622,437 HSBC Holdings Plc 10,113,063
482,340 Imperial Tobacco Group Plc 10,374,517
160,344 Inchcape Plc 4,523,009
550,465 Intercontinental Hotels Group Plc 5,312,075
407,038 Kelda Group Plc 3,369,000
562,663 Kidde Plc 994,591
714,654 Kingfisher Plc 3,972,133
291,623 Land Securities Group Plc 5,963,957
6,667,021 Lloyds TSB Group Plc 55,398,574
472,302 Mitchells & Butlers Plc 2,081,683
1,188,007 National Grid Transco Plc 9,502,272
1,390,857 New Scottish Power Plc 9,459,924
285,293 Next Plc 7,364,604
1,965,468 Northern Foods Plc 5,744,837
129,172 Pennon Group Plc 1,618,092
402,419 Provident Financial Plc 5,559,994
643,196 RMC Group Plc 8,271,947
2,454,159 Rolls-Royce Group Plc 10,019,742
5,002,089 Royal & Sun Alliance Insurance Group 9,584,570
224,730 SABMiller Plc 2,352,184
733,414 Sainsbury (J) Plc 4,073,001
496,939 Scottish & Newcastle Plc 3,919,432
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
659,037 Scottish & Southern Energy Plc 8,371,715
2,650 Scottish Power Plc ADR 73,776
256,287 Severn Trent Plc 3,524,325
1,352,532 Somerfield Plc 4,116,447
853,191 Spirent Plc * 1,401,266
709,842 Tate & Lyle Plc 3,807,069
1,653,669 Taylor Woodrow Plc 8,301,318
3,156,013 Tesco Plc 15,081,592
2,264,874 THUS Group Plc * 1,576,182
278,532 Tomkins Plc 1,387,876
258,928 United Utilities Plc 2,426,619
346,338 Whitbread Plc 4,749,805
306,225 William Hill Plc 2,824,413
853,352 Wimpey (George) 6,108,932
288,137 WPP Group Plc 3,219,042
-------------
435,986,446
-------------
TOTAL COMMON STOCKS (COST $1,727,877,149) 2,134,534,809
-------------
PREFERRED STOCKS -- 0.7%
GERMANY -- 0.6%
3,536 Porsche AG (Non Voting) 0.83% 2,059,224
69,915 RWE AG 4.35% 2,636,486
9,000 Villeroy & Boch AG (Non Voting) 5.78% 99,524
283,021 Volkswagen AG 5.30% 9,072,663
-------------
13,867,897
-------------
ITALY -- 0.1%
132,237 Fiat SPA 4.95% * 621,071
159,329 IFI Istituto Finanziario Industries 4.82% * 1,373,886
-------------
1,994,957
-------------
TOTAL PREFERRED STOCKS (COST $18,017,655) 15,862,854
-------------
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 12.1%
CASH EQUIVALENTS -- 11.3%
110,900,000 Societe Generale GC Time Deposit, 1.03%, due 03/01/04 110,900,000
150,697,179 The Boston Global Investment Trust (d) 151,852,680
---------------
262,752,680
---------------
U.S. GOVERNMENT -- 0.8%
17,250,000 U.S. Treasury Bill, 0.88%, due 3/25/04 (e) 17,239,216
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $279,991,896) 279,991,896
---------------
TOTAL INVESTMENTS -- 105.3%
(Cost $2,025,886,700) 2,430,389,559
Other Assets and Liabilities (net)-- (5.3%) (122,894,040)
---------------
TOTAL NET ASSETS-- 100.0% $ 2,307,495,519
===============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
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 2).
(b) Bankrupt issuer.
(c) When issued security (Note 2).
(d) Represents investment of security lending collateral
(Note 2).
(e) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts (Note 8).
See accompanying notes to the financial statements.
14
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
--------------------------------------------------------
Financials 36.6%
Consumer Discretionary 11.5
Utilities 8.8
Energy 8.6
Industrials 8.0
Consumer Staples 6.7
Health Care 6.0
Materials 6.0
Telecommunication Services 5.0
Information Technology 2.8
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan
of $143,576,191 (cost $2,025,886,700)
(Note 2) $ 2,430,389,559
Cash 45,271
Foreign currency, at value (cost $900,790) (Note 2) 897,461
Receivable for Fund shares sold 25,511,789
Dividends and interest receivable 2,199,522
Foreign taxes receivable 1,025,594
Receivable for open forward foreign currency contracts
(Notes 2 and 8) 13,742,880
Receivable for variation margin on open futures contracts
(Notes 2 and 8) 5,963
Receivable for expenses reimbursed by Manager (Note 3) 229,682
--------------------
Total assets 2,474,047,721
--------------------
LIABILITIES:
Payable upon return of securities loaned (Note 2) 151,852,680
Payable for Fund shares repurchased 1,164,268
Payable to affiliate for (Note 3):
Management fee 975,779
Shareholder service fee 235,640
12b-1 fee - Class M 2,876
Administration fee - Class M 1,149
Trustees fee 4,059
Payable for open forward foreign currency contracts
(Notes 2 and 8) 11,948,519
Accrued expenses 367,232
--------------------
Total liabilities 166,552,202
--------------------
NET ASSETS $ 2,307,495,519
====================
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
<Table>
NET ASSETS CONSIST OF:
Paid-in capital $ 2,032,689,939
Accumulated undistributed net investment income 2,554,312
Accumulated net realized loss (130,801,810)
Net unrealized appreciation 403,053,078
--------------------
$ 2,307,495,519
====================
NET ASSETS ATTRIBUTABLE TO:
Class II shares $ 85,625,087
====================
Class III shares $ 1,350,850,115
====================
Class IV shares $ 863,612,163
====================
Class M shares $ 7,408,154
====================
SHARES OUTSTANDING:
Class II 3,541,033
====================
Class III 55,540,109
====================
Class IV 35,517,713
====================
Class M 306,798
====================
NET ASSET VALUE PER SHARE:
Class II $ 24.18
====================
Class III $ 24.32
====================
Class IV $ 24.31
====================
Class M $ 24.15
====================
</Table>
See accompanying notes to the financial statements.
17
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $5,440,228) $ 46,809,546
Interest (including securities lending income of $1,278,791) 2,302,090
--------------------
Total income 49,111,636
--------------------
EXPENSES:
Management fee (Note 3) 9,308,755
Shareholder service fee (Note 3) - Class II 219,236
Shareholder service fee (Note 3) - Class III 1,669,219
Shareholder service fee (Note 3) - Class IV 457,943
12b-1 fee (Note 3) - Class M 6,417
Administration fee (Note 3) - Class M 5,133
Custodian fees 1,161,045
Transfer agent fees 65,978
Audit and tax fees 61,813
Legal fees 86,796
Trustees fees and related expenses (Note 3) 35,174
Registration fees 85,011
Miscellaneous 69,560
--------------------
Total expenses 13,232,080
Fees and expenses reimbursed by Manager (Note 3) (1,530,203)
--------------------
Net expenses 11,701,877
--------------------
Net investment income 37,409,759
--------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 53,624,312
Closed futures contracts 17,181,469
Foreign currency, forward contracts and foreign currency
related transactions 17,641,142
--------------------
Net realized gain 88,446,923
--------------------
Change in net unrealized appreciation (depreciation) on:
Investments 626,135,213
Open futures contracts 1,408,806
Foreign currency, forward contracts and foreign currency
related transactions (8,930,124)
--------------------
Net unrealized gain 618,613,895
--------------------
Net realized and unrealized gain 707,060,818
--------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 744,470,577
====================
</Table>
See accompanying notes to the financial statements.
18
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------- ----------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 37,409,759 $ 28,729,710
Net realized gain (loss) 88,446,923 (40,517,478)
Change in net unrealized appreciation (depreciation) 618,613,895 (33,171,971)
---------------------- ----------------------
Net increase (decrease) in net assets from operations 744,470,577 (44,959,739)
---------------------- ----------------------
Distributions to shareholders from:
Net investment income
Class II (3,414,476) (2,069,691)
Class III (35,741,088) (34,394,773)
Class IV (16,179,208) (13,242,397)
Class M (139,753) --
---------------------- ----------------------
Total distributions from net investment income (55,474,525) (49,706,861)
---------------------- ----------------------
Net share transactions (Note 7):
Class II (24,037,904) 30,892,601
Class III 57,218,553 (148,543,077)
Class IV 330,657,748 116,271,839
Class M 6,527,842 --
---------------------- ----------------------
Increase (decrease) in net assets resulting from net
share transactions 370,366,239 (1,378,637)
---------------------- ----------------------
Total increase (decrease) in net assets 1,059,362,291 (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 $2,554,312 and $1,858,662,
respectively) $ 2,307,495,519 $ 1,248,133,228
====================== ======================
</Table>
See accompanying notes to the financial statements.
19
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.04 $ 17.41 $ 20.30 $ 20.85 $ 20.33
----------- ----------- ----------- ----------- ------------
Income from investment operations:
Net investment income (b) 0.44 0.37 0.28 0.40 0.41
Net realized and unrealized gain (loss) 8.31 (1.05) (2.44) 1.11 1.33
----------- ----------- ----------- ----------- ------------
Total from investment operations 8.75 (0.68) (2.16) 1.51 1.74
----------- ----------- ----------- ----------- ------------
Less distributions to shareholders:
From net investment income (0.61) (0.69) (0.73) (0.22) (0.56)
From net realized gains -- -- -- (1.84) (0.66)
----------- ----------- ----------- ----------- ------------
Total distributions (0.61) (0.69) (0.73) (2.06) (1.22)
----------- ----------- ----------- ----------- ------------
NET ASSET VALUE, END OF PERIOD $ 24.18 $ 16.04 $ 17.41 $ 20.30 $ 20.85
=========== =========== =========== =========== ============
TOTAL RETURN (a) 54.99% (4.11)% (10.71)% 7.25% 8.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 85,625 $ 67,896 $ 42,49 $ 15,284 $ 21,162
Net expenses to average daily net assets 0.76% 0.76% 0.76% 0.76% 0.76%
Net investment income to average daily
net assets 2.15% 2.06% 1.56% 1.88% 1.84%
Portfolio turnover rate 44% 51% 51% 31% 53%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.09% 0.10% 0.10% 0.08% 0.09%
</Table>
(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.
20
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.13 $ 17.50 $ 20.37 $ 20.91 $ 20.38
----------- ----------- ----------- ----------- ------------
Income from investment operations:
Net investment income (b) 0.45 0.40 0.44 0.44 0.47
Net realized and unrealized gain (loss) 8.36 (1.08) (2.59) 1.09 1.28
----------- ----------- ----------- ----------- ------------
Total from investment operations 8.81 (0.68) (2.15) 1.53 1.75
----------- ----------- ----------- ----------- ------------
Less distributions to shareholders:
From net investment income (0.62) (0.69) (0.72) (0.23) (0.56)
From net realized gains -- -- -- (1.84) (0.66)
----------- ----------- ----------- ----------- ------------
Total distributions (0.62) (0.69) (0.72) (2.07) (1.22)
----------- ----------- ----------- ----------- ------------
NET ASSET VALUE, END OF PERIOD $ 24.32 $ 16.13 $ 17.50 $ 20.37 $ 20.91
=========== =========== =========== =========== ============
TOTAL RETURN (a) 55.05% (4.05)% (10.60)% 7.32% 8.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,350,850 $ 845,997 $ 1,053,104 $ 1,280,603 $ 1,799,929
Net expenses to average daily net assets 0.69% 0.69% 0.69% 0.69% 0.69%
Net investment income to average daily
net assets 2.22% 2.26% 2.37% 2.07% 2.09%
Portfolio turnover rate 44% 51% 51% 31% 53%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.09% 0.10% 0.10% 0.08% 0.09%
</Table>
(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 INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.12 $ 17.50 $ 20.37 $ 20.90 $ 20.37
----------- ----------- ----------- ----------- ------------
Income from investment operations:
Net investment income (b) 0.43 0.38 0.36 0.50 0.55
Net realized and unrealized gain (loss) 8.39 (1.05) (2.49) 1.05 1.21
----------- ----------- ----------- ----------- ------------
Total from investment operations 8.82 (0.67) (2.13) 1.55 1.76
----------- ----------- ----------- ----------- ------------
Less distributions to shareholders:
From net investment income (0.63) (0.71) (0.74) (0.24) (0.57)
From net realized gains -- -- -- (1.84) (0.66)
----------- ----------- ----------- ----------- ------------
Total distributions (0.63) (0.71) (0.74) (2.08) (1.23)
----------- ----------- ----------- ----------- ------------
NET ASSET VALUE, END OF PERIOD $ 24.31 $ 16.12 $ 17.50 $ 20.37 $ 20.90
=========== =========== =========== =========== ============
TOTAL RETURN (a) 55.15% (4.02)% (10.52)% 7.45% 8.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 863,612 $ 334,240 $ 248,579 $ 155,558 $ 291,894
Net expenses to average daily net assets 0.63% 0.63% 0.63% 0.63% 0.63%
Net investment income to average
daily net assets 2.08% 2.13% 1.97% 2.34% 2.47%
Portfolio turnover rate 44% 51% 51% 31% 53%
Fees and expenses reimbursed by
the Manager to average daily net assets: 0.09% 0.10% 0.10% 0.08% 0.09%
</Table>
(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.
22
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
PERIOD FROM
OCTOBER 2, 2003
(COMMENCEMENT
OF OPERATIONS)
THROUGH
FEBRUARY 29, 2004
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.92
------------------
Income from investment operations:
Net investment income (b) 0.01
Net realized and unrealized gain 3.73
------------------
Total from investment operations 3.74
------------------
Less distributions to shareholders:
From net investment income (0.51)
------------------
Total distributions (0.51)
------------------
NET ASSET VALUE, END OF PERIOD $ 24.15
==================
TOTAL RETURN (a) 18.06%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 7,408
Net expenses to average daily net assets 0.99%*
Net investment income to average daily net assets 0.12%*
Portfolio turnover rate 44%***
Fees and expenses reimbursed by the Manager to average daily net assets: 0.09%*
</Table>
* Annualized.
** Not Annualized.
*** Calculation represents portfolio turnover of the Fund for the year ended
February 29, 2004.
(a) The 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.
See accompanying notes to the financial statements.
23
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO International Intrinsic Value Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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 S&P/Citigroup (f/k/a Salomon
Smith Barney) Primary Market Index ("PMI") Europe, Pacific, Asia Composite
("EPAC") Value Style Index.
Throughout the year ended February 29, 2004, the Fund had three classes of
shares outstanding: Class II, Class III and Class IV. Class M was
introduced in October 2003. Class M shares bear an administration fee and a
12b-1 fee while classes II, III, and IV bear a shareholder service fee (See
Note 3). The principal economic difference among the classes of shares is
the 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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
24
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
gains and losses on disposition of 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 8 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of February 29, 2004.
25
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 8 for
all open futures contracts as of February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, 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
26
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
for purchasing options which are exercised or closed are added to the
amounts paid or offset against the proceeds on the closing transaction to
determine the realized gain or loss. The risk associated with purchasing
put and call options is limited to the premium paid. At February 29, 2004,
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. 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 on swap contracts 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 February 29, 2004, there were no open swap agreements.
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.
27
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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
February 29, 2004, the Fund loaned securities having a market value of
$143,576,191 collateralized by cash in the amount of $151,852,680 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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income was $55,474,525
and $49,706,861, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $13,306,354 of undistributed ordinary income. The
temporary differences between book and tax basis distributable earnings are
primarily due to passive foreign investment company transactions.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code of
$27,842,613 and $95,091,208 expiring in 2010 and 2011, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This
28
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
reclassification has no impact on net investment income, realized gain/loss
or the net asset value of the Fund and is primarily attributable to certain
differences in the computation of distributable income and capital gains
under U.S. federal tax rules versus U.S. GAAP. The net gains resulting from
redemptions in-kind transactions were $13,316,342. The financial highlights
exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
---------------------- ---------------- ----------------
$ 18,760,416 $ (28,065,036) $ 9,304,620
</Table>
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. 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, 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.
29
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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.
Class M shares of the Fund pay 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 .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
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 .54% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $21,374. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$1,024,983,481 and $715,887,957, respectively.
At February 29, 2004, 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
------------------ ---------------- ---------------- --------------
$ 2,042,988,691 $ 429,666,173 $ (43,420,806) $ 386,245,367
</Table>
30
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, .1% of the Fund was held by eight related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------------- --------------------------------
CLASS II: SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
Shares sold 4,733,483 $ 96,774,891 2,552,285 $ 45,282,901
Shares issued to shareholders
in reinvestment of distributions 131,364 2,890,031 98,783 1,661,781
Shares repurchased (5,556,343) (123,702,826) (858,945) (16,052,081)
-------------- -------------- -------------- --------------
Net increase (decrease) (691,496) $ (24,037,904) 1,792,123 $ 30,892,601
============== ============== ============== ==============
</Table>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------------- --------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
Shares sold 25,870,141 $ 542,271,026 18,150,851 $ 313,632,458
Shares issued to shareholders
in reinvestment of distributions 1,134,168 25,047,548 1,458,645 24,738,029
Shares repurchased (23,919,014) (510,100,021) (27,340,396) (486,913,564)
-------------- -------------- -------------- --------------
Net increase (decrease) 3,085,295 $ 57,218,553 (7,730,900) $ (148,543,077)
============== ============== ============== ==============
</Table>
31
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------------- --------------------------------
CLASS IV: SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
Shares sold 15,876,366 $ 351,557,271 13,102,251 $ 231,497,089
Shares issued to shareholders
in reinvestment of distributions 730,043 16,179,208 684,808 11,576,480
Shares repurchased (1,822,145) (37,078,731) (7,261,462) (126,801,730)
-------------- -------------- -------------- --------------
Net increase 14,784,264 $ 330,657,748 6,525,597 $ 116,271,839
============== ============== ============== ==============
</Table>
<Table>
<Caption>
PERIOD FROM OCTOBER 2, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
--------------------------------
CLASS M: SHARES AMOUNT
-------------- --------------
Shares sold 386,537 $ 8,370,429
Shares issued to shareholders
in reinvestment of distributions 6,195 139,753
Shares repurchased (85,934) (1,982,340)
-------------- --------------
Net increase 306,798 $ 6,527,842
============== ==============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT UNITS APPRECIATION
DATE DELIVER/RECEIVE OF CURRENCY VALUE (DEPRECIATION)
- -------------- ----------------- -------------- ------------- ----------------
Buys
5/28/04 AUD 36,718,220 $ 28,024,170 $ (54,595)
5/28/04 CAD 9,314,900 6,922,382 (78,670)
3/26/04 CHF 80,535,915 63,448,568 3,700,030
3/26/04 DKK 247,782,306 41,281,989 3,242,892
3/26/04 EUR 17,774,299 22,069,415 200,319
3/26/04 GBP 8,718,976 16,147,371 1,291,565
3/26/04 NOK 242,216,128 34,389,761 315,144
5/28/04 NOK 27,744,000 3,934,741 (58,178)
</Table>
32
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FORWARD CURRENCY CONTRACTS-CONTINUED
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT UNITS APPRECIATION
DATE DELIVER/RECEIVE OF CURRENCY VALUE (DEPRECIATION)
- -------------- ----------------- -------------- ------------- ----------------
5/28/04 NZD 820,727 $ 556,594 $ 1,717
3/26/04 SEK 564,549,064 75,759,276 3,738,997
5/28/04 SEK 64,504,800 8,635,192 (354,513)
5/28/04 SGD 47,776,510 28,094,475 (131,607)
----------------
$ 11,813,101
================
Sales
5/28/04 AUD 8,964,016 $ 6,841,538 $ 99,389
5/28/04 CAD 27,904,721 20,737,435 59,170
3/26/04 DKK 149,750,000 24,949,230 (1,459,035)
3/23/04 EUR 9,064,691 11,256,115 (920,827)
3/26/04 EUR 56,663,672 70,356,312 (3,400,184)
5/28/04 EUR 11,808,234 14,637,009 384,246
3/26/04 GBP 26,394,339 48,881,793 (5,490,910)
5/28/04 GBP 3,208,899 5,910,529 69,704
5/28/04 HKD 89,576,848 11,534,149 13,472
5/28/04 JPY 7,546,066,633 69,256,178 626,235
----------------
$ (10,018,740)
================
</Table>
CURRENCY ABBREVIATIONS:
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
33
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF APPRECIATION
CONTRACTS TYPE EXPIRATION DATE CONTRACT VALUE (DEPRECIATION)
--------------- ---------------- ----------------- --------------- ---------------
Buys
215 CAC 40 March 2004 $ 9,968,236 $ 17,397
739 DAX March 2004 92,429,062 101,178
616 FTSE 100 March 2004 51,191,278 705,593
27 Hang Seng March 2004 2,409,026 10,217
28 IBEX 35 March 2004 2,872,088
343
22 MIB30 March 2004 3,830,727 12,367
840 MSCI March 2004 22,758,584 117,101
169 OMX March 2004 1,586,614
5,106
298 TSE TOPIX March 2004 29,579,077
1,710,157
-------------
$ 2,679,459
=============
Sales
589 S&P Toronto 60 March 2004 $ 43,063,835 $ (4,156,316)
813 SPI 200 March 2004 52,722,056 (1,905,384)
-------------
$ (6,061,700)
=============
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to cover
any commitments of margin requirements of the relevant broker or exchange.
34
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INTERNATIONAL INTRINSIC VALUE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Intrinsic Value
Fund (the "Fund") (a series of GMO Trust) at February 29, 2004 and the results
of its operations, the changes in its net assets and the financial highlights
for the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
35
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004 the Fund paid foreign taxes of
$5,440,228 and recognized foreign source income of $52,249,774.
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 77.45% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
36
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory Counsel,
Glazer, Esq. December 2000 Goodwin Procter LLP; 41 None
c/o GMO Trust Secretary and
40 Rowes Wharf Consultant, Provant,
Boston, MA 02110 Inc. (provider of
DOB: 07/26/1944 performance
improvement training
services and
products)(1998 -
present); Consultant
- Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
37
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- --------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. President Grantham, 41 None
c/o GMO Trust Trustees from February Mayo, Van
40 Rowes Wharf 2002 - October Otterloo & Co.
Boston, MA 02110 2002; President LLC
DOB: 10/06/1938 Quantitative
from September
1985 - February
2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
38
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ------------------- ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary since Otterloo & Co. LLC (June
Boston, MA 02110 March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office
39
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO International Disciplined Equity Fund returned
+51.5% for the fiscal year ended February 29, 2004, as compared to +53.6% for
the MSCI EAFE benchmark. Consistent with the Fund's investment objectives and
policies, the Fund was invested substantially in international equity securities
throughout the period.
Among the portfolio holdings with the largest positive impact to relative
returns were Japanese bank Mizuho Financial Group, Canadian communications
equipment company Nortel Networks, UK aerospace company Rolls Royce, and Yahoo
Japan. Less successful holdings included bankrupt Italian dairy company
Parmalat, UK telecom company Vodafone, Dutch insurer Aegon, and Dutch telecom
stock KPN.
Industry weightings had a negative impact against EAFE. An overweight position
in utilities and an underweight position in technology stocks detracted from
performance. More successful were underweights in health care and energy stocks.
Country allocation was more positive. Exposure to Germany and Norway was
beneficial, as was overweighting South East Asia and underweighting the UK. The
appreciation of foreign currencies added to the U.S. dollar returns of the
strategy. The MSCI EAFE Index returned nearly 20% higher in U.S. dollar terms
than in local currency.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
INTERNATIONAL DISCIPLINED EQUITY FUND-III
As Of: 2/29/2004
<Table>
<Caption>
DATE GMO INTERNATIONAL DISCIPLINED EQUITY FUND MSCI EAFE INDEX
1/29/2002 5,000,000 5,000,000
3/31/2002 5,377,500 5,295,930
6/30/2002 5,542,500 5,183,680
9/30/2002 4,651,050 4,160,745
12/31/2002 4,898,055 4,429,240
3/31/2003 4,594,680 4,065,445
6/30/2003 5,465,905 4,848,800
9/30/2003 5,804,580 5,242,890
12/31/2003 6,742,995 6,138,300
2/29/2004 7,084,645 6,368,800
</Table>
Average Annual Returns
Inception 1/29/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
51.46 N/A 18.19
</Table>
INTERNATIONAL DISCIPLINED EQUITY FUND-IV
As Of: 2/29/2004
Average Annual Returns
Inception 6/30/2003
<Table>
<Caption>
1YR 5YR 10YR(ITD)
N/A N/A 29.71
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Performance for Class IV shares may vary due to
different shareholder servicing fees. Past performance is not indicative of
future performance. Information is unaudited. Current performance of the Fund
may be lower or higher than the performance quoted. Performance data current to
the most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 96.6%
AUSTRALIA -- 2.5%
45,260 Australia and New Zealand Banking Group Ltd 628,217
165,153 General Property Trust Units 379,723
65,521 National Australia Bank Ltd 1,562,079
145,245 Telstra Corp Ltd 535,665
180,485 Westfield Trust Units 492,956
93,065 Westpac Banking Corp 1,209,902
74,818 Woodside Petroleum Ltd 878,587
------------
5,687,129
------------
AUSTRIA -- 2.2%
15,573 Austrian Airlines * 233,741
4,215 Boehler Uddeholm (Bearer) 319,465
3,871 Erste Bank Der Oesterreichischen Sparkassen AG 540,612
5,512 Flughafen Wien AG 304,765
6,229 Generali Holding Vienna AG 225,994
5,860 Mayr-Melnhof Karton AG (Bearer) 713,907
927 Oesterreichische Elektrizitaetswirtschafts AG Class A 138,216
8,320 OMV AG 1,341,304
6,787 Telekom Austria AG * 98,243
6,419 VA Technologie AG (Bearer) * 260,962
6,758 Voestalpine AG 309,423
13,204 Wienerberger AG 416,712
------------
4,903,344
------------
BELGIUM -- 3.4%
18,211 Almanij NV 1,110,768
3,029 Bekaert SA 174,590
8,528 Delhaize Group 463,789
55,449 Dexia 1,027,919
4,659 Electrabel SA 1,542,717
78,418 Fortis 1,813,254
18,078 KBC Bancassurance Holding 1,032,350
12,385 UCB SA 458,265
------------
7,623,652
------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
CANADA -- 1.2%
11,000 Bank of Nova Scotia 562,810
16,300 EnCana Corp 702,658
20,500 National Bank of Canada 697,466
103,500 Nortel Networks Corp * 825,377
------------
2,788,311
------------
FINLAND -- 0.7%
42,800 Fortum Oyj 453,085
11,000 Nokia Oyj 240,958
48,000 Sampo Oyj Class A 538,549
20,600 UPM-Kymmene Oyj 405,689
------------
1,638,281
------------
FRANCE -- 4.9%
54,270 Alcatel SA * 877,945
6,646 Assurances Generales de France 426,921
30,176 BNP Paribas 1,906,554
16,433 Cie de Saint-Gobain 862,661
90,460 France Telecom SA * 2,491,832
6,169 LVMH Moet Hennessy Louis Vuitton SA 471,396
5,295 Peugeot SA 263,490
17,739 Societe Generale 1,574,809
28,710 Suez SA 637,462
3,611 Total SA 659,540
31,852 Vivendi Universal SA * 912,229
------------
11,084,839
------------
GERMANY -- 10.1%
13,052 Allianz AG (Registered) 1,628,198
134,187 Bankgesellschaft Berlin AG * 316,782
15,851 Bayer AG 449,043
32,056 Commerzbank AG 621,341
22,921 Continental AG 939,818
26,142 DaimlerChrysler AG (Registered) 1,172,580
3,900 Degussa AG 145,372
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
19,748 Deutsche Bank AG (Registered) 1,694,272
47,163 Deutsche Post AG 1,125,121
129,153 Deutsche Telekom (Registered) * 2,529,048
45,859 E. On AG 3,096,853
47,610 Infineon Technologies AG * 667,273
14,976 MAN AG 523,806
13,805 Metro AG 617,498
10,200 RWE AG 448,008
9,741 SAP AG 1,516,530
39,687 Siemens AG (Registered) 3,072,081
10,526 Sudzucker AG 203,372
51,435 ThyssenKrupp AG 992,491
22,450 Volkswagen AG 1,062,766
------------
22,822,253
------------
HONG KONG -- 1.3%
124,000 CLP Holdings Ltd 638,810
176,000 Hang Lung Group Co Ltd 276,984
229,000 Hong Kong Electric Holdings Ltd 982,624
43,000 Sun Hung Kai Properties Ltd 422,606
229,500 Yue Yuen Industrial Holdings 663,393
------------
2,984,417
------------
IRELAND -- 0.6%
29,851 Allied Irish Banks Plc 453,238
23,958 Anglo Irish Bank Corp 406,331
34,182 Bank of Ireland 447,221
------------
1,306,790
------------
ITALY -- 3.2%
15,174 Assicurazioni Generali SPA 410,068
302,395 Banca Intesa SPA 1,123,420
121,419 Enel SPA 938,369
195,786 ENI SPA 3,836,275
62,222 Fiat SPA * 480,100
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
ITALY -- CONTINUED
106,248 Parmalat Finanziaria SPA (a) (b) 1,320
72,618 Telecom Italia Mobile SPA 410,537
------------
7,200,089
------------
JAPAN -- 23.6%
16,500 Acom Co Ltd 993,685
6,100 Advantest Corp 453,899
118,000 Asahi Kasei Corp 583,196
32,000 Canon Inc 1,561,047
42,000 Canon Sales Co Inc 449,368
51,200 Chubu Electric Power Co Inc 1,094,197
15,500 Chugoku Electric Power Co Inc 267,980
125,000 Cosmo Oil Co Ltd 267,710
55,000 Daiichi Pharmaceuticals Co Ltd 982,610
11,700 Daito Trust Construction Co Ltd 403,707
51,000 Daiwa House Industry Co Ltd 504,585
73,000 Daiwa Securities Co Ltd 490,408
149,000 Fuji Heavy Industries Ltd 732,317
14,000 Fuji Photo Film Co Ltd 436,939
220,000 Furukawa Electric Co Ltd 787,296
121,000 Hitachi Ltd 789,612
320,000 Isuzu Motors Ltd * 609,189
256,000 Itochu Corp 873,952
48 Japan Tobacco Inc 343,547
44,125 JFE Holdings Inc 1,114,635
273,000 Kajima Corp 954,476
42,500 Kansai Electric Power Co Inc 770,181
21,000 Kao Corp 443,026
424,000 Kawasaki Heavy Industries Ltd 543,291
126 KDDI Corp 653,871
1,500 Keyence Corp 309,308
84,000 Kirin Brewery Co Ltd 765,733
746,000 Kobe Steel Ltd * 901,263
34,000 Komatsu Ltd 206,626
16,900 Konami Corp 439,282
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
235 Konica Minolta Holdings Inc 2,697
17,300 Kyushu Electric Power Co Inc 301,159
268,000 Mazda Motor Corp 826,615
27 Millea Holdings Inc 345,964
29,000 Mitsubishi Corp 286,125
237,000 Mitsubishi Electric Corp 1,136,628
417,000 Mitsubishi Materials Corp * 812,932
259,000 Mitsubishi Motors Corp * 606,846
133,000 Mitsui OSK Lines Ltd 637,855
661 Mizuho Financial Group Inc * 1,990,381
6,000 Murata Manufacturing Co Ltd 333,333
135,000 NEC Corp 993,410
97,000 Nippon Express Co Ltd 531,787
114,500 Nippon Mining Holdings Inc 399,272
9,000 Nitto Denko Corp 444,811
48,000 Nomura Holdings Inc 762,219
310 NTT Docomo Inc 644,060
14,000 Ono Pharmaceutical Co Ltd 608,640
8,500 Pioneer Corp 235,722
20,150 Promise Co 1,220,877
70,000 Sankyo Co Ltd 1,515,193
69,000 Sanyo Electric Co Ltd 337,864
106,000 Sekisui Chemical Co Ltd 547,172
76,000 Sharp Corp 1,260,406
7,200 Shikoku Electric Power Co Inc 127,512
175,000 Shimizu Corp 781,622
860,000 Sumitomo Metal Industries Ltd 810,727
106 Sumitomo Mitsui Financial Group Inc 589,859
266,000 Taiheiyo Cement Corp 674,373
244,000 Taisei Corp 848,618
48,000 Taisho Pharmaceutical Co Ltd 865,459
68,600 Takeda Chemical Industries Ltd 2,825,371
12,220 Takefuji Corp 874,615
15,800 TDK Corp 1,101,922
40,400 Tohoku Electric Power Co Inc 676,291
43,200 Tokyo Electric Power Co Inc 948,929
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
2,900 Tokyo Electron Ltd 174,913
99,000 TonenGeneral Sekiyu KK 794,646
22,000 Toppan Printing Co Ltd 257,532
254,000 Toshiba Corp 1,043,804
33,000 Toyota Motor Corp 1,138,660
166 UFJ Holdings Inc * 744,463
3,000 Uni-Charm Corp 140,308
45 Yahoo Japan Corp * 827,842
24,000 Yamaha Corp 444,811
------------
53,201,181
------------
NETHERLANDS -- 3.7%
76,111 ABN Amro Holdings NV 1,758,018
26,446 Aegon NV 391,353
6,072 DSM NV 287,519
134,403 ING Groep NV 3,286,476
62,375 Koninklijke Ahold NV * 518,481
32,561 Koninklijke Numico NV * 1,072,921
36,577 Philips Electronics NV 1,111,177
410 Wolters Kluwer NV 7,320
------------
8,433,265
------------
NEW ZEALAND -- 0.2%
117,279 Telecom Corp of New Zealand 460,662
------------
NORWAY -- 3.3%
201,200 DNB Holdings Class A 1,269,031
7,500 Elkem ASA Class A 233,328
15,900 Frontline Ltd 508,207
27,660 Norsk Hydro ASA 1,986,253
12,200 Norske Skogindustrier ASA Class A 248,698
60,000 Orkla ASA 1,704,679
61,700 Statoil ASA 731,868
93,800 Telenor ASA 644,925
------------
7,326,989
------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
SINGAPORE -- 2.3%
426,000 Chartered Semiconductor Manufacturing Ltd * 427,939
119,000 DBS Group Holdings Ltd 1,027,640
3,000 Great Eastern Holdings Ltd 22,030
1,798 Haw Par Corp Ltd 5,154
532,000 Neptune Orient Lines Ltd * 656,308
145,000 Oversea-Chinese Banking Corp 1,081,804
2,000 Singapore Press Holdings Ltd 21,853
1,050,000 Singapore Telecom Ltd 1,437,215
38,000 Venture Corp Ltd 479,953
------------
5,159,896
------------
SPAIN -- 3.6%
33,375 Altadis SA 1,074,033
448 Antena 3 Television SA * 19,950
83,493 Banco Santander Central Hispano SA 966,857
80,660 Endesa SA 1,578,466
10,300 Gas Natural SDG SA 256,595
34,290 Iberdrola SA 707,248
109,029 Repsol YPF SA 2,235,231
84,979 Telefonica SA 1,380,014
------------
8,218,394
------------
SWEDEN -- 1.9%
15,000 Electrolux AB 316,354
104,500 Nordea AB 722,945
112,500 Swedish Match AB 1,072,983
712,000 Telefonaktiebolaget LM Ericsson * 2,075,495
------------
4,187,777
------------
SWITZERLAND -- 5.0%
83,296 Credit Suisse Group 3,030,019
288 Logitech International SA * 13,821
5,177 Roche Holding AG (Bearer) 733,719
42,961 Roche Holding AG (Genusschein) 4,431,236
3,878 Swisscom AG (Registered) 1,290,071
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
SWITZERLAND -- CONTINUED
7,315 UBS AG (Registered) 537,372
6,837 Zurich Financial Services AG * 1,119,717
------------
11,155,955
------------
UNITED KINGDOM -- 22.9%
114,152 Abbey National Plc 1,027,440
25,996 Alliance & Leicester Plc 418,994
74,143 Allied Domecq Plc 622,271
46,709 AstraZeneca Plc 2,212,139
232,405 Aviva Plc 2,432,516
45,932 BAA Plc 447,513
479,458 Barclays Plc 4,304,302
64,227 Barratt Developments Plc 660,922
124,795 Boots Group Plc 1,719,590
280,477 BP Plc 2,252,504
483,161 BT Group Plc 1,584,829
252,714 Cable & Wireless * 657,754
121,399 Centrica Plc 483,252
26,167 Gallaher Group Plc 320,501
132,586 GlaxoSmithKline Plc 2,758,255
77,771 GUS Plc 1,055,033
47,935 HBOS Plc 649,837
154,999 HSBC Holdings Plc 2,518,351
116,179 Imperial Chemical Industries Plc 507,750
75,243 Imperial Tobacco Group Plc 1,618,381
41,818 Intercontinental Hotels Group Plc 403,550
341,043 ITV Plc * 876,577
12,534 ITV Plc (Convertible Shares) * 18,725
186,314 Kingfisher Plc 1,035,556
31,942 Land Securities Group Plc 653,243
361,891 Lloyds TSB Group Plc 3,007,077
75,752 LogicaCMG Plc 430,177
29,447 Mitchells & Butlers Plc 129,788
142,652 National Grid Transco Plc 1,141,002
66,016 Next Plc 1,704,149
27,184 Provident Financial Plc 375,586
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
82,173 Rentokil Initial Plc 298,131
46,338 RMC Group Plc 595,939
326,717 Rolls-Royce Group Plc 1,333,907
505,673 Royal & Sun Alliance Insurance Group 968,927
95,407 Sainsbury (J) Plc 529,841
46,913 Scottish & Newcastle Plc 370,010
106,502 Scottish & Southern Energy Plc 1,352,890
121,679 Scottish Power Plc 827,601
51,890 Tate & Lyle Plc 278,300
487,174 Tesco Plc 2,328,051
287,904 THUS Group Plc * 200,360
73,686 Tomkins Plc 367,164
42,997 United Business Media Plc 441,659
15,540 United Utilities Plc 145,638
1,069,827 Vodafone Group Plc 2,665,379
32,651 Whitbread Plc 447,788
27,296 Wolseley Plc 412,085
------------
51,591,234
------------
TOTAL COMMON STOCKS (COST $186,504,507) 217,774,458
------------
PREFERRED STOCKS -- 0.4%
GERMANY -- 0.4%
2,710 RWE AG 4.35% 102,194
25,128 Volkswagen AG 5.30% 805,516
------------
907,710
------------
TOTAL PREFERRED STOCKS (COST $895,042) 907,710
------------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.7%
CASH EQUIVALENTS -- 2.5%
5,700,000 ING Bank GC Time Deposit, 1.06%, due 03/01/04 5,700,000
-------------
U.S. GOVERNMENT -- 0.2%
500,000 U.S. Treasury Bill, 0.88%, due 3/25/04 (c) 499,679
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $6,199,679) 6,199,679
-------------
TOTAL INVESTMENTS -- 99.7%
(Cost $193,599,228) 224,881,847
Other Assets and Liabilities (net) -- 0.3% 585,654
-------------
TOTAL NET ASSETS -- 100.0% $ 225,467,501
=============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
* 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 2).
(b) Bankrupt issuer.
(c) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts (Note 8).
See accompanying notes to the financial statements.
10
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
---------------------------------------------------
Financials 28.9%
Consumer Discretionary 10.6
Utilities 9.0
Industrials 8.4
Telecommunication Services 8.0
Health Care 7.9
Energy 7.6
Consumer Staples 7.4
Information Technology 7.4
Materials 4.8
-----
100.0%
-----
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $193,599,228) (Note 2) $ 224,881,847
Cash 42,589
Foreign currency, at value (cost $182,448) (Note 2) 181,802
Dividends and interest receivable 239,635
Foreign taxes receivable 74,868
Receivable for open forward foreign currency contracts
(Notes 2 and 8) 1,040,435
Receivable for variation margin on open futures contracts
(Notes 2 and 8) 6,319
Receivable for expenses reimbursed by Manager (Note 3) 33,541
----------------
Total assets 226,501,036
----------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 62,969
Shareholder service fee 22,622
Trustees fee 288
Payable for open forward foreign currency contracts
(Notes 2 and 8) 854,089
Accrued expenses 93,567
----------------
Total liabilities 1,033,535
----------------
NET ASSETS $ 225,467,501
================
NET ASSETS CONSIST OF:
Paid-in capital $ 193,010,152
Accumulated undistributed net investment income 296,266
Accumulated net realized gain 636,555
Net unrealized appreciation 31,524,528
----------------
$ 225,467,501
================
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 201,333,385
================
Class IV shares $ 24,134,116
================
SHARES OUTSTANDING:
Class III 7,525,851
================
Class IV 902,326
================
NET ASSET VALUE PER SHARE:
Class III $ 26.75
================
Class IV $ 26.75
================
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $298,329) $ 2,480,525
Interest 53,657
----------------
Total income 2,534,182
----------------
EXPENSES:
Management fee (Note 3) 448,927
Shareholder service fee (Note 3) - Class III 156,344
Shareholder service fee (Note 3) - Class IV 7,223
Custodian fees 200,908
Transfer agent fees 37,434
Audit and taxes fees 38,871
Legal fees 5,112
Trustees fees and related expenses (Note 3) 2,223
Registration fees 15,996
Miscellaneous 6,936
----------------
Total expenses 919,974
Fees and expenses reimbursed by Manager (Note 3) (305,257)
----------------
Net expenses 614,717
----------------
Net investment income 1,919,465
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 2,830,706
Closed futures contracts 929,706
Foreign currency, forward contracts and foreign currency related
transactions 923,100
----------------
Net realized gain 4,683,512
----------------
Change in net unrealized appreciation (depreciation) on:
Investments 38,053,803
Open futures contracts 95,795
Foreign currency, forward contracts and foreign currency related
transactions (632,290)
----------------
Net unrealized gain 37,517,308
----------------
Net realized and unrealized gain 42,200,820
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 44,120,285
================
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,919,465 $ 1,316,690
Net realized gain (loss) 4,683,512 (1,764,138)
Change in net unrealized appreciation (depreciation) 37,517,308 (6,931,904)
---------------- ----------------
Net increase (decrease) in net assets from operations 44,120,285 (7,379,352)
---------------- ----------------
Distributions to shareholders from:
Net investment income
Class III (2,437,505) (2,585,607)
Class IV (241,771) --
---------------- ----------------
Total distributions from net investment income (2,679,276) (2,585,607)
---------------- ----------------
Net share transactions (Note 7):
Class III 94,641,702 30,930,287
Class IV 21,338,161 --
---------------- ----------------
Increase in net assets resulting from net share transactions 115,979,863 30,930,287
---------------- ----------------
Total increase in net assets 157,420,872 20,965,328
NET ASSETS:
Beginning of period 68,046,629 47,081,301
---------------- ----------------
End of period (including accumulated undistributed net investment
income of $296,266 and $121,850, respectively) $ 225,467,501 $ 68,046,629
================ ================
</Table>
See accompanying notes to the financial statements.
14
<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 FEBRUARY 28/29,
----------------------------------------
2004 2003 2002(c)
---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.04 $ 20.40 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income(+) 0.40 0.37 0.02
Net realized and unrealized gain (loss) 8.81 (2.03) 0.38
---------- ---------- ----------
Total from investment operations 9.21 (1.66) 0.40
---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.50) (0.70) --
---------- ---------- ----------
Total distributions (0.50) (0.70) --
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 26.75 $ 18.04 $ 20.40
========== ========== ==========
TOTAL RETURN (a) 51.46% (8.28)% 2.00%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 201,333 $ 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 1.77% 1.82% 1.56%*
Portfolio turnover rate 43% 64% 0%**(b)
Fees and expenses reimbursed by the Manager to average daily net
assets: 0.27% 0.39% 1.89%*
</Table>
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
(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%.
(c) Period from January 29, 2002 (commencement of operations) through February
28, 2002.
See accompanying notes to the financial statements.
15
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
PERIOD FROM
JUNE 30, 2003
(COMMENCEMENT
OF OPERATIONS) THROUGH
FEBRUARY 29, 2004
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.08
----------------
Income from investment operations:
Net investment income (+) 0.16
Net realized and unrealized gain 6.03
----------------
Total from investment operations 6.19
----------------
Less distributions to shareholders:
From net investment income (0.52)
----------------
Total distributions (0.52)
----------------
NET ASSET VALUE, END OF PERIOD $ 26.75
================
TOTAL RETURN (a) 29.71%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 24,134
Net expenses to average daily net assets 0.49%*
Net investment income to average daily net assets 0.99%*
Portfolio turnover rate 43%***
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.26%*
</Table>
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
*** Calculation represents portfolio turnover of the Fund for the year ended
February 29, 2004.
(a) Total return would have been lower had certain expenses not been reimbursed
during the period shown.
See accompanying notes to the financial statements.
16
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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 in the world's developed markets. The Fund's benchmark is
the MSCI EAFE Index (Europe, Australasia and Far East).
Class III shares were outstanding during the entire year ended February 29,
2004. 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United States
of America ("U.S. GAAP") and which are consistently followed by the Fund in
the preparation of its financial statements. The preparation of financial
statements in accordance with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such reported
sale or official closing price, at the most recent quoted bid price. Unlisted
securities for which market quotations are readily available are 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.
17
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or incurred.
The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent gains
and losses on disposition of 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 8 and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
February 29, 2004.
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
18
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
must deliver the full amount of the contracts. Futures contracts are marked
to market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or receivable
is liquidated on the following business day. Gains or losses are recognized
but not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities. Under
certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 8 for all open
futures contracts as of February 29, 2004.
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. In the event that the Fund writes
uncovered call options (i.e. options for investments that the Fund does not
own), it bears the risk of incurring substantial losses if the price of the
underlying investment increases during the term of the option. There is the
risk the Fund may not be able to enter into a closing transaction because of
an illiquid market. At February 29, 2004, there were no open written option
contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and subsequently
marked to market to reflect the current value of the option. Premiums paid
for purchasing options which expire are treated as realized losses. Premiums
paid for purchasing options which are exercised or closed are added to the
amounts paid or offset against the proceeds on the 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 February 29, 2004, 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.
19
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap
contracts 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 February 29, 2004, 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 February 29, 2004,
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
20
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
During the years ended February 29, 2004 and February 28, 2003, the tax basis
of distributions paid from ordinary income were $2,679,276 and $2,585,607,
respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $877,379 and $668,795 of undistributed ordinary income and
undistributed long-term capital gains, respectively. The temporary
differences between book and tax basis distributable earnings are primarily
due to foreign currency transactions.
The following reclassification represents the amount necessary to report the
stated components of net assets on a tax basis, excluding certain temporary
differences, as of February 29, 2004. This reclassification has no impact on
net investment income, realized gain/loss or the net value of the Fund and is
primarily attributable to foreign currency transactions. The financial
highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ------------- ---------------
$ 934,227 $ (934,229) $ 2
</Table>
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
21
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
discounts. Non-cash dividends, if any, are recorded at the fair market 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.
3. 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 .40% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $1,376. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
22
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the February 29, 2004 aggregated $160,327,653 and
$47,111,350, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 194,152,767 $ 31,942,216 $ (1,213,136) $ 30,729,080
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that contain
a variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Fund that have not yet occurred. Based on experience, management is of the
view that the risk of loss in connection with these potential indemnification
obligations is remote; however, there can be no assurance that material
liabilities related to such obligations will not arise in the future that
could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 72.1% 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. At February 29, 2004, 0.03% of the Fund was held
by two related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ -----------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- -------------
Shares sold 4,203,203 $ 106,210,755 1,412,193 $ 29,960,294
Shares issued to shareholders
in reinvestment of distributions 39,302 935,929 51,473 969,993
Shares repurchased (488,341) (12,504,982) -- --
--------- ------------- --------- -------------
Net increase 3,754,164 $ 94,641,702 1,463,666 $ 30,930,287
========= ============= ========= =============
</Table>
23
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
PERIOD FROM JUNE 30, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
----------------------------
CLASS IV: SHARES AMOUNT
----------- -------------
Shares sold 892,114 $ 21,096,390
Shares issued to shareholders
in reinvestment of distributions 10,212 241,771
Shares repurchased -- --
----------- -------------
Net increase 902,326 $ 21,338,161
=========== =============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/RECEIVE UNITS OF CURRENCY VALUE (DEPRECIATION)
---------- --------------- ----------------- ----------------- -----------------
BUYS
5/28/04 AUD 1,457,195 $ 1,112,164 $ (3,435)
5/28/04 CAD 334,150 248,324 (2,306)
3/26/04 CHF 5,797,262 4,567,254 198,460
5/28/04 CHF 2,365,920 1,866,696 (42,848)
3/26/04 DKK 18,693,870 3,114,509 244,659
3/26/04 EUR 2,255,281 2,800,264 9,029
3/26/04 NOK 13,255,290 1,881,981 22,469
5/28/04 NZD 1,800,000 1,220,711 (5,998)
3/26/04 SEK 34,156,703 4,583,635 244,908
5/28/04 SEK 12,794,220 1,712,749 (68,464)
5/28/04 SGD 1,188,289 698,761 (3,255)
-----------------
$ 593,219
=================
</Table>
24
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FORWARD CURRENCY CONTRACTS -- CONTINUED
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/RECEIVE UNITS OF CURRENCY VALUE (DEPRECIATION)
---------- --------------- ----------------- ----------------- -------------------
SALES
3/26/04 CHF 618,650 $ 487,391 $ 17,164
3/26/04 DKK 8,891,280 1,481,339 (90,027)
3/26/04 EUR 1,795,506 2,229,386 70,614
5/28/04 EUR 318,979 395,394 8,759
3/26/04 GBP 2,895,775 5,362,917 (637,756)
5/28/04 GBP 896,672 1,651,596 24,711
5/28/04 HKD 2,746,777 353,682 421
5/28/04 JPY 834,440,803 7,658,318 163,002
3/26/04 NOK 4,035,840 573,007 28,639
5/28/04 NZD 1,323,296 897,423 7,600
------------------
$ (406,873)
==================
</Table>
CURRENCY ABBREVIATIONS:
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
FUTURES CONTRACTS
<Table>
<Caption>
NET
NUMBER OF CONTRACT UNREALIZED
CONTRACTS TYPE EXPIRATION DATE VALUE APPRECIATION
--------- ----------------- ---------------- ----------------- -----------------
BUYS
26 CAC40 March 2004 $ 1,205,461 $ 2,631
17 DAX March 2004 2,126,244 41,213
8 FTSE 100 March 2004 664,822 1,456
-----------------
$ 45,300
=================
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to cover
any commitments or margin requirements of the relevant broker or exchange.
25
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of GMO International
Disciplined Equity Fund (the "Fund") (a series of GMO Trust) at February 29,
2004, and the results of its operations, the changes in its net assets and
the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
26
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of $298,329
and recognized foreign source income of $2,778,854.
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 78.83% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
27
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ ------------------ ----------------- ----------------------------- --------------- -------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and 41 *(2)
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of performance
improvement training services
and products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
28
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ ------------------ ----------------- ----------------------------- --------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
29
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ --------------------------- ------------------------------ ------------------------------------------
Scott Eston President and Chief President and Chief Executive Chief Financial Officer (1997-present),
c/o GMO Trust Executive Officer Officer since October 2002; Chief Operating Officer (2000 - present)
40 Rowes Wharf Vice President from August and Member, Grantham, Mayo, Van Otterloo &
Boston, MA 02110 1998 - October 2002. Co. LLC.
DOB: 01/20/1956
Susan Randall Harbert Chief Financial Officer and Chief Financial Officer since Member, Grantham, Mayo, Van Otterloo & Co.
c/o GMO Trust Treasurer February 2000; Treasurer since LLC.
40 Rowes Wharf February 1998.
Boston, MA 02110
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator, Grantham, Mayo,
c/o GMO Trust Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Clerk Vice President since February General Counsel, Anti-Money Laundering
c/o GMO Trust 1997; Clerk since March 2001 - Reporting Officer (July 2002 - February
40 Rowes Wharf present and May 1999 - August 2003) and Member, Grantham, Mayo, Van
Boston, MA 02110 1999. Otterloo & Co. LLC.
DOB: 07/20/1965
Elaine M. Hartnett, Esq. Vice President and Vice President since August Associate General Counsel, Grantham, Mayo,
c/o GMO Trust Secretary 1999; Secretary since March Van Otterloo & Co. LLC (June 1999 -
40 Rowes Wharf 2001. present); Associate/Junior Partner, Hale
Boston, MA 02110 and Dorr LLP (1991 - 1999).
DOB: 02/18/1945
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting Officer
c/o GMO Trust Anti-Money Laundering (February 2003 - present) and Compliance
40 Rowes Wharf Compliance Officer Officer, Grantham, Mayo, Van Otterloo &
Boston, MA 02110 Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since February Member, Grantham, Mayo, Van Otterloo & Co.
c/o GMO Trust 2004. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
30
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Growth Fund returned +42.3% for the fiscal year ended
February 29, 2004, as compared to +53.6% for the MSCI EAFE Index and +49.3% for
the S&P/Citigroup PMI EPAC Growth Index. Consistent with the Fund's investment
objectives and policies, the Fund was invested substantially in international
equity securities throughout the period.
Among the portfolio holdings with the largest positive impact to relative
returns during the period were Research in Motion (the Canadian manufacturer of
the blackberry device), ING Groep, UK retailer Next, and Dutch baby food and
nutrition company Numico. Less successful holdings included Canadian
pharmaceutical Biovail, UK utility National Grid, Telecom Italia Mobile,
Swisscom, and bankrupt Italian dairy company Parmalat.
Industry weightings had a negative impact against both EAFE and the growth
index. During the fiscal year, an overweight position in utilities and an
underweight in technology stocks detracted from performance.
Country allocation was also negative. An underweight in the German market had
the largest negative impact. The appreciation of foreign currencies added to the
U.S. dollar returns of the strategy. The MSCI EAFE Index returned nearly 20%
higher in U.S. dollar terms than in local currency.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
INTERNATIONAL GROWTH FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO INTERNATIONAL GROWTH FUND MSCI EAFE INDEX S&P/CITIGROUP PMI EPAC GROWTH INDEX
11/30/2001 5,000,000 5,000,000 5,000,000
12/31/2001 5,110,000 5,029,705 5,052,890
3/31/2002 5,125,000 5,055,280 4,974,250
6/30/2002 5,095,000 4,948,130 4,750,515
9/30/2002 4,257,505 3,971,675 3,837,020
12/31/2002 4,572,375 4,227,970 4,146,595
3/31/2003 4,300,825 3,880,705 3,788,840
6/30/2003 5,012,025 4,628,460 4,516,815
9/30/2003 5,204,475 5,004,640 4,822,235
12/31/2003 5,962,180 5,859,360 5,588,700
2/29/2004 6,195,120 6,079,390 5,759,550
</Table>
Average Annual Returns
Inception 11/30/2001
<Table>
<Caption>
1YR 5YR 10YR(ITD)
42.33 N/A 9.99
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
COMMON STOCKS -- 85.7%
AUSTRALIA -- 2.9%
58,623 Australia and New Zealand Banking Group Ltd 813,698
81,476 Australian Gas Light Co Ltd 716,636
348,322 AXA Asia Pacific Holdings Ltd 760,556
123,010 BHP Billiton Ltd 1,163,577
77,573 Macquarie Bank Ltd 1,981,083
73,254 National Australia Bank Ltd 1,746,441
134,342 QBE Insurance Group Ltd 1,144,313
154,396 Santos Ltd 723,084
212,754 Telstra Corp Ltd 784,639
88,110 Westfield Holdings Ltd 876,958
116,201 Westpac Banking Corp 1,510,685
268,310 WMC Resources Ltd * 1,082,686
240,393 Woodside Petroleum Ltd 2,822,933
----------
16,127,289
----------
AUSTRIA -- 0.5%
10,258 Erste Bank Der Oesterreichischen Sparkassen AG 1,432,602
141 Mayr-Melnhof Karton AG (Bearer) 17,178
7,172 OMV AG 1,156,229
----------
2,606,009
----------
BELGIUM -- 1.8%
18,505 Almanij NV 1,128,700
259,917 Dexia 4,818,367
5,998 Electrabel SA 1,986,095
34,383 Fortis 795,036
35,863 UCB SA 1,326,990
----------
10,055,188
----------
CANADA -- 6.8%
38,600 Angiotech Pharmaceuticals Inc * 988,195
14,100 Bank of Montreal 571,251
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
CANADA -- CONTINUED
79,800 Bank of Nova Scotia 4,082,929
38,000 Biovail Corp * 775,152
618,200 Bombardier Inc Class B 2,990,213
53,500 Canadian Imperial Bank of Commerce 2,736,903
58,600 Canadian Natural Resources 3,199,143
81,000 CGI Group Inc * 525,210
33,000 Cognos Inc * 1,026,093
25,200 EnCana Corp 1,086,319
20,300 Imperial Oil Ltd 923,656
24,200 Magna International Inc Class A 1,909,306
77,600 Manulife Financial Corp 2,768,557
20,200 National Bank of Canada 687,259
31,700 Nexen Inc 1,180,112
48,900 QLT Inc * 1,155,305
65,600 Research In Motion Ltd * 6,456,595
18,000 Royal Bank of Canada 851,202
30,300 Shoppers Drug Mart Corp * 709,992
25,200 Sun Life Financial Inc 683,081
13,600 Talisman Energy Inc 791,116
51,500 Teck Cominco Ltd Class B 967,244
40,700 Toronto-Dominion Bank 1,363,492
----------
38,428,325
----------
DENMARK -- 0.7%
365 AP Moller - Maersk A/S 3,067,227
28,500 Danske Bank A/S 667,642
----------
3,734,869
----------
FINLAND -- 1.3%
335,050 Nokia Oyj 7,339,362
----------
FRANCE -- 2.8%
46,569 Altran Technologies SA * 602,922
7,442 Atos SA * 519,664
25,226 BNP Paribas 1,593,807
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
FRANCE -- CONTINUED
21,757 Business Objects SA * 659,066
18,139 Dassault Systemes SA 791,074
24,791 Pinault-Printemps-Redoute SA 2,676,765
25,034 Societe Generale 2,222,434
60,217 STMicroelectronics NV 1,559,989
29,374 Total SA 5,365,088
----------
15,990,809
----------
GERMANY -- 8.9%
18,655 Allianz AG (Registered) 2,327,155
22,105 Altana AG 1,360,914
139,246 Deutsche Post AG 3,321,853
80,058 E. On AG 5,406,307
25,062 Epcos AG * 593,208
11,657 Fresenius Medical Care AG 781,402
49,797 Merck KGaA 2,196,483
34,495 MLP AG * 788,625
6,320 Puma AG Rudolf Dassler Sport 1,299,605
104,414 Qiagen NV * 1,424,484
67,585 RWE AG 2,968,494
61,765 SAP AG 9,615,899
36,924 Schering AG 1,825,947
176,945 Siemens AG (Registered) 13,696,914
137,823 T-Online International * 1,866,571
21,825 Volkswagen AG 1,033,179
----------
50,507,040
----------
GREECE -- 0.5%
28,159 Alpha Bank A.E. 851,597
62,060 National Bank of Greece SA 1,690,241
----------
2,541,838
----------
HONG KONG -- 1.8%
244,400 Bank of East Asia 792,808
456,500 BOC Hong Kong Holdings Ltd 920,759
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
HONG KONG -- CONTINUED
456,000 CLP Holdings Ltd 2,349,172
245,500 Esprit Holdings Ltd 968,268
528,500 Hong Kong Electric Holdings Ltd 2,267,760
254,000 Hong Kong Exchanges and Clearing Ltd 672,212
698,000 Li & Fung Ltd 1,363,027
365,500 Yue Yuen Industrial Holdings 1,056,514
----------
10,390,520
----------
IRELAND -- 0.6%
47,491 Allied Irish Banks Plc 721,072
104,381 Anglo Irish Bank Corp 1,770,315
50,435 CRH Plc 1,052,780
----------
3,544,167
----------
ITALY -- 3.1%
59,345 Alleanza Assicurazioni SPA 696,807
34,405 Assicurazioni Generali SPA 929,774
889,821 Banca Intesa SPA 3,305,752
315,104 Banca Intesa SPA (Savings Shares) 894,616
81,490 Bulgari SPA 718,884
9,507 e.Biscom * 591,804
271,991 Enel SPA 2,102,042
208,595 ENI SPA 4,087,257
187,842 Parmalat Finanziaria SPA (a)(b) 2,334
596,894 Telecom Italia Mobile SPA 3,374,466
119,389 UniCredito Italiano SPA 628,965
----------
17,332,701
----------
JAPAN -- 19.3%
67,220 Acom Co Ltd 4,048,212
10,600 Aiful Corp 935,237
137,000 Asahi Kasei Corp 677,100
114,000 Canon Inc 5,561,230
86 Central Japan Railway Co 744,609
135,400 Chubu Electric Power Co Inc 2,893,639
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
71,000 Daiichi Pharmaceuticals Co Ltd 1,268,461
53,000 Denso Corp 1,108,411
316 Dentsu Inc 1,605,162
44,000 Eisai Co Ltd 1,194,033
15,700 Fanuc Ltd 985,740
23,400 Fast Retailing Co Ltd 1,595,552
410,000 Fuji Heavy Industries Ltd 2,015,102
57,000 Fuji Photo Film Co Ltd 1,778,968
31,000 Fujisawa Pharmaceutical Co Ltd 744,783
394,000 Furukawa Electric Co Ltd 1,409,976
5,100 Hirose Electric Co Ltd 562,932
42,400 Hitachi Chemical Co Ltd 668,636
12,600 Hoya Corp 1,182,043
35,000 JSRubber Corp 728,766
75,200 Kansai Electric Power Co Inc 1,362,768
420,000 Kawasaki Kisen Kaisha Ltd 2,021,966
188 KDDI Corp 975,618
7,500 Keyence Corp 1,546,540
66,000 Kirin Brewery Co Ltd 601,647
49,700 Konami Corp 1,291,854
63,000 Konica Minolta Holdings Inc 723,064
294,000 Mitsubishi Electric Corp 1,409,995
661 Mitsubishi Tokyo Finance Group Inc 5,081,823
316,000 Mitsui Mining & Smelting Co Ltd 1,255,208
315,000 Mitsui OSK Lines Ltd 1,510,708
20,000 Murata Manufacturing Co Ltd 1,111,111
6,400 Nidec Corp 627,348
43,000 Nikon Corp * 530,121
240,000 Nippon Mining Holdings Inc 836,903
256 Nippon Telegraph & Telephone Corp 1,185,576
164,000 Nippon Yusen Kabushiki Kaisha 711,477
38,300 Nissin Food Products 939,447
21,000 Nitto Denko Corp 1,037,891
271,000 Nomura Holdings Inc 4,303,359
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
165 NTT Data Corp 599,533
2,370 NTT Docomo Inc 4,923,943
55,000 Olympus Optical Co Ltd 1,145,204
38,000 Ono Pharmaceutical Co Ltd 1,652,023
560,000 Osaka Gas Co Ltd 1,614,498
22,100 Pioneer Corp 612,878
16,350 Promise Co 990,637
150 Rakuten Inc 770,181
150,000 Sankyo Co Ltd 3,246,842
112,000 Sharp Corp 1,857,441
31,000 Shionogi and Co Ltd 544,188
7,700 SMC Corp 902,773
31,000 Stanley Electric Co Ltd 527,732
214,000 Sumitomo Realty and Development Co Ltd 2,082,025
79,000 Taisho Pharmaceutical Co Ltd 1,424,401
210,400 Takeda Chemical Industries Ltd 8,665,568
18,000 Takefuji Corp 1,288,303
75,200 Terumo Corp 1,565,806
18,200 TIS Inc 719,605
72,100 Tohoku Electric Power Co Inc 1,206,946
84,400 Tokyo Electric Power Co Inc 1,853,926
269,000 Tokyo Gas Co 999,579
141,300 Toyota Motor Corp 4,875,535
17,000 Uni-Charm Corp 795,076
109 Yahoo Japan Corp * 2,005,217
50,000 Yamaha Motor Co 584,843
29,000 Yamanouchi Pharmaceutical Co Ltd 971,444
-----------
109,199,163
-----------
NETHERLANDS -- 4.1%
57,241 ABN Amro Holdings NV 1,322,157
502,251 ING Groep NV 12,281,242
808,536 Koninklijke Ahold NV * 6,720,814
30,897 Koninklijke Numico NV * 1,018,090
32,245 Royal Dutch Petroleum 1,590,557
-----------
22,932,860
-----------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
NEW ZEALAND -- 0.3%
477,085 Telecom Corp of New Zealand 1,873,949
----------
NORWAY -- 1.0%
107,260 DNB Holdings Class A 676,522
44,500 Frontline Ltd 1,422,341
69,100 Orkla ASA 1,963,222
54,100 Statoil ASA 641,719
113,800 Tandberg ASA * 1,091,207
----------
5,795,011
----------
PORTUGAL -- 0.2%
78,048 Portugal Telecom SA 880,530
----------
SINGAPORE -- 1.0%
118,000 DBS Group Holdings Ltd 1,019,004
2,639,000 Singapore Telecom Ltd 3,612,201
96,000 Venture Corp Ltd 1,212,513
----------
5,843,718
----------
SPAIN -- 3.5%
11,242 ACS Actividades Cons y Serv 568,784
57,194 Altadis SA 1,840,546
231 Antena 3 Television SA * 10,287
102,329 Banco Santander Central Hispano SA 1,184,980
297,194 Endesa SA 5,815,901
67,515 Gas Natural SDG SA 1,681,942
12,782 Metrovacesa SA 508,212
260,237 Repsol YPF SA 5,335,184
69,736 Sacyr Vallehermoso SA 1,193,129
80,673 Union Fenosa SA 1,655,902
----------
19,794,867
----------
SWEDEN -- 2.2%
154,900 Getinge AB 1,664,652
72,100 Hennes & Mauritz AB Class B 1,927,393
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
SWEDEN -- CONTINUED
35,400 Modern Times Group AB * 801,282
369,000 Nordea AB 2,552,793
114,400 Skanska AB Class B 945,112
40,700 Svenska Handelsbanken Class A 765,428
180,000 Swedish Match AB 1,716,773
46,550 Tele2 AB Class B * 2,244,895
----------
12,618,328
----------
SWITZERLAND -- 3.5%
57,278 Roche Holding AG (Non Voting) 5,907,971
10,799 Swisscom AG (Registered) 3,592,439
611 Synthes-Stratec Inc 616,749
126,967 UBS AG (Registered) 9,327,208
----------
19,444,367
----------
UNITED KINGDOM -- 18.9%
218,420 Abbey National Plc 1,965,918
263,061 Allied Domecq Plc 2,207,833
402,794 Amvescap Plc 3,186,241
176,397 AstraZeneca Plc 8,354,165
1,274,332 Barclays Plc 11,440,230
143,963 Barratt Developments Plc 1,481,438
721,591 BP Plc 5,795,079
172,977 Cadbury Schweppes Plc 1,425,288
1,070,116 Centrica Plc 4,259,801
37,893 Cobham Group Plc 882,539
162,056 Compass Group Plc 1,102,225
724,261 Dixons Group Plc (New Shares) 2,130,372
160,756 Enterprise Inns Plc 1,818,327
64,909 Gallaher Group Plc 795,024
200,382 GlaxoSmithKline Plc 4,168,651
50,654 GUS Plc 687,167
655,928 Hays Plc 1,704,180
49,132 HBOS Plc 666,064
68,600 HSBC Holdings Plc 1,114,580
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
302,668 Imperial Tobacco Group Plc 6,510,002
242,430 Kingfisher Plc 1,347,455
517,510 Lloyds TSB Group Plc 4,300,169
47,755 MAN Group Plc 1,366,578
1,319,457 mmO2 Plc * 2,595,567
149,838 Morrison Supermarkets 681,965
598,908 National Grid Transco Plc 4,790,364
169,569 Next Plc 4,377,284
58,980 Northern Rock Plc 847,730
393,725 Sage Group Plc 1,408,376
197,705 Scottish & Southern Energy Plc 2,511,437
1,051,884 Tesco Plc 5,026,622
22,105 Travis Perkins Plc 557,495
3,736,479 Vodafone Group Plc 9,309,107
86,506 Wimpey (George) 619,275
113,405 Wolseley Plc 1,712,068
344,060 WPP Group Plc 3,843,809
-----------
106,990,425
-----------
TOTAL COMMON STOCKS (COST $416,094,778) 483,971,335
-----------
PREFERRED STOCKS -- 0.5%
GERMANY -- 0.5%
18,579 Fresenius AG (Non Voting) 4.08% 1,306,578
53,955 Volkswagen AG 5.30% 1,729,608
-----------
3,036,186
-----------
TOTAL PREFERRED STOCKS (COST $2,931,192) 3,036,186
-----------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.8%
CASH EQUIVALENTS -- 7.2%
14,200,000 Dresdner GC Time Deposit, 1.03%, due 03/01/04 14,200,000
26,400,000 ING Bank GC Time Deposit, 1.06%, due 03/01/04 26,400,000
-------------
40,600,000
-------------
U.S. GOVERNMENT -- 0.6%
3,675,000 U.S. Treasury Bill, 0.88%, due 3/25/04 (c) 3,672,738
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $44,272,738) 44,272,738
-------------
TOTAL INVESTMENTS -- 94.0%
(Cost $463,298,708) 531,280,259
Other Assets and Liabilities (net) -- 6.0% 33,823,878
-------------
TOTAL NET ASSETS -- 100.0% $ 565,104,137
=============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
* 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 2).
(b) Bankrupt issuer.
(c) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts (Note 7).
See accompanying notes to the financial statements.
10
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
-------------------------------------------------------------------
Financials 26.0%
Health Care 11.6
Information Technology 10.8
Consumer Discretionary 10.4
Utilities 9.9
Industrials 7.9
Energy 7.6
Telecommunication Services 7.4
Consumer Staples 6.8
Materials 1.6
------
100.0%
======
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $463,298,708) (Note 2) $ 531,280,259
Cash 21,223
Foreign currency, at value (cost $407,020) (Note 2) 405,176
Receivable for Fund shares sold 31,125,905
Dividends and interest receivable 681,346
Foreign taxes receivable 117,886
Receivable for open forward foreign currency contracts (Notes 2 and 8) 3,255,151
Receivable for variation margin on open futures contracts (Notes 2 and 8) 152,279
Receivable for expenses reimbursed by Manager (Note 2) 74,624
---------------
Total assets 567,113,849
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 220,905
Shareholder service fee 61,363
Trustees fee 858
Payable for open forward foreign currency contracts (Notes 2 and 8) 1,594,930
Accrued expenses 131,656
---------------
Total liabilities 2,009,712
---------------
NET ASSETS $ 565,104,137
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 489,855,744
Accumulated undistributed net investment income 436,255
Accumulated net realized gain 5,248,360
Net unrealized appreciation 69,563,778
---------------
$ 565,104,137
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 565,104,137
===============
SHARES OUTSTANDING:
Class III 23,874,622
===============
NET ASSET VALUE PER SHARE:
Class III $ 23.67
===============
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $696,523) $ 5,797,638
Interest 266,646
----------------
Total income 6,064,284
----------------
EXPENSES:
Management fee (Note 3) 1,582,249
Shareholder service fee (Note 3) - Class III 439,514
Custodian fees 344,156
Transfer agent fees 32,962
Audit and tax fees 47,282
Legal fees 13,523
Trustees fees and related expenses (Note 3) 5,367
Registration fees 29,973
Miscellaneous 9,001
----------------
Total expenses 2,504,027
Fees and expenses reimbursed by Manager (Note 3) (476,897)
----------------
Net expenses 2,027,130
----------------
Net investment income 4,037,154
----------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 16,523,633
Closed futures contracts 3,435,356
Foreign currency, forward contracts and foreign currency related transactions 785,994
----------------
Net realized gain 20,744,983
----------------
Change in net unrealized appreciation (depreciation) on:
Investments 79,266,538
Open futures contracts 295,330
Foreign currency, forward contracts and foreign currency related transactions 308,928
----------------
Net unrealized gain 79,870,796
----------------
Net realized and unrealized gain 100,615,779
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 104,652,933
================
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,037,154 $ 1,994,117
Net realized gain (loss) 20,744,983 (11,166,838)
Change in net unrealized appreciation (depreciation) 79,870,796 (7,288,279)
------------------- -------------------
Net increase (decrease) in net assets from operations 104,652,933 (16,461,000)
------------------- -------------------
Distributions to shareholders from:
Net investment income
Class III (4,380,170) (5,264,354)
------------------- -------------------
Net share transactions (Note 7):
Class III 286,027,335 115,645,427
------------------- -------------------
Increase in net assets resulting from net share transactions 286,027,335 115,645,427
------------------- -------------------
Total increase in net assets 386,300,098 93,920,073
NET ASSETS:
Beginning of period 178,804,039 84,883,966
------------------- -------------------
End of period (including accumulated undistributed net investment income
of $436,255 and distributions in excess of net investment income of
$65,113, respectively) $ 565,104,137 $ 178,804,039
=================== ===================
</Table>
See accompanying notes to the financial statements.
14
<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 FEBRUARY 28/29,
--------------------------------------------
2004 2003 2002+
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.83 $ 19.65 $ 20.00
------------ ------------ ------------
Income from investment operations:
Net investment income (b) 0.29 0.25 0.01
Net realized and unrealized loss 6.81 (2.46) (0.36)
------------ ------------ ------------
Total from investment operations 7.10 (2.21) (0.35)
------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.26) (0.61) --
------------ ------------ ------------
Total distributions (0.26) (0.61) --
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 23.67 $ 16.83 $ 19.65
============ ============ ============
TOTAL RETURN (a) 42.33% (11.40)% (1.75)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 565,104 $ 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 1.38% 1.32% 0.36%*
Portfolio turnover rate 63% 78% 15%**
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.16% 0.22% 0.65%*
</Table>
+ Period from November 30, 2001 (commencement of operations) through
February 28, 2002.
* Annualized.
** Not Annualized.
(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.
15
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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 S&P/Citigroup
(f/k/a Salomon Smith Barney) Primary Market Index ("PMI") Europe, Pacific,
Asia Composite ("EPAC") Growth Style Index.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
16
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of February 29, 2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of
17
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
a futures contract can vary from the previous day's settlement price,
thereby effectively preventing liquidation of unfavorable positions. Losses
may arise from the changes in the value of the underlying instrument, if
the Fund is unable to liquidate a futures position due to an illiquid
secondary market for the contracts or the imposition of price limits, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 8 for all open futures
contracts as of February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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
18
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 on swap contracts 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 February 29, 2004, 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
February 29, 2004, 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.
19
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. During the year ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid were as follows: ordinary income
$4,380,170 and $5,264,354, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $2,858,192 and $6,155,245 of undistributed ordinary
income and undistributed long-term capital gains, respectively. The
temporary differences between book and tax basis distributable earnings are
primarily due to foreign currency transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ------------- ---------------
$ 844,384 $ (844,383) $ (1)
</Table>
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. 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.
20
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
3. 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 .54% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended was $3,333. No remuneration is paid to any Trustee or
officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the aggregated $389,637,940 and $168,150,030,
respectively.
21
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 465,332,432 $ 70,679,452 $ (4,731,625) $ 65,947,827
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 49.8% 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. Two of the shareholders are other funds of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund. At February 29, 2004, less than .01% of the Fund was held by
three related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------- ----------------------------
Class III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 16,620,211 $ 350,493,589 9,766,373 $ 179,023,615
Shares issued to shareholders
in reinvestment of
distributions 192,384 4,193,777 196,825 3,476,163
Shares repurchased (3,559,625) (68,660,031) (3,661,941) (66,854,351)
------------- ------------- ------------- -------------
Net increase 13,252,970 $ 286,027,335 6,301,257 $ 115,645,427
============= ============= ============= =============
</Table>
22
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004, is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT UNITS APPRECIATION
DATE DELIVER/RECEIVE OF CURRENCY VALUE (DEPRECIATION)
---------- --------------- ----------- ------------- --------------
Buys
3/26/04 CHF 17,738,712 $ 13,975,080 $ 724,987
5/28/04 CHF 4,939,200 3,896,998 (92,376)
3/26/04 DKK 27,739,099 4,621,497 363,040
3/26/04 EUR 18,789,944 23,330,489 1,102,006
5/28/04 EUR 2,369,107 2,936,649 (47,921)
3/26/04 GBP 2,503,179 4,635,837 435,838
3/26/04 NOK 69,691,853 9,894,825 19,179
5/28/04 NOK 11,825,540 1,677,135 (36,463)
3/26/04 SEK 91,464,140 12,273,968 402,464
5/28/04 SGD 5,961,890 3,505,827 (16,109)
--------------
$ 2,854,645
==============
Sales
5/28/04 AUD 2,905,101 $ 2,217,238 $ 7,198
5/28/04 CAD 38,742,093 28,791,244 103,231
3/26/04 DKK 11,668,600 1,944,058 43,609
3/26/04 EUR 11,774,465 14,619,736 (349,155)
5/28/04 EUR 1,594,896 1,976,969 43,798
3/26/04 GBP 4,827,515 8,940,462 (1,039,973)
5/28/04 GBP 817,528 1,505,819 (9,171)
5/28/04 HKD 26,909,112 3,464,887 4,048
5/28/04 JPY 65,258,600 598,930 5,753
5/28/04 NZD 1,798,080 1,219,408 (3,762)
--------------
$ (1,194,424)
==============
</Table>
CURRENCY ABBREVIATIONS:
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
23
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF EXPIRATION CONTRACT APPRECIATION
CONTRACTS TYPE DATE VALUE (DEPRECIATION)
--------- --------- ---------- ------------- --------------
Buys
80 CAC 40 March 2004 $ 3,709,111 $ (4,954)
142 DAX March 2004 17,760,388 (236,752)
214 FTSE 100 March 2004 17,783,983 (4,796)
23 Hang Seng March 2004 2,052,134 9,475
26 IBEX 35 March 2004 2,666,939 2,407
21 MIB30 March 2004 3,656,603 9,728
185 MSCI March 2004 5,012,307 25,790
160 OMX March 2004 1,502,121 973
79 SPI 200 March 2004 5,123,054 18,638
89 TOPIX March 2004 8,834,020 93,501
--------------
$ (85,990)
==============
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
24
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INTERNATIONAL GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
International Growth Fund (the "Fund") (a series of GMO Trust) at February
29, 2004, and the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in
accordance with auditing standards generally accepted in the United States
of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
25
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of
$696,523 and recognized foreign source income of $6,494,161.
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 99.53% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
26
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------- --------------- ----------------- -------------------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and Senior 41 *(2)
40 Rowes Wharf Associate Dean, Harvard
Boston, MA 02110 University.
DOB: 10/03/1941
Donald W. Trustee Since December Advisory Counsel, Goodwin
Glazer, Esq. 2000 Procter LLP; Secretary and 41 None
c/o GMO Trust Consultant, Provant, Inc.
40 Rowes Wharf (provider of performance
Boston, MA 02110 improvement training
DOB: 07/26/1944 services and
products)(1998 - present);
Consultant - Business and
Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
27
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ----------------- --------------- ----------------- -------------------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman, Grantham,
Grantham(3) the Board of 1985. President Mayo, Van Otterloo & Co. 41 None
c/o GMO Trust Trustees from February LLC
40 Rowes Wharf 2002 - October
Boston, MA 02110 2002; President
DOB: 10/06/1938 Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
28
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ------------------- ----------------------- ---------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 -August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary since Otterloo & Co. LLC (June
Boston, MA 02110 March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
29
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Currency Hedged International Equity Fund returned +32.3% for the fiscal
year ended February 29, 2004, as compared to +33.8% for the MSCI EAFE Hedged
benchmark. Consistent with the Fund's investment objectives and policies, during
the fiscal year the Fund was fully exposed to international equity securities
through its investment in underlying GMO mutual funds.
The Fund's exposure to international equities comes indirectly through
investments in the GMO International Intrinsic Value Fund and the GMO
International Growth Fund. The Fund also holds currency hedges in addition to
the shares of those Funds, which make predominantly unhedged investments.
Currency hedging had a negative impact to international equity investing. All
major currencies appreciated against the U.S. dollar. In U.S. dollar terms the
unhedged MSCI EAFE Index returned +53.6% during the period, nearly 20% higher
than the hedged benchmark.
An allocation to the GMO International Intrinsic Value Fund (the Fund was
invested in Class IV shares), which returned +55.2% during the period, benefited
the Fund. The Fund was hurt by underperformance in the GMO International Growth
Fund, which returned +42.3% during the period. The Fund was hurt by
underperformance in the GMO International Growth Fund, which returned +42.3%
during the period.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
CURRENCY HEDGED INT'L. EQUITY FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND MSCI EAFE (HEDGED) INDEX MSCI EAFE INDEX
6/30/1995 5,000,000 5,000,000 5,000,000
9/30/1995 5,365,000 5,572,330 5,208,450
12/31/1995 5,651,210 5,956,205 5,419,360
3/31/1996 5,919,110 6,300,140 5,575,955
6/30/1996 6,151,630 6,537,220 5,664,175
9/30/1996 6,200,190 6,583,895 5,657,070
12/31/1996 6,514,850 6,761,885 5,747,070
3/31/1997 6,739,870 7,089,240 5,657,055
6/30/1997 7,307,775 7,964,435 6,391,190
9/30/1997 7,719,995 8,193,685 6,346,190
12/31/1997 7,355,165 7,807,885 5,849,250
3/31/1998 8,633,740 9,121,485 6,709,675
6/30/1998 8,586,635 9,284,385 6,780,910
9/30/1998 6,929,850 7,603,980 5,817,075
12/31/1998 7,891,005 8,877,475 7,018,920
3/31/1999 8,111,615 9,557,490 7,116,565
6/30/1999 9,095,870 10,158,975 7,297,405
9/30/1999 9,074,665 10,090,540 7,617,660
12/31/1999 9,540,770 12,115,045 8,911,525
3/31/2000 9,359,040 12,507,720 8,902,155
6/30/2000 9,967,830 12,334,185 8,549,485
9/30/2000 10,053,925 12,042,015 7,859,850
12/31/2000 10,484,280 11,584,695 7,648,940
3/31/2001 10,265,620 10,755,235 6,600,450
6/30/2001 10,893,460 10,904,430 6,531,485
9/30/2001 9,337,250 8,844,565 5,617,080
12/31/2001 9,932,115 9,745,760 6,008,800
3/31/2002 10,496,440 9,926,070 6,039,350
6/30/2002 9,920,510 8,739,835 5,911,345
9/30/2002 8,369,515 6,964,485 4,744,815
12/31/2002 8,515,835 7,078,360 5,051,000
3/31/2003 7,915,920 6,381,505 4,636,135
6/30/2003 9,188,905 7,353,145 5,529,450
9/30/2003 9,393,755 7,718,575 5,978,860
12/31/2003 10,300,940 8,435,365 6,999,965
2/29/2004 10,725,270 8,752,250 7,262,825
</Table>
Average Annual Returns
Inception 6/30/1995
<Table>
<Caption>
1YR 5YR 10YR(ITD)
32.31 6.38 9.21
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 99.4%
UNITED STATES -- 99.4%
3,060,813 GMO International Growth Fund, Class III 72,449,455
3,585,599 GMO International Intrinsic Value Fund, Class IV 87,165,900
-------------
159,615,355
-------------
TOTAL MUTUAL FUNDS (COST $134,538,767) 159,615,355
-------------
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 -- 3.9%
CASH EQUIVALENTS -- 3.9%
6,300,000 Dresdner GC Time Deposit, 1.03%, due 03/01/04 6,300,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $6,300,000) 6,300,000
-------------
TOTAL INVESTMENTS -- 103.3%
(Cost $140,838,786) 165,915,356
Other Assets and Liabilities (net)--(3.3%) (5,329,341)
-------------
TOTAL NET ASSETS-- 100.0% $ 160,586,015
=============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
* 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 2).
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 -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $6,300,019) (Note 2) $ 6,300,001
Investments in affiliated issuers, at value (cost $134,538,767) (Notes 2 and 9) 159,615,355
Cash 16,598
Foreign currency, at value (cost $41,543) (Note 2) 44,266
Receivable for Fund shares sold 703,955
Interest receivable 541
Receivable for open forward foreign currency contracts (Notes 2 and 8) 540,936
Receivable for expenses reimbursed by Manager (Note 3) 97,806
-------------
Total assets 167,319,458
-------------
LIABILITIES:
Payable for investments purchased 700,000
Payable to affiliate for (Note 3):
Management fee 64,811
Shareholder service fee 18,003
Trustees fee 250
Payable for open forward foreign currency contracts (Notes 2 and 8) 5,882,973
Accrued expenses 67,406
-------------
Total liabilities 6,733,443
-------------
NET ASSETS $ 160,586,015
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 145,228,452
Accumulated undistributed net investment income 250,983
Accumulated net realized loss (4,630,676)
Net unrealized appreciation 19,737,256
-------------
$ 160,586,015
=============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 160,586,015
=============
SHARES OUTSTANDING:
Class III 21,894,873
=============
NET ASSET VALUE PER SHARE:
Class III $ 7.33
=============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers (Note 8) $ 2,296,023
Interest 23,664
Dividends (net of withholding taxes of $263) 13,443
-------------
Total income 2,333,130
-------------
EXPENSES:
Management fee (Note 3) 418,011
Shareholder service fee (Note 3) - Class III 116,114
Custodian fees 69,082
Transfer agent fees 30,021
Audit and tax fees 46,468
Legal fees 3,049
Trustees fees and related expenses (Note 3) 1,490
Registration fees 17,808
Miscellaneous 276
-------------
Total expenses 702,319
Fees and expenses reimbursed by Manager (Note 3) (166,704)
Indirectly incurred fees waived or borne by Manager (Note 3) (416,467)
Shareholder service fee waived (Note 3) - Class III (89,931)
-------------
Net expenses 29,217
-------------
Net investment income 2,303,913
-------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments of affiliated issuers 567,211
Foreign currency, forward contracts and foreign currency related
transactions (5,342,104)
-------------
Net realized loss (4,774,893)
-------------
Change in net unrealized appreciation (depreciation) on:
Investments 27,720,324
Foreign currency, forward contracts and foreign currency related
transactions (4,324,577)
-------------
Net unrealized gain 23,395,747
-------------
Net realized and unrealized gain 18,620,854
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 20,924,767
=============
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,303,913 $ 717,092
Net realized loss (4,774,893) (3,959,072)
Change in net unrealized appreciation (depreciation) 23,395,747 289,156
----------------- -----------------
Net increase (decrease) in net assets from operations 20,924,767 (2,952,824)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III -- (1,412,055)
----------------- -----------------
Net share transactions (Note 7):
Class III 110,738,483 (4,293,820)
----------------- -----------------
Increase (decrease) in net assets
resulting from net share transactions 110,738,483 (4,293,820)
----------------- -----------------
Total increase (decrease) in net assets 131,663,250 (8,658,699)
NET ASSETS:
Beginning of period 28,922,765 37,581,464
----------------- -----------------
End of period (including accumulated
undistributed net investment income of
$250,983 and $272,397, respectively) $ 160,586,015 $ 28,922,765
================= =================
</Table>
See accompanying notes to the financial statements.
4
<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>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- -------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.54 $ 7.14 $ 9.25 $ 10.04 $ 9.28
--------- --------- -------- --------- ---------
Income from investment operations:
Net investment income (d) 0.20(c) 0.22(c) 0.46(c) 0.23 0.23
Net realized and unrealized gain (loss) 1.59 (1.55) (1.00) 1.34 1.26
--------- --------- -------- --------- ---------
Total from investment operations 1.79 (1.33) (0.54) 1.57 1.49
--------- --------- -------- --------- ---------
Less distributions to shareholders:
From net investment income -- (0.27) (1.53) (0.21) (0.42)
From net realized gains -- -- (0.04) (2.15) (0.31)
--------- --------- -------- --------- ---------
Total distributions -- (0.27) (1.57) (2.36) (0.73)
--------- --------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 7.33 $ 5.54 $ 7.14 $ 9.25 $ 10.04
========= ========= ======== ========= =========
TOTAL RETURN (a) 32.31% (19.53)% (5.38)% 16.69% 15.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 160,586 $ 28,923 $ 37,581 $ 49,332 $ 75,054
Net expenses to average daily net
assets 0.04%(b) 0.06%(b) 0.31%(b) 0.69% 0.69%
Net investment income to average daily
net assets 2.98%(c) 3.32%(c) 5.33%(c) 2.23% 2.25%
Portfolio turnover rate 5% 90% 120% 39% 68%
Fees and expenses reimbursed by
the Manager to average daily net
assets: 0.87% 1.32% 0.79% 0.38% 0.33%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) 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 3.
(c) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
(d) 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
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Currency Hedged International Equity Fund (the "Fund") is a series of
GMO Trust (the "Trust"). The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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 February 29, 2004, 54.3% of the Fund's net assets was invested in GMO
International Intrinsic Value Fund and 45.1% 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. These
financial statements are available, without charge, upon request by calling
(617) 330-7500 or by visiting GMO's website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
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
6
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by certain underlying
funds in which the Fund invests be valued using fair value prices supplied
by an independent pricing service to the extent that such prices are
available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
gains and losses on disposition of 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 8 and represents the currency exposure the Fund has acquired or
hedged through currency contracts as of February 29, 2004.
7
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. As of February
29, 2004, 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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, 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
8
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
for purchasing options which are exercised or closed are added to the
amounts paid or offset against the proceeds on the closing transaction to
determine the realized gain or loss. The risk associated with purchasing
put and call options is limited to the premium paid. At February 29, 2004,
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. 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 on swap contracts 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 February 29, 2004, 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
9
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
securities fail financially. The Fund receives compensation for lending its
securities. At February 29, 2004, 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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid were as follows: ordinary income - $0
and $1,412,055, respectively.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code of
$2,715,282 and $1,682,281 expiring in 2010 and 2011, respectively. The Fund
has elected to defer to March 1, 2004 post-October currency losses of
$5,001,215.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions and the net operating loss. The financial highlights exclude
these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
---------------------- ---------------------- -------------------
$ (2,325,327) $ 5,342,102 $ (3,016,775)
</Table>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
10
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
3. 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 year ended February
29, 2004, shareholder service fees incurred indirectly by the Fund were
.116% 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 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% of the Fund's average
11
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 (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 year ended February 29, 2004 indirect operating expenses (excluding
shareholder service fees) 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 .544% and
.000% 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 year ended February 29, 2004 was $917. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the February 29, 2004, aggregated $106,413,623
and $4,050,000, respectively.
At February 29, 2004, 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
----------------- ----------------- ------------------ -----------------
$ 141,071,899 $ 24,843,475 $ (18) $ 24,843,457
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 82.7% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. One of the shareholders is another fund
12
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
of GMO Trust. Investment activities of these shareholders may have a
material effect on the Fund. At February 29, 2004, less than .01% of the
Fund was held by two related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------- ------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
Shares sold 18,157,015 $ 120,046,588 2,882,019 $ 16,484,193
Shares issued to shareholders
in reinvestment of distributions -- -- 189,880 1,365,235
Shares repurchased (1,480,507) (9,308,105) (3,118,860) (22,143,248)
---------- ------------- ---------- ------------
Net increase (decrease) 16,676,508 $ 110,738,483 (46,961) $ (4,293,820)
========== ============= ========== ============
</Table>
13
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT UNITS OF APPRECIATION
DATE DELIVER CURRENCY VALUE (DEPRECIATION)
------------ --------------------------- -------------- --------------- ---------------
Sales
5/28/04 AUD 7,091,116 $ 5,412,099 $ 11,293
5/28/04 CAD 76,221 56,644 81
3/26/04 CHF 9,118,455 7,183,788 (328,684)
3/26/04 DKK 6,971,284 1,161,457 (91,238)
3/26/04 EUR 28,750,222 35,697,645 (1,988,495)
5/28/04 EUR 2,755,255 3,415,302 89,658
3/26/04 GBP 17,541,098 32,485,767 (3,260,080)
5/28/04 GBP 584,733 1,077,031 10,118
5/28/04 HKD 10,778,996 1,387,932 1,588
4/28/04 JPY 233,200,000 2,138,400 (138,400)
5/28/04 JPY 3,906,837,310 35,856,114 413,181
3/26/04 NOK 10,098,461 1,433,776 15,017
5/28/04 NZD 801,886 543,817 (1,678)
3/26/04 SEK 17,129,014 2,298,616 (74,398)
---------------
$ (5,342,037)
===============
</Table>
CURRENCY ABBREVIATIONS:
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
14
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING OF SALES DIVIDEND VALUE,
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME END OF PERIOD
------------------------- ------------ ------------- ----------- ----------- -------------
GMO International
Growth Fund, Class III $ 11,506,555 $ 51,846,383 $ 2,160,000 $ 563,982 $ 72,449,455
GMO International
Intrinsic Value
Fund, Class IV 17,457,641 54,567,240 1,890,000 1,732,041 87,165,900
------------ ------------- ----------- ----------- -------------
Totals $ 28,964,196 $ 106,413,623 $ 4,050,000 $ 2,296,023 $ 159,615,355
============ ============= =========== =========== =============
</Table>
15
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Currency Hedged International Equity Fund (the "Fund") (a series of GMO
Trust) at February 29, 2004, and the results of its operations, the changes
in its net assets and the financial highlights for the periods presented,
in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 29, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
16
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- --------------- ------------------ ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of 41 *(2)
c/o GMO Trust Business
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory 41 None
Glazer, Esq. December 2000 Counsel, Goodwin
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of performance
improvement training
services and products)
(1998 - present);
Consultant - Business
and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
17
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- --------------- ------------------ ------------- --------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative
from September
1985 - February
2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
18
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ------------------- ------------------------ ---------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 -August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since Otterloo & Co. LLC (June
40 Rowes Wharf March 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
19
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Small Companies Fund returned +86.6% for the fiscal year
ended February 29, 2004, as compared to +53.6% for the MSCI EAFE index and
+70.6% for the S&P/EMI World ex-U.S. index. Consistent with the Fund's
investment objectives and policies, the Fund was invested substantially in
equity securities of small companies in countries outside of the U.S. throughout
the fiscal year.
Among the portfolio holdings with the largest positive impact to relative
returns were Dutch technology company Getronics, Dutch baby food and nutrition
company Numico, UK aerospace company Rolls-Royce, Swiss Life, Dutch commercial
services company Buhrmann, and UK technology company LogicaCMG. All these stocks
returned more than 100% over the 12-month period. Less successful holdings
included Dutch company Hagemayer and German company Schwarz Pharmaceutical.
The portfolio benefited from an allocation to emerging markets. Within developed
markets, the portfolio benefited from overweighting Germany, but suffered from
exposure to Singapore. The appreciation of foreign currencies added to the U.S.
dollar returns of the strategy. The MSCI EAFE Index returned nearly 20% higher
in U.S. dollar terms than in local currency.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
INT'L. SMALL COMPANIES FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO INTERNATIONAL SMALL COMPANIES FUND S&P/CITIGROUP EMI WORLD EX-U.S. MSCI EAFE INDEX
2/28/1994 4,970,000 5,000,000 5,000,000
3/31/1994 4,880,575 4,918,050 4,784,645
6/30/1994 4,970,000 5,097,810 5,029,100
9/30/1994 4,837,070 5,061,780 5,033,970
12/31/1994 4,629,030 4,896,465 4,982,615
3/31/1995 4,490,010 4,866,365 5,075,430
6/30/1995 4,610,245 4,863,985 5,112,280
9/30/1995 4,813,105 5,056,395 5,325,410
12/31/1995 4,856,495 5,152,960 5,541,055
3/31/1996 5,088,310 5,449,110 5,701,165
6/30/1996 5,246,715 5,689,855 5,791,370
9/30/1996 5,152,640 5,561,155 5,784,105
12/31/1996 5,334,445 5,526,715 5,876,125
3/31/1997 5,298,985 5,424,940 5,784,090
6/30/1997 5,700,840 5,814,935 6,534,710
9/30/1997 5,704,780 5,580,565 6,488,700
12/31/1997 5,145,455 5,006,470 5,980,600
3/31/1998 6,027,005 5,867,645 6,860,345
6/30/1998 5,971,330 5,846,375 6,933,180
9/30/1998 5,092,800 4,961,755 5,947,705
12/31/1998 5,582,880 5,614,730 7,176,535
3/31/1999 5,558,460 5,694,540 7,276,375
6/30/1999 5,968,750 6,044,680 7,461,275
9/30/1999 6,097,450 6,352,035 7,788,725
12/31/1999 6,197,240 6,948,020 9,111,645
3/31/2000 6,166,560 7,089,305 9,102,065
6/30/2000 6,376,205 6,965,640 8,741,475
9/30/2000 6,137,975 6,598,985 8,036,355
12/31/2000 6,369,825 6,231,885 7,820,710
3/31/2001 6,117,275 5,567,530 6,748,675
6/30/2001 6,504,515 5,736,805 6,678,165
9/30/2001 5,729,355 4,852,840 5,743,225
12/31/2001 5,942,870 5,253,450 6,143,740
3/31/2002 6,395,550 5,568,905 6,174,980
6/30/2002 6,720,550 5,680,605 6,044,100
9/30/2002 5,540,795 4,679,770 4,851,370
12/31/2002 5,868,750 4,870,420 5,164,430
3/31/2003 5,605,790 4,646,325 4,740,250
6/30/2003 7,291,115 5,724,390 5,653,630
9/30/2003 8,440,550 6,477,690 6,113,130
12/31/2003 9,826,570 7,487,145 7,157,165
2/29/2004 10,531,765 7,990,150 7,425,925
</Table>
Average Annual Returns
Inception 10/14/1991
<Table>
<Caption>
1YR 5YR 10YR(ITD)
84.39 14.23 7.73
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 60 bp on the purchase and 60 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 93.9%
ARGENTINA -- 0.3%
185,069 Grupo Financiero Galicia SA ADR * 1,521,267
113,350 Petrobras Energia Participaciones SA ADR * 1,513,223
87,700 Telecom Argentina SA ADR * 910,326
41,200 Tenaris SA ADR 1,427,580
---------------
5,372,396
---------------
AUSTRALIA -- 4.0%
535,355 Ansell Ltd 2,899,633
958,387 Aristocrat Leisure Ltd 1,782,059
545,755 Australian Gas Light Co Ltd 4,800,281
33,744 Australian Stock Exchange Ltd 437,912
1,656,495 BHP Steel Ltd 7,553,386
844,580 Boral Ltd 4,001,043
3,290,163 CFS Gandel Retail Trust 3,528,550
331,276 CSL Ltd 5,111,920
3,047,834 CSR Ltd 4,279,833
2,654,712 Deutsche Office Trust 2,273,550
1,127,976 General Property Trust Units 2,593,464
448,267 Investa Property Group 674,428
420,391 Lion Nathan Ltd 1,952,603
1,056,442 Mayne Group Ltd 2,608,313
697,615 Origin Energy Ltd 3,019,554
265,331 Promina Group Ltd 722,648
2,027,498 Santos Ltd 9,495,399
398,794 Sonic Healthcare Ltd 2,461,516
1,344,340 Southcorp Ltd 3,090,932
---------------
63,287,024
---------------
AUSTRIA -- 1.7%
74,886 Austrian Airlines * 1,123,994
56,328 Boehler Uddeholm (Bearer) 4,269,240
106 BWT AG 2,326
52,603 Flughafen Wien AG 2,908,486
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
AUSTRIA -- CONTINUED
306,076 Immofinanz Immobilien Anlagen AG * 2,414,901
32,948 Mayr-Melnhof Karton AG (Bearer) 4,013,960
45,237 RHI AG * 972,381
81,128 VA Technologie AG (Bearer) * 3,298,226
85,232 Voestalpine AG 3,902,443
112,350 Wienerberger AG 3,545,710
---------------
26,451,667
---------------
BELGIUM -- 1.6%
13,237 Barco NV 1,203,918
16,016 CMB SA 1,674,575
10,588 Cofinimmo SA 1,560,253
49,007 Colruyt SA 5,583,723
145,444 Delhaize Group 7,909,859
57,922 Mobistar SA * 3,875,481
13,114 Sofina SA 697,064
33,529 Tessenderlo Chemie 1,142,728
32,194 UCB SA 1,191,231
15,496 Umicore 1,038,741
---------------
25,877,573
---------------
BRAZIL -- 0.1%
21,285,907 Companhia Siderurgica Nacional SA 1,359,375
14,836,016 Compania Saneamento Basico SAO PA 778,859
---------------
2,138,234
---------------
CANADA -- 3.6%
221,400 ATI Technologies Inc * 3,432,174
47,400 Cameco Corp 2,250,330
244,000 Canadian Tire Corp Class A 7,965,120
235,200 CGI Group Inc * 1,525,053
138,375 CI Fund Management Inc 1,552,110
203,100 CP Ships Ltd 3,661,628
77,000 Dofasco Inc 2,017,179
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CANADA -- CONTINUED
17,000 Fairfax Financial Holdings Ltd 2,622,694
301,600 Hudson's Bay Co 2,931,145
85,100 MDS Inc 1,338,260
133,800 Methanex Corp 1,520,738
148,800 Onex Corp 1,746,674
49,800 Penn West Petroleum Ltd 2,189,827
132,431 QLT Inc * 3,128,797
244,400 Quebecor Inc Class B * 5,000,022
124,800 Quebecor World Inc 2,422,055
1,600 Research In Motion Ltd * 157,478
307,900 Rogers Communications Inc 5,789,690
125,800 Sears Canada Inc 1,664,207
72,500 Shaw Communications Inc 1,216,303
29,800 Sobeys Inc 720,264
207,600 TransAlta Corp 2,761,811
---------------
57,613,559
---------------
CHINA -- 0.8%
1,378,000 Angang New Steel Co Class H 823,204
1,158,000 Beijing Datang Power Co Ltd Class H 981,879
1,250,000 Brilliance China Automotive Holdings Ltd 594,179
3,493,000 China Petroleum & Chemical Corp Class H 1,469,655
654,400 China Resources Enterprise Ltd 920,583
20,000 China Telecom Corp Ltd ADR 770,000
654,000 Cosco Pacific Ltd 999,839
975,300 Denway Motors Ltd 1,133,946
478,000 Huaneng Power International Inc Class H 899,645
1,420,000 Legend Group Ltd 592,894
2,660,000 PetroChina Co Ltd Class H 1,426,736
366,000 Shanghai Industrial Holdings Ltd 959,217
1,180,000 Yanzhou Coal Mining Co Ltd Class H 1,356,784
---------------
12,928,561
---------------
FINLAND -- 2.0%
16,000 Amer Group Class A 783,272
96,800 Elisa Oyj Class A * 1,629,713
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
FINLAND -- CONTINUED
111,300 Finnair Class A 861,548
17,600 Huhtamaki Oyj 227,427
191,500 Kemira Oyj 2,498,357
199,400 Kesko Oyj Class B 4,001,235
110,200 Metso Oyj 1,476,035
293,500 M-real Oyj Class B 2,789,754
41,165 Nokian Renkaat Oyj 3,479,054
109,900 Orion-Yhtymae Oyj Class B 2,830,697
144,900 Pohjola Group Plc Class D 4,038,258
264,429 Rautaruukki Oyj * 2,221,019
145,800 Sponda Oyj 1,204,691
1,200 Stockmann Oyj AB Class A 27,956
48,397 Stockmann Oyj AB Class B 1,133,512
5,700 Wartsila Oyj Class A 128,472
113,200 Wartsila Oyj Class B 2,630,174
---------------
31,961,174
---------------
FRANCE -- 4.4%
189,204 Air France 3,883,620
1,845,348 Alstom * 4,929,617
280,308 Altran Technologies SA * 3,629,106
191,149 Business Objects SA * 5,790,314
108,945 Cap Gemini SA * 4,515,748
18,930 CNP Assurances 1,092,293
116,965 Dassault Systemes SA 5,101,048
12,044 Eiffage SA 1,719,441
281,168 Equant NV * 2,903,109
34,928 Eurazeo 2,634,261
23,647 Gecina SA 1,784,920
1,023,975 Havas SA 5,687,132
5,097 Hermes International 1,008,850
6,741 Imerys SA 1,476,635
26,242 Neopost SA 1,434,650
16,363 Publicis Groupe 565,609
21,040 Remy Cointreau SA 744,530
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
FRANCE -- CONTINUED
275,868 Rhodia SA 1,175,687
20,940 Sagem SA 2,345,518
2,050,106 SCOR SA * 4,024,666
22,873 Technip SA 3,183,007
20,674 Vallourec 1,669,684
49,927 Wendel Investissement 2,474,548
198,748 Zodiac SA 6,181,018
---------------
69,955,011
---------------
GERMANY -- 8.8%
155,442 Aareal Bank AG 4,770,476
191,793 Aixtron AG 1,558,500
18,684 AMB Aachener & Muenchener AG 1,483,894
17 AVA Allg Handels der Verbrau 649
19,090 AWD Holding AG 694,265
78,570 Bankgesellschaft Berlin AG * 185,484
65,950 Bilfinger & Berger 2,482,869
132,950 Celanese AG 5,327,390
28,424 Comdirect Bank AG * 312,554
316,180 Continental AG 12,964,170
71,113 Douglas Holdings AG 2,191,276
227,611 Epcos AG * 5,387,467
74,726 HeidelbergCement AG * 3,342,494
91,332 Hochtief AG 2,821,113
103,920 IKB Deutsche Industriebank AG 2,533,346
51,990 IVG Immobilien AG 613,677
72,770 IWKA AG 1,749,564
188,067 KarstadtQuelle AG 4,720,200
379,677 MAN AG 13,279,725
226,621 Merck KGaA 9,995,969
427,697 MG Technologies AG 6,483,245
102,479 MLP AG * 2,342,875
202,460 Mobilcom AG * 4,339,350
60,643 Puma AG Rudolf Dassler Sport 12,470,248
356,774 Qiagen NV * 4,867,343
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
34,738 Salzgitter AG 432,483
141,022 Schwarz Pharma AG 4,178,993
79,029 SGL Carbon AG * 1,035,942
125,421 Singulus Technologies * 2,778,549
76,429 Software AG * 2,136,668
1,419 Springer (Axel) AG 146,338
94,795 Sudzucker AG 1,831,522
613,417 TUI AG 14,153,508
76,262 United Internet AG 1,798,460
19,920 Vossloh AG 1,173,178
1,741,776 WCM Beteiligungs & Grundbesitz * 2,899,970
---------------
139,483,754
---------------
HONG KONG -- 2.4%
3,596,000 Asia Aluminum Holdings Ltd 743,791
345,500 Asia Satellite Telecommunications Holdings Ltd 687,995
476,500 ASM Pacific Technology 2,160,942
1,992,000 Chaoda Modern Agriculture 799,733
180,800 Dah Sing Financial Services 1,399,462
436,500 Esprit Holdings Ltd 1,721,584
7,180,000 First Pacific Co * 1,780,276
1,000,000 Giordano International Ltd 603,814
745,115 Global Bio-Chem Technology Group Co Ltd 574,355
782,000 Great Eagle Holdings Ltd 1,336,177
402,000 Guoco Group 3,047,078
1,866,000 Hang Lung Group Co Ltd 2,936,657
2,089,600 HKR International Ltd * 805,360
140,300 Hong Kong Aircraft Engineering Co Ltd 762,436
1,870,000 Hong Kong Exchanges and Clearing Ltd 4,948,965
28,000 Mandarin Oriental International Ltd * 15,400
6,924,000 New World Development Co Ltd 7,472,086
2,612,000 Oriental Press Group 973,143
22,212 SCMP Group Ltd 9,916
6,553,000 Shun Tak Holdings Ltd 3,030,737
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
HONG KONG -- CONTINUED
201,000 Techtronic Industries Co 666,226
152,000 Wing Hang Bank Ltd 981,262
---------------
37,457,395
---------------
INDIA -- 0.3%
31,500 GAIL India Ltd GDR * 859,320
53,600 ICICI Bank Ltd ADR 798,640
9,100 Infosys Technologies ADR 764,673
27,900 ITC Ltd GDR 772,272
87,700 Mahindra & Mahindra Ltd GDR 897,171
36,000 Ranbaxy Laboratories Ltd GDR 795,600
---------------
4,887,676
---------------
INDONESIA -- 0.5%
2,010,000 Astra International Tbk 1,283,737
1,926,000 Bank Central Asia Tbk 831,449
3,670,000 Gajah Tunggal Tbk * 238,734
1,299,000 HM Sampoerna Tbk 748,980
5,170,000 Indah Kiat Pulp & Paper * 489,178
6,825,000 Indofood Sukses Makmur Tbk 686,132
567,000 Indonesian Satellite Corp Tbk PT Class A * 1,223,862
7,570,000 PT Bank Mandiri 1,253,459
2,068,000 Telekomunikasi Indonesia Tbk PT 1,785,500
---------------
8,541,031
---------------
IRELAND -- 0.4%
152,680 DCC Plc 2,276,459
640,173 Fyffes Plc 1,352,205
216,721 Independent News & Media Plc 543,937
107,032 Kerry Group Plc 2,021,406
---------------
6,194,007
---------------
ITALY -- 3.3%
610,723 AEM SPA 1,164,794
2,616,958 Banca Nazionale Del Lavoro SPA * 6,828,298
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
ITALY -- CONTINUED
1,664,999 Banca Popolare di Milano 10,736,871
127,163 Benetton Group SPA 1,429,900
1,010,194 Beni Stabili SPA 717,955
538,107 Bulgari SPA 4,747,045
43,378 Buzzi Unicem SPA 526,036
48,084 e.Biscom * 2,993,193
102,000 Fornara SPA *(a)(b) --
213,400 Grassetto SPA *(a)(b) 2,651
478,587 Grouppo Editoriale L'Espresso 2,961,329
1,012,268 IFIL SPA * 3,377,040
93,126 Italcementi SPA 731,281
123,819 Lottomatica SPA 2,866,134
1,385,568 Parmalat Finanziaria SPA (a)(b) 17,216
7,820,610 Pirelli & Co 8,016,614
737,035 RCS MediaGroup SPA * 2,536,672
299,520 Tiscali SPA * 2,072,896
---------------
51,725,925
---------------
JAPAN -- 15.6%
800,000 AIOI Insurance Co Ltd 3,192,385
156,700 Aoyama Trading 3,148,055
35,800 Benesse Corp 904,338
765,000 Bosch Automotive Systems Corp 2,576,606
344,000 Calsonic Kansei Corp 2,512,466
140,000 Canon Sales Co Inc 1,497,895
214,000 Casio Computer Co Ltd 2,211,294
325,000 Chiyoda Corp * 2,055,418
22,000 Chudenko Corp 340,893
296,000 Citizen Watch Co Ltd 2,587,223
802,000 Cosmo Oil Co Ltd 1,717,628
600,000 Daido Steel Co Ltd 1,175,178
1,159,500 Daiei Inc * 2,822,872
39,700 Daiichikosho Co Ltd 2,107,450
1,655,000 Dainippon Ink and Chemicals Inc 3,574,776
51,000 Ezaki Glico Co Ltd 363,619
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
106,200 FamilyMart 2,906,260
843,000 Fujikura Ltd 4,096,952
1,973,000 Furukawa Electric Co Ltd 7,060,617
153,000 Gunze Ltd 659,555
18,500 H I S Co Ltd 387,745
644,400 Haseko Corp * 1,409,588
1,752,500 Hitachi Zosen Corp * 3,240,024
1,407,000 Ishikawajima-Harima Heavy Industries 1,944,509
2,759,000 Isuzu Motors Ltd * 5,252,352
249,000 Itoham Foods Inc 1,016,420
103,000 Izumiya Co Ltd 515,660
140,000 Japan Securities Finance Co 740,619
375,000 Kamigumi Co Ltd 2,515,788
180,000 Kandenko Co 812,191
1,373,000 Kanebo Ltd * 1,332,034
3,769,000 Kawasaki Heavy Industries Ltd 4,829,398
1,774,000 Kawasaki Kisen Kaisha Ltd 8,540,399
1,330,000 Kenwood Corp * 3,627,494
215,000 Kikkoman Corp 1,633,260
99,000 Kissei Pharmaceutical Co Ltd 1,907,331
101,000 Koyo Seiko Co Ltd 988,184
76,000 Kyudenko Corp 313,015
64,800 Lopro Corp * 325,601
219,000 Maeda Corp 783,718
114,000 Maeda Road Construction 634,377
90,000 Makita Corp 1,069,193
3,143,000 Marubeni Corp 6,328,574
66,000 Matsui Securities Co Ltd 1,661,175
44,200 Matsumotokiyoshi Co Ltd 1,090,234
333,000 Mdi Corp 3,962,109
81,000 Meiji Dairies Corp 353,624
1,109,000 Mitsubishi Gas Chemical Co Inc 3,603,286
3,244,000 Mitsubishi Materials Corp * 6,324,108
378,000 Mitsubishi Rayon Co Ltd 1,311,203
1,022,000 Mitsui Engineering & Shipbuilding 1,646,275
844,000 Mitsui Mining & Smelting Co Ltd 3,352,517
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
59,000 Mitsumi Electric Co Ltd 677,695
153,000 Nagase & Co 1,083,855
8,000 Nagoya Railroad Co Ltd * 24,602
233 NET One Systems Co Ltd 1,642,046
272,000 Nichiro Corp 355,995
128,000 Nippo Corp 674,794
2,293,000 Nippon Light Metal 5,015,806
273,000 Nippon Meat Packers Inc 2,965,870
1,370,000 Nippon Mining Holdings Inc 4,777,320
1,301,000 Nippon Shinpan Co 4,584,340
153,000 Nippon Soda Co Ltd 386,491
989,000 Nippon Suisan Kaisha Ltd 2,344,417
647,000 Nishimatsu Construction 2,285,759
415,000 Nissan Chemical Industries Ltd 3,376,670
388,000 Nisshin Seifun Group Inc 3,494,344
2,779,000 Nisshin Steel Co Ltd 4,807,166
382,090 Nissho Iwai-Nichimen Holdings Corp * 1,650,618
6,000 Noritake Co Ltd 24,382
146,000 Okasan Securities Co Ltd 748,307
989,000 Oki Electric Industry Co Ltd * 4,399,176
1,083,000 Orient Corp * 2,567,243
203,000 Pacific Metals Co Ltd * 940,124
1,383 Round One Corp 2,518,918
2,000 Royal Co Ltd 21,527
79,900 Ryohin Keikaku Co Ltd 2,742,312
107,900 Ryosan Co 2,024,483
59,600 Sammy Corp 1,696,467
36,000 Sanki Engineering 197,694
600,000 Sankyo-Tateyama Holdings Inc * 1,900,055
145,000 Sanyo Securities Co Ltd *(a) (b) 1,327
259,000 Seino Transportation Co Ltd 2,242,486
11,720 SFCG Co Ltd 1,727,000
48,700 Shimachu Co 1,203,460
52,000 Shinko Electric Industries 1,415,889
1,161,000 Shinko Securities Co Ltd * 3,602,224
113,000 Showa Shell Sekiyu 910,123
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
99,500 Snow Brand Milk Products Co Ltd * 289,594
16,600 Square Enix Co Ltd 458,832
201,000 Sumitomo Bakelite Co Ltd 1,179,215
2,572,000 Sumitomo Heavy Industries Ltd * 5,743,804
140,000 Sumitomo Rubber Industries Inc 825,188
129,000 Suruga Bank Ltd/The 775,700
89,800 Suzuken Co Ltd 3,164,287
2,620,600 Taiheiyo Cement Corp 6,643,842
221,000 Takara Holdings Inc 1,921,563
151,600 THK Co Ltd 2,657,093
521,000 Toda Corp 1,721,408
721,000 Toho Gas Co Ltd 2,474,602
174,300 Tokyo Steel Manufacturing Co 1,370,343
243,000 Tokyo Tatemono Co Ltd 1,096,458
1,064,000 Tokyu Land Corp 2,863,042
294,000 Toshiba TEC Corp 1,178,583
294,000 Toyo Ink Manufacturing Co Ltd 1,278,144
159,000 Tsumura & Co * 1,739,017
1,499,000 Ube Industries Ltd 2,167,692
232,000 Victor Co of Japan Ltd * 2,231,668
66,000 Wacoal Corp 593,191
100,000 Yakult Honsha Co Ltd 1,549,515
335,000 Yamaha Motor Co 3,918,451
540,000 Yaskawa Electric Corp * 3,840,198
266,000 Yodogawa Steel Works 917,829
300,000 Yokohama Rubber Co 897,858
336,000 Zeon Corp 2,395,607
---------------
247,887,194
---------------
MALAYSIA -- 0.0%
303,000 Maxis Communications Berhad 689,724
357,000 Promet Berhad *(a) (b) 939
312,000 Rekapacific Berhad *(a) 821
---------------
691,484
---------------
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
MEXICO -- 0.2%
263,000 Cemex SA de CV CPO 1,545,031
209,000 Grupo Financiero Banorte SA de CV 764,070
577,000 Grupo Financiero BBVA Bancomer SA Class B * 619,006
---------------
2,928,107
---------------
NETHERLANDS -- 6.5%
20,260 Boskalis Westminster NV 463,184
874,680 Buhrmann NV 9,161,639
179,107 Corio NV 7,604,207
188,689 CSM 4,196,585
19,358 DSM NV 916,634
4,155,443 Getronics NV * 15,489,414
1,978,539 Hagemeyer NV 4,695,419
103,132 Hunter Douglas NV 4,755,331
330,574 KLM NV 7,758,845
439,205 Koninklijke Numico NV * 14,472,288
532,282 Koninklijke Vendex KBB NV 9,126,773
70,393 Koninklijke Wessanen NV 953,350
33,129 Nedlloyd NV 1,411,883
26,697 Nutreco Holding NV 863,773
304,274 OCE NV 5,859,937
168,993 Randstad Holdings NV 4,940,684
55,493 Rodamco Europe NV 3,446,813
214,749 Van der Moolen Holding NV 1,894,462
25,127 Van Ommeren Vopak NV 483,290
9,044 Vastned NV 514,662
62,168 Wereldhave NV 5,163,744
---------------
104,172,917
---------------
NEW ZEALAND -- 0.1%
439,356 Fletcher Building Ltd 1,234,832
---------------
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
NORWAY -- 0.3%
38,105 Aker Kvaerner ASA * 760,536
59,800 Schibsted ASA 1,172,308
333,800 Tandberg ASA * 3,200,747
---------------
5,133,591
---------------
PHILIPPINES -- 0.1%
453,000 Bank of the Philippine Islands 365,971
93,582 Philippine Long Distance Telephone * 1,611,764
2,967,000 SM Prime Holdings 321,355
---------------
2,299,090
---------------
POLAND -- 0.1%
13,700 BRE Bank SA * 331,023
113,000 Polski Koncern Naftowy Orlen 819,101
---------------
1,150,124
---------------
PORTUGAL -- 0.4%
338,470 Banco BPI SA 1,354,168
206,480 PT Multimedia Servicos de Telecomunicacoes e Multimedia SGPS SA * 4,741,070
---------------
6,095,238
---------------
SINGAPORE -- 2.6%
5,977,797 ComfortDelgro Corp Ltd 3,318,560
504,600 Creative Technology Ltd 5,306,118
2,850,000 Datacraft Asia Ltd * 3,819,000
390,000 Elec & Eltek International Co Ltd 1,185,600
115,000 Fraser & Neave Ltd 959,319
6,789,000 GES International Ltd 2,851,599
89,000 Hotel Properties Ltd 54,375
150,570 Interra Resources Ltd * 17,691
3,414,000 Keppel Land Ltd 3,850,715
248,000 Marco Polo Developments Ltd 305,948
5,518,000 MobileOne Ltd 5,024,468
793,000 Neptune Orient Lines Ltd * 978,293
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SINGAPORE -- CONTINUED
14,531,100 Pacific Century Region Developments Ltd * 2,859,697
2,927,000 SembCorp Industries Ltd 2,458,869
3,760,000 Singapore Exchange Ltd 3,887,561
1,368,000 ST Assembly Test Services Ltd * 1,510,847
3,107,000 Want Want Holdings Ltd 3,479,840
---------------
41,868,500
---------------
SOUTH AFRICA -- 0.4%
81,764 ABSA Group Ltd 573,940
9,990 Impala Platinum Holdings Ltd 829,058
75,000 Remgro Ltd 825,942
675,000 Sanlam Ltd 928,550
102,000 Sasol Ltd 1,530,422
114,000 Standard Bank Investment Corp 690,701
58,900 Tiger Brands Ltd 732,321
---------------
6,110,934
---------------
SOUTH KOREA -- 1.5%
81,400 Dongkuk Steel Mill 685,255
75,200 Hana Bank 1,630,612
105,200 Hankook Tire Co Ltd 873,088
12,500 Hankuk Electric Glass Co Ltd 626,063
74,000 Hyundai Department Store Co Ltd 887,245
72,700 Hyundai Industrial Development 800,565
22,300 Hyundai Mobis 1,005,017
43,700 Hyundai Motor Co 1,857,993
177,248 Hyundai Securities Co * 976,673
97,000 Inchon Iron & Steel Co 1,039,286
64,230 Kangwon Land Inc 767,374
122,600 KIA Motors Corp 1,136,344
42,600 KT&G Corp 1,001,607
17,500 LG Electronics Inc 985,119
38,800 LG Engineering & Construction Ltd 635,119
187,200 LG Insurance Co Ltd 918,490
94,800 Samsung Corp 935,102
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
17,400 Samsung Fire & Marine Insurance 1,120,051
11,800 Samsung SDI Co Ltd 1,635,544
47,700 Shinhan Financial Group Co Ltd 878,151
3,500 Shinsegae Co Ltd 794,643
56,900 SK Corp 2,111,977
25,400 Sungshin Cement Co Ltd 415,774
---------------
23,717,092
---------------
SPAIN -- 2.4%
15,949 Acciona SA 1,030,465
173,597 Aguas de Barcelona SA Class A 2,853,635
37,752 Bankinter SA 1,556,839
47,487 Corp Financiera Alba 1,391,281
252,768 Corporacion Mapfre SA 3,712,239
481,825 Enagas 5,561,622
1,647,946 Iberia (Lineas Aer de Espana) 5,733,204
292,772 Indra Sistemas SA 3,997,824
545,956 Sacyr Vallehermoso SA 9,340,884
392,678 Telefonica Publicidad e Informacion SA 3,064,027
31,956 Zardoya-Otis SA 642,432
---------------
38,884,452
---------------
SWEDEN -- 3.0%
30,633 Custos AB 613,137
39,800 D Carnegie AB * 505,239
102,100 Drott AB Class B 1,885,864
462,200 Eniro AB 4,066,804
398,048 Gambro AB Class A 3,368,666
287,712 Gambro AB Class B 2,396,247
363,800 Getinge AB 3,909,621
45,570 Holmen AB Class B 1,579,358
134,210 Kinnevik Investment Class B 4,552,272
40,700 Lundbergforetagen AB Class B 1,246,554
44,700 Modern Times Group AB * 1,011,788
4,550 Nobel Biocare AB *(a) 331,278
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SWEDEN -- CONTINUED
1,300 SAAB AB Class B 18,686
1,015,700 Skanska AB Class B 8,391,170
4,735 SKF AB Series A 175,236
70,170 SSAB Swedish Steel Class A 1,263,101
1,101,200 Swedish Match AB 10,502,834
110,100 Trelleborg AB Class B 2,018,840
---------------
47,836,695
---------------
SWITZERLAND -- 3.0%
57,189 Actelion Ltd * 6,664,283
24,844 Baloise Holding Ltd 1,190,313
238,699 Clariant AG * 3,589,741
108,132 Converium Holding AG 5,734,176
2,866 Fischer (George) AG (Registered) * 643,132
2,111 Forbo Holdings AG (Registered) * 593,384
2,955 Geberit AG (Registered) 1,503,035
3,337 Helvetia Patria Holding (Registered) 567,530
80 Intershop Holdings * 12,299
190 Jelmoli Holding AG (Registered) 41,140
5,484 Julius Baer Holding AG 2,016,478
7,390 Kuoni Reisen Holdings AG (Registered) 2,699,862
77,600 Micronas Semiconductor Holding AG * 3,812,637
50 Motor-Columbus (Bearer) 145,231
848 Movenpick Holdings (Bearer) * 530,814
414 Pargesa Holdings SA (Bearer) 1,180,017
87,581 Phonak Holding AG 2,330,804
45 SIG Holding AG (Registered) 6,697
2,811 Straumann Holding AG 489,139
17,405 Sulzer AG (Registered) 4,385,339
33,999 Unaxis Holding AG 5,186,651
11,054 Valora Holding AG 2,876,538
68,712 Vontobel Holdings AG 1,715,027
---------------
47,914,267
---------------
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TAIWAN -- 0.9%
536,436 Acer Inc 844,338
316,125 Asustek Computer Inc 829,289
626,000 Benq Corp 861,442
650,000 Chi Mei Optoelectronics Corp * 966,572
1,420,406 China Development Financial Holding Corp 792,072
387,000 China Motor Corp Ltd 777,365
1,020,075 China Steel Corp 1,039,801
639,850 Delta Electronics Inc 863,236
675,000 Far Eastern Textile Co Ltd 485,684
454,680 Formosa Chemicals & Fibre Co 722,472
354,650 GigaByte Technology Co Ltd 669,853
1,174,900 Inventec Co Ltd 774,930
516,000 Lite-On Technology Corp 634,268
45,450 MediaTek Inc 515,068
342,953 Micro-Star International Co Ltd 565,505
560,000 Nan Ya Plastic Corp 757,188
333,800 Quanta Computer Inc 845,633
520,000 Yulon Motor Co Ltd 762,344
---------------
13,707,060
---------------
THAILAND -- 0.2%
346,000 Advanced Info Service Pcl (Foreign Registered) (a) 766,149
4,197,000 Charoen Pokphand Foods Pcl (Foreign Registered) (a) 683,655
12,014,000 Jasmine International Pcl *(a) 467,840
459,000 Kasikornbank Pcl NVDR * 595,800
156,700 PTT Exploration & Production Pcl (Foreign Registered) (a) 1,005,050
---------------
3,518,494
---------------
TURKEY -- 0.4%
232,007,021 Akbank TAS 1,214,193
53,190,000 Aksa Akrilik Kimya Sanayii 548,722
194,112,794 Aksigorta AS 672,379
122,885,402 Arcelik AS 703,260
20,000,000 Aselsan Askeri Elektroni 158,133
27,933,983 Eregli Demir ve Celik Fabrikalari TAS * 872,937
</Table>
See accompanying notes to the financial statements.
17
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TURKEY -- CONTINUED
171,240,113 Trakya Cam Sanayii 464,205
85,259,999 Tupras Turkiye Petrol Rafine 706,220
1,957,085 Turkiye Garanti Bankasi Class C * 7,037
232,352,650 Turkiye IS Bankasi Class C 1,049,786
---------------
6,396,872
---------------
UNITED KINGDOM -- 22.0%
499,183 AMEC 2,612,402
727,573 ARM Holdings Plc * 1,633,778
596,410 Arriva Plc 4,228,044
235,963 Associated British Ports 2,082,215
77,828 Atkins WR Plc 798,716
581,668 AWG Plc * 6,034,178
1,351,016 Barratt Developments Plc 13,902,510
459,299 BBA Group Plc 2,354,664
136,394 Bellway Plc 1,854,104
585,859 Berkeley Group Plc 9,861,241
516,425 Britannic Group Plc * 2,817,642
244,100 British Energy Plc * 33,975
79,040 Bunzl Co 654,204
643,918 Capita Group Plc 3,268,279
267,047 Charter Plc (Registered) * 946,569
372,502 Cobham Group Plc 8,675,680
2,430,512 Colt Telecom Group Plc * 4,848,835
71,817 Computacenter Plc 579,426
7,296,823 Cookson Group Plc * 5,958,235
12,137,304 Corus Group Plc * 10,135,984
267,877 Countrywide Assured Group Plc 825,229
418,201 Davis Service Group Plc 3,057,824
355,283 De La Rue Plc 2,050,529
229,954 De Vere Group Plc 1,790,211
1,054,616 Dixons Group Plc (New Shares) 3,102,093
97,365 Eidos Plc * 231,735
517,947 Electrocomponents Plc 3,366,624
786,222 EMI Group Plc 3,691,449
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
554,571 Enterprise Inns Plc 6,272,809
671,645 First Choice Holidays Plc 1,773,059
471,320 Firstgroup Plc 2,256,663
1,793,123 FKI Plc 3,959,936
1,059,694 Friends Provident Plc 2,826,959
30,981 Go-Ahead Group Plc 710,058
491,967 Great Portland Estates Plc 2,273,351
1,387,308 Hays Plc 3,604,393
880,395 ICAP Plc 5,179,263
137,233 IMI Plc 898,373
1,680,872 Imperial Chemical Industries Plc 7,346,098
267,863 Inchcape Plc 7,555,922
213,717 Informa Group Plc 1,479,378
1,374,289 International Power Plc * 3,583,320
12,865,731 Invensys Plc * 5,431,841
1,954,060 ITV Plc * 5,022,487
184,963 ITV Plc (Convertible Shares) * 276,320
945,399 Kelda Group Plc 7,824,943
420,014 Kesa Electricals Plc 2,120,137
1,359,380 Kidde Plc 2,402,907
395,164 Laird Group 2,126,702
2,250,446 LogicaCMG Plc 12,779,716
276,426 Manchester United Plc 1,382,512
1,216,988 MFI Furniture Group Plc 3,336,914
1,099,311 Michael Page International Plc 3,488,573
607,121 Misys Plc 2,557,598
562,657 Morgan Crucible Co * 1,482,734
192,846 Mothercare Plc * 1,295,539
65,239 National Express Group Plc 866,865
1,331,685 Northern Foods Plc 3,892,362
553,706 Novar Plc 1,392,354
150,501 Paragon Group Cos Plc 1,080,890
493,455 Peninsular & Oriental Steam Navigation Co 2,101,655
168,963 Pennon Group Plc 2,116,540
314,748 Persimmon Plc 3,335,264
</Table>
See accompanying notes to the financial statements.
19
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
82,036 Premier Oil Plc * 799,273
559,404 Provident Financial Plc 7,728,967
200,249 RAC Plc 2,538,179
424,375 RMC Group Plc 5,457,757
132,023 Rolls-Royce Group Plc 539,018
7,581,966 Royal & Sun Alliance Insurance Group 14,527,907
664,214 Sage Group Plc 2,375,930
208,286 Schroders Plc 2,620,722
661,995 Severn Trent Plc 9,103,410
533,014 Shire Pharmaceuticals Plc * 5,408,273
1,516,561 Signet Group Plc 2,856,650
734,718 Slough Estates Plc 6,074,346
893,854 Smith (WH) Group Plc 4,553,445
549,912 Somerfield Plc 1,673,664
508,130 Spirent Plc * 834,544
3,489,052 Stagecoach Holdings Plc 5,455,173
306,809 Tate & Lyle Plc 1,645,497
2,316,587 Taylor Woodrow Plc 11,629,125
150,856 TDG Plc 636,906
5,063,755 THUS Group Plc * 3,523,994
1,014,263 Tomkins Plc 5,053,893
572,989 Trinity Mirror Plc 6,326,950
528,243 United Business Media Plc 5,426,034
726,689 Whitbread Plc 9,966,076
389,065 William Hill Plc 3,588,473
145,938 Wilson Bowden Plc 2,952,066
1,285,854 Wimpey (George) 9,205,105
---------------
349,932,187
---------------
TOTAL COMMON STOCKS (COST $1,095,083,477) 1,495,354,117
---------------
PREFERRED STOCKS -- 2.4%
BRAZIL -- 0.8%
152,098,000 Banco Bradesco SA 1.23% 762,448
11,766,000 Banco Itau Holding Financeira SA 1,131,112
</Table>
See accompanying notes to the financial statements.
20
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
BRAZIL -- CONTINUED
47,073,764 Brasil Telecom Participacoes SA 2.19% 358,811
7,000 Caemi Mineracao e Metalurgica SA * 3,365
69,340,000 Centrais Electricas Brasileiras SA Class B 9.83% 821,366
57,725,000 Cia Energetica de Minas Gerais 2.88% 1,030,627
3,238,000 Companhia de Bebidas das Americas 1.67% 866,061
20,050 Compania Vale do Rio Doce Class A 1,005,082
185,409,907 Embratel Participacoes SA 514,373
26,400 Empresa Brasileira de Aeronautica SA ADR 797,016
53,000 Gerdau SA 1,133,700
930,300 Investimentos Itau SA 2.68% 1,117,957
312,062,000 Tele Centro Oeste Celular Participacoes SA 6.78% 1,055,386
49,419,000 Tele Norte Leste Participacoes SA 3.44% 726,226
31,951,000 Telemar Norte Leste SA 650,539
140,200 Usinas Siderrurgicas de Minas Gerais SA 4.57% 1,600,566
---------------
13,574,635
---------------
GERMANY -- 1.3%
107,606 Fresenius AG (Non Voting) 4.08% 7,567,446
81,896 Hugo Boss AG 8.17% 1,913,009
6,307 Porsche AG (Non Voting) 0.83% 3,672,943
224,634 ProSieben Sat.1 Media AG 2.00% 4,694,592
74,309 Rheinmetall AG (Non Voting) 3.92% 2,783,717
---------------
20,631,707
---------------
ITALY -- 0.2%
374,654 Compagnia Assicuratrice Unipol 4.56% 914,722
218,814 IFI Istituto Finanziario Industries 4.82% * 1,886,822
---------------
2,801,544
---------------
SOUTH KOREA -- 0.1%
44,100 Hyundai Motor Co 5.05% 909,375
---------------
TOTAL PREFERRED STOCKS (COST $28,570,336) 37,917,261
---------------
</Table>
See accompanying notes to the financial statements.
21
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
UNITS/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
RIGHTS AND WARRANTS -- 0.0%
BRAZIL -- 0.0%
1,849,215 Tele Centro Oeste Celular Participacoes SA, Expires 3/08/04 * 12,698
---------------
THAILAND -- 0.0%
28,344,000 Jasmine International Pcl Warrants, Expires 2/08/09 *(a) 743,047
---------------
UNITED KINGDOM -- 0.0%
140,664 Morgan Crucible Co Rights * 112,249
---------------
TOTAL RIGHTS AND WARRANTS (COST $156,859) 867,994
---------------
SHORT-TERM INVESTMENTS -- 15.5%
CASH EQUIVALENTS -- 15.1%
46,300,000 Bank of Montreal Time Deposit, 1.03%, due 03/01/04 46,300,000
194,544,267 The Boston Global Investment Trust (c) 194,544,267
---------------
240,844,267
---------------
U.S. GOVERNMENT -- 0.4%
6,000,000 U.S. Treasury Bill, 0.88%, due 3/25/04 (d) 5,996,145
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $246,840,412) 246,840,412
---------------
TOTAL INVESTMENTS -- 111.8%
(Cost $1,370,651,084) 1,780,979,784
Other Assets and Liabilities (net) -- (11.8%) (188,515,699)
---------------
TOTAL NET ASSETS -- 100.0% $ 1,592,464,085
===============
</Table>
See accompanying notes to the financial statements.
22
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
NOTES TO SCHEDULE OF INVESTMENTS:
* 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 2).
(b) Bankrupt issuer.
(c) Represents investment of security lending collateral
(Note 2).
(d) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts (Note 8).
ADR - American Depositary Receipt
Foreign Registered - Shares issued to foreign investors in
markets that have foreign ownership limits.
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
See accompanying notes to the financial statements.
23
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
---------------------------------------------------------------
Consumer Discretionary 21.9%
Industrials 19.5
Financials 16.8
Materials 10.9
Information Technology 10.4
Consumer Staples 6.5
Health Care 5.3
Utilities 3.5
Telecommunication Services 2.7
Energy 2.5
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
24
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $183,343,698 (cost
$1,370,651,084) (Note 2) $ 1,780,979,784
Cash 76,434
Foreign currency, at value (cost $728,975) (Note 2) 728,523
Receivable for Fund shares sold 14,818,141
Dividends and interest receivable 1,892,112
Foreign taxes receivable 293,600
Receivable for open forward foreign currency contracts (Notes 2 and 8) 7,532,344
Receivable for variation margin on open futures contracts (Notes 2 and 8) 1,148,439
Receivable for expenses reimbursed by Manager (Note 3) 151,332
---------------
Total assets 1,807,620,709
---------------
LIABILITIES:
Payable upon return of securities loaned (Note 2) 194,544,267
Payable for Fund shares repurchased 10,100,000
Payable to affiliate for (Note 3):
Management fee 749,235
Shareholder service fee 187,309
Trustees fee 2,677
Payable for open forward foreign currency contracts (Notes 2 and 8) 9,236,827
Accrued expenses 336,309
---------------
Total liabilities 215,156,624
---------------
NET ASSETS $ 1,592,464,085
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 1,124,274,500
Distributions in excess of net investment income (5,110,912)
Accumulated net realized gain 60,700,387
Net unrealized appreciation 412,600,110
---------------
$ 1,592,464,085
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 1,592,464,085
===============
SHARES OUTSTANDING:
Class III 93,167,933
===============
NET ASSET VALUE PER SHARE:
Class III $ 17.09
===============
</Table>
See accompanying notes to the financial statements.
25
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $2,424,155) $ 21,913,881
Interest (including securities lending income of $1,986,425) 2,630,109
---------------
Total income 24,543,990
---------------
EXPENSES:
Management fee (Note 3) 6,248,793
Shareholder service fee (Note 3) - Class III 1,562,198
Custodian fees 1,148,007
Transfer agent fees 33,812
Audit and tax fees 59,797
Legal fees 42,486
Trustees fees and related expenses (Note 3) 21,045
Registration fees 58,604
Miscellaneous 44,967
---------------
Total expenses 9,219,709
Fees and expenses reimbursed by Manager (Note 3) (1,385,606)
---------------
Net expenses 7,834,103
---------------
Net investment income 16,709,887
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments (net of CPMF tax of $987) (Note 2) 99,533,714
Closed futures contracts 11,970,676
Foreign currency, forward contracts and foreign currency related transactions 6,893,928
---------------
Net realized gain 118,398,318
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 484,777,828
Open futures contracts 5,382,257
Foreign currency, forward contracts and foreign currency related transactions (7,312,691)
---------------
Net unrealized gain 482,847,394
---------------
Net realized and unrealized gain 601,245,712
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 617,955,599
===============
</Table>
See accompanying notes to the financial statements.
26
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED
FEBRUARY 29, YEAR ENDED
2004 FEBRUARY 28, 2003
--------------- ------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 16,709,887 $ 7,374,295
Net realized gain (loss) 118,398,318 (15,797,524)
Change in net unrealized appreciation (depreciation) 482,847,394 (45,208,858)
--------------- ---------------
Net increase (decrease) in net assets from operations 617,955,599 (53,632,087)
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III (16,459,478) (15,340,291)
Net realized gains
Class III (30,034,700) --
--------------- ---------------
(46,494,178) (15,340,291)
--------------- ---------------
Net share transactions (Note 7):
Class III 484,354,410 352,008,250
--------------- ---------------
Increase in net assets resulting from net share transactions 484,354,410 352,008,250
--------------- ---------------
Total increase in net assets 1,055,815,831 283,035,872
NET ASSETS:
Beginning of period 536,648,254 253,612,382
--------------- ---------------
End of period (including distributions in
excess of net investment income of
$5,110,912 and $86,486, respectively) $ 1,592,464,085 $ 536,648,254
=============== ===============
</Table>
See accompanying notes to the financial statements.
27
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $ 10.44 $ 11.68 $ 11.54 $ 11.02
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income 0.20 0.15 0.22 0.23 0.25
Net realized and unrealized gain (loss) 7.94 (0.80) (1.11) 1.02 0.83
------------ ------------ ------------ ------------ ------------
Total from investment operations 8.14 (0.65) (0.89) 1.25 1.08
------------ ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.20) (0.29) (0.35) (0.25) (0.15)
From net realized gains (0.35) -- (0.00)(c) (0.86) (0.41)
------------ ------------ ------------ ------------ ------------
Total distributions (0.55) (0.29) (0.35) (1.11) (0.56)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 17.09 $ 9.50 $ 10.44 $ 11.68 $ 11.54
============ ============ ============ ============ ============
TOTAL RETURN (a) 86.62% (6.30)% (7.57)% 11.09% 9.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,592,464 $ 536,648 $ 253,612 $ 187,093 $ 173,362
Net expenses to average daily net assets 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income to average daily net
assets 1.60% 1.65% 2.02% 2.05% 2.19%
Portfolio turnover rate 46% 44% 34% 60% 55%
Fees and expenses reimbursed by the Manager
to average daily net assets: 0.13% 0.17% 0.22% 0.22% 0.24%
Purchase and redemption fees consisted of
the following per share amounts: (b) $ 0.04 $ 0.06 $ 0.05 $ 0.04 $ --
</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 which are borne by the shareholder.
(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 $ 0.01 per share.
See accompanying notes to the financial statements.
28
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO International Small Companies Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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 S&P/Citigroup (f/k/a Salomon
Smith Barney) Extended Market Index ("EMI") World ex-U.S. Index.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign securities held by the Fund be valued using
fair value prices supplied by an independent pricing service to the extent
that such prices are available.
29
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8, and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of February 29, 2004.
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.
30
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 8 for all open futures contracts as of February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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
31
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 on swap contracts 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 February 29, 2004, 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
February 29, 2004, the Fund loaned securities having a market value of
$183,343,698 collateralized by cash in the amount of $194,544,267, 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
32
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. The Fund is subject to a
Contribuicao Provisoria sobre Movimentacoes Financiera ("CPMF") tax which
is applied to foreign exchange transactions representing capital inflows or
outflows to the Brazilian market. The CPMF tax has been included in the net
realized gain (loss) on investments at year end.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid were as follows: ordinary income -
$29,674,746 and $15,340,291, respectively and long-term capital gains -
$16,819,432 and $0, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $41,482,628 and $25,107,783 of undistributed ordinary
income and undistributed long-term capital gains, respectively. The
temporary differences between book and tax basis distributable earnings are
primarily due to passive foreign investment company transactions and losses
on wash sales transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
DISTRIBUTIONS
IN EXCESS OF ACCUMULATED
NET INVESTMENT NET
INCOME REALIZED GAIN PAID-IN CAPITAL
--------------------- -------------------- -------------------
$ (5,274,835) $ 5,274,835 $ --
</Table>
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
33
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 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 fee 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 years
ended February 29, 2004 and February 28, 2003, the Fund received $2,843,007
and $2,531,977 in purchase premiums and $251,747 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.
3. 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
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.
34
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $12,823. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the February 29, 2004, aggregated $905,879,784
and $450,288,599, respectively.
At February 29, 2004, 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
---------------- ----------------- ----------------- -----------------
$ 1,383,516,883 $ 419,684,342 $ (22,221,441) $ 397,462,901
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 1.64% of the Fund was held by twenty-three related
parties.
35
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 48,778,681 $ 655,740,846 36,029,447 $ 390,124,687
Shares issued to shareholders
in reinvestment of distributions 2,591,610 38,966,515 769,131 7,538,961
Shares repurchased (14,670,843) (210,352,951) (4,627,128) (45,655,398)
------------- -------------- ------------- -------------
Net increase 36,699,448 $ 484,354,410 32,171,450 $ 352,008,250
============= ============== ============= =============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT UNITS OF APPRECIATION
DATE DELIVER/RECEIVE CURRENCY VALUE (DEPRECIATION)
------------ --------------------------- --------------- --------------- ------------------
Buys
5/28/04 CAD 91,021,987 $ 67,643,125 $ (250,006)
3/26/04 CHF 49,961,046 39,360,784 2,094,652
5/28/04 CHF 3,688,200 2,909,967 (83,313)
3/26/04 DKK 123,876,130 20,638,492 1,621,250
3/28/04 DKK 9,093,762 1,514,977 114,977
3/26/04 EUR 16,327,702 20,273,252 238,241
3/26/04 GBP 3,894,449 7,212,443 787,312
5/28/04 GBP 1,603,592 2,953,685 (12,973)
5/28/04 JPY 843,040,000 7,737,240 (273,402)
3/26/04 NOK 259,170,585 36,796,948 330,482
5/28/04 NOK 40,922,400 5,803,744 (85,812)
4/28/04 NZD 2,559,290 1,741,995 274,498
5/28/04 NZD 2,000,572 1,356,733 (21,881)
3/26/04 SEK 135,900,192 18,237,033 949,954
5/28/04 SEK 28,613,200 3,830,420 (139,664)
---------------
$ 5,544,315
===============
</Table>
36
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FORWARD CURRENCY CONTRACTS -- CONTINUED
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT UNITS OF APPRECIATION
DATE DELIVER/RECEIVE CURRENCY VALUE (DEPRECIATION)
------------ --------------------------- --------------- ------------- ------------------
Sales
5/28/04 AUD 8,034,742 $ 6,132,296 $ 5,965
5/28/04 CHF 3,677,700 2,901,683 76,815
3/26/04 DKK 132,414,600 22,061,051 (1,619,288)
3/26/04 EUR 60,529,413 75,156,200 (2,973,052)
5/28/04 EUR 25,702,653 31,859,968 853,184
3/26/04 GBP 17,164,079 31,787,535 (3,767,702)
5/28/04 HKD 93,514,462 12,041,166 14,064
5/28/04 JPY 266,356,076 2,444,559 21,958
5/28/04 NOK 27,419,200 3,888,677 72,319
5/28/04 NZD 4,652,067 3,154,904 (9,734)
5/28/04 SGD 10,413,005 6,123,258 76,673
--------------
$ (7,248,798)
==============
</Table>
CURRENCY ABBREVIATIONS:
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
37
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF APPRECIATION
CONTRACTS TYPE EXPIRATION DATE CONTRACT VALUE (DEPRECIATION)
----------- -------------- ------------------- ---------------- ---------------
Buys
29 DAX March 2004 $ 3,627,121 $ (28,202)
534 MSCI March 2004 14,467,957 74,443
720 TOPIX March 2004 71,466,228 5,470,821
--------------
$ 5,517,062
==============
Sales
38 IBEX 35 March 2004 3,897,834 $ (23,857)
773 SPI 200 March 2004 50,128,105 (1,567,670)
--------------
$ (1,591,527)
==============
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
38
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INTERNATIONAL SMALL COMPANIES FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
International Small Companies Fund (the "Fund") (a series of GMO Trust) at
February 29, 2004, and the results of its operations, the changes in its
net assets and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 29, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
39
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of
$2,424,155 and recognized foreign source income of $24,338,036.
The Fund's distributions to shareholders included:
$13,215,268 from short-term capital gains,
$16,819,432 from long-term capital gains, all of which were subject to
the 15% rate gains category.
For taxable, non-corporate shareholders, 57.86% of the Fund's income and
short-term capital gains represents qualified dividend income subject to the 15%
rate category.
40
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ---------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
41
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ---------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
42
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ---------------- ------------------- --------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary Otterloo & Co. LLC (June
Boston, MA 02110 since March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
43
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
Emerging Markets Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Emerging Markets Fund returned +82.1% for the
fiscal year ended February 29, 2004, as compared to +75.4% for the S&P/IFC
Investable Composite. Consistent with the Fund's investment objectives and
policies, the Fund was invested substantially in emerging markets equities
throughout the fiscal year.
Country selection added 3.2% to performance during the period. The Fund's three
largest overweights - Brazil (+5.8%), Indonesia (+3.4%), and Thailand (+3.4%) -
were the best contributors to performance. Each market moved up in excess of
110% for the period, contributing a total of 4% to performance.
Stock selection added 3.5% during the fiscal year. Stock selection was
particularly successful in Brazil, China, Korea, and South Africa. Stock
selection in Poland, Russia, and Taiwan subtracted from performance.
For the period, the value, momentum, and reversal models all outperformed, with
the macroeconomic model the only laggard.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
EMERGING MARKETS FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO EMERGING MARKETS FUND S&P/IFC INVESTABLE COMPOSITE INDEX
2/28/1994 4,960,000 5,000,000
3/31/1994 4,547,005 4,495,675
6/30/1994 4,502,025 4,352,420
9/30/1994 5,452,205 5,395,485
12/31/1994 4,784,865 4,486,450
3/31/1995 3,988,085 3,826,525
6/30/1995 4,453,570 4,161,165
9/30/1995 4,489,440 4,146,825
12/31/1995 4,183,180 4,108,550
3/31/1996 4,574,290 4,417,505
6/30/1996 4,897,380 4,609,230
9/30/1996 4,666,180 4,505,730
12/31/1996 4,670,000 4,494,005
3/31/1997 5,177,890 4,922,295
6/30/1997 5,832,120 5,219,420
9/30/1997 5,978,590 4,748,485
12/31/1997 4,665,285 3,831,555
3/31/1998 4,870,890 4,100,500
6/30/1998 3,495,290 3,230,450
9/30/1998 2,779,865 2,528,850
12/31/1998 3,317,910 2,987,690
3/31/1999 3,676,325 3,313,990
6/30/1999 4,941,020 4,101,375
9/30/1999 4,485,320 3,972,950
12/31/1999 5,896,965 4,993,745
3/31/2000 5,999,790 5,060,700
6/30/2000 5,228,610 4,542,510
9/30/2000 4,812,170 3,952,750
12/31/2000 4,257,530 3,407,880
3/31/2001 4,334,845 3,241,550
6/30/2001 4,664,725 3,476,580
9/30/2001 3,870,540 2,698,675
12/31/2001 4,673,945 3,467,980
3/31/2002 5,621,365 3,916,220
6/30/2002 5,210,815 3,607,375
9/30/2002 4,337,255 3,042,430
12/31/2002 4,711,290 3,331,700
3/31/2003 4,535,215 3,116,995
6/30/2003 5,580,980 3,901,635
9/30/2003 6,448,970 4,456,110
12/31/2003 8,015,390 5,235,765
2/29/2004 8,500,745 5,675,530
</Table>
Average Annual Returns
Inception 12/9/1993
<Table>
<Caption>
1YR 5YR 10YR(ITD)
79.19 21.15 5.45
</Table>
EMERGING MARKETS FUND-IV
As Of: 2/29/2004
Average Annual Returns
Inception 1/9/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
79.07 21.16 11.95
</Table>
EMERGING MARKETS FUND-V
As Of: 2/29/2004
Average Annual Returns
Inception 8/4/2003
<Table>
<Caption>
1YR 5YR 10YR(ITD)
N/A N/A 45.47
</Table>
EMERGING MARKETS FUND-VI
As Of: 2/29/2004
Average Annual Returns
Inception 6/30/2003
<Table>
<Caption>
1YR 5YR 10YR(ITD)
N/A N/A 50.89
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 80 bp on the purchase and 80 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Performance
for Class IV, V and VI shares may vary due to different shareholder servicing
fees. Past performance is not indicative of future performance. Information is
unaudited. Current performance of the Fund may be lower or higher than the
performance quoted. Performance data current to the most recent month end may be
obtained by visiting www.gmo.com.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 79.2%
ARGENTINA -- 2.0%
670,100 BBVA Banco Frances SA ADR * 5,890,179
4,352,320 Grupo Financiero Galicia SA ADR * 35,776,070
4,145,600 Petrobras Energia Participaciones SA ADR * 55,343,760
2,416,450 Telecom Argentina SA ADR * 25,082,751
586,898 Tenaris SA ADR 20,336,016
---------------
142,428,776
---------------
BRAZIL -- 5.0%
5,354,890 Banco do Brasil SA 39,805,448
4,500 Brasil Telecom Participacoes SA ADR 171,540
2,175,758,595 Companhia Siderurgica Nacional SA 138,949,733
568,601,498 Compania Saneamento Basico SAO PA 29,850,358
2,205,511,000 Electrobas (Centro) 24,686,578
1,757,600 Petroleo Brasileiro SA (Petrobras) 54,493,143
200,000 Petroleo Brasileiro SA (Petrobras) ADR 6,240,000
2,843,204 Souza Cruz (Registered) 29,871,946
81,705,224 Tele Centro Oeste Celular Participacoes SA * 561,066
1,153,393,688 Tele Norte Leste Participacoes SA 13,266,503
276,250 Vale Do Rio Doce 15,982,189
---------------
353,878,504
---------------
CHILE -- 0.8%
376,000 Banco Santander Chile SA ADR 10,358,800
560,300 Compania de Telecommunicaciones de Chile ADR 8,785,504
84,800 Cristalerias de Chile SA ADR 2,335,392
1,300 Embotelladora Andina SA ADR 15,600
3,246,381 Enersis SA ADR 23,276,552
227,000 Masisa SA ADR 2,905,600
707,200 Quinenco SA ADR 6,902,272
72,900 Sociedad Quimica y Minera de Chile ADR 3,056,697
---------------
57,636,417
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CHINA -- 11.9%
9,274,000 Aluminum Corp of China Ltd 7,506,080
36,944,000 Angang New Steel Co Class H 22,070,004
32,364,000 Brilliance China Automotive Holdings Ltd 15,384,007
71,755,000 China Eastern Airlines Corp Ltd Class H * 15,763,542
49,302,000 China Everbright Ltd 33,886,277
4,188,000 China Insurance International Holdings Co Ltd 2,474,971
6,916,000 China Life Insurance Co Ltd * 4,931,210
35,505,000 China Mobile Ltd 124,981,468
284,800 China Mobile Ltd ADR 5,021,024
128,495,000 China Petroleum & Chemical Corp Class H 54,063,365
9,015,000 China Resources Enterprise Ltd 12,681,931
733,900 China Telecom Corp Ltd ADR 28,255,150
19,794,000 China Unicom 25,429,575
398,800 China Unicom ADR 5,092,676
11,928,940 Chongqing Changan Automobile Co Ltd Class B 15,892,278
13,594,000 CNOOC Ltd 27,506,375
52,000 CNOOC Ltd ADR 2,120,560
14,341,000 Cosco Pacific Ltd 21,924,613
57,161,557 Denway Motors Ltd 66,459,669
45,600,000 First Pacific Co * 11,306,487
86,908,000 Guangdong Investments Ltd * 16,859,405
30,310,000 Guangshen Railway Co Class H 9,053,457
36,774,000 Huadian Power International Corp Ltd Class H 14,409,412
18,299,000 Huaneng Power International Inc Class H 34,440,585
51,252,000 Maanshan Iron & Steel Co Ltd Class H 19,753,207
289,347,000 PetroChina Co Ltd Class H 155,196,172
1,730,000 PICC Property & Casualty Co Ltd * 755,667
10,043,000 Shanghai Industrial Holdings Ltd 26,320,805
32,162,000 Sinopec Shanghai Petrochemical Co Ltd Class H 14,771,501
29,094,000 Sinopec Yizheng Chemical Fibre Co Ltd 6,765,308
24,948,000 TCL International Holdings Ltd 11,378,097
7,700,000 Top Form International Ltd 1,256,319
1,728,000 Weiqiao Textile Co 3,019,174
15,702,000 Yanzhou Coal Mining Co Ltd Class H 18,054,420
8,500,000 Yip's Chemical Holdings Ltd 2,020,209
14,143,918 Zhejiang Southeast Electric Power Co Class B 12,036,474
---------------
848,841,474
---------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CZECH REPUBLIC -- 0.0%
3,165 Ceski Telecom AS 38,932
7,978 CEZ AS 54,784
300 Komercni Banka AS 33,693
4,600 Komercni Banka AS GDR 170,660
---------------
298,069
---------------
EGYPT -- 0.6%
2,424,088 Commercial International Bank 8,913,845
199,916 Eastern Tobacco Co 2,438,591
1,216,273 Egyptian International Pharmaceuticals Industries Co 1,845,190
1,266,457 MobiNil-Egyptian Mobile Services Co 16,266,796
732,260 Orascom Telecommunications * 11,829,498
---------------
41,293,920
---------------
HUNGARY -- 0.0%
50 Gedeon Richter Rt 5,687
100 OTP Bank Rt * 1,641
---------------
7,328
---------------
INDIA -- 5.2%
275,000 Amtek Auto Ltd 2,371,560
343,000 Aptech Ltd * 2,761,592
202,200 Bajaj Auto Ltd 4,049,141
3,796,000 Bank of Baroda 18,965,314
741,395 Bharat Electronics Ltd 8,475,193
129,838 Bharat Heavy Electricals Ltd 1,667,931
1,752,613 Bharat Petrol Corp 17,981,379
2,209,206 Bharti Televentures * 7,018,081
866,384 Bombay Dyeing & Manufacturing Co Ltd 2,681,414
11,000,000 Centurion Bank Ltd *(a)(b) 972,698
900 Cipla Ltd 23,836
3,000 Cipla Ltd (Shares Under Objection) *(b) 1
1,059,036 Crompton Greaves Ltd 3,292,880
239,963 Divi's Laboratories Ltd 10,158,708
700,000 D-Link India Ltd 3,052,393
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
INDIA -- CONTINUED
133,200 e-Serve International Ltd 2,090,682
603,950 GAIL India Ltd 2,694,310
203,900 Galaxy Entertainment Corp Ltd * 101,420
487,278 Gammon India Ltd 4,653,567
187,092 Geodesic Information Systems Ltd 1,354,954
524,000 Grasim Industries Ltd 12,452,747
1,318 Great Eastern Shipping Co 4,137
200 HCL Infosystems Ltd (Shares Under Objection) (b) --
468,050 Hero Honda Motors Ltd 5,142,497
380,000 Hindustan Petroleum Corp 3,839,063
608,100 Hughes Software Systems 8,845,580
439,964 ICICI Bank Ltd 2,645,522
1,123,746 Indian Oil Corp Ltd 11,298,324
4,018,000 Indian Overseas Bank 3,557,442
350,000 ING Vysya Bank Ltd 4,107,771
196,995 Ipca Laboratories Ltd 2,835,056
150,800 ITC Ltd 3,687,074
100 ITC Ltd (Shares Under Objection) *(b) --
2,934,900 Jain Irrigation Systems Ltd * 4,314,598
14,338,075 Jaiprakash Industries Ltd 39,304,107
803,541 Jindal Steel & Power Ltd 9,539,107
2,299,000 KEC International Ltd * 3,913,408
468,000 Larsen & Toubro Ltd 5,886,858
350,000 Lupin Ltd 5,226,594
477,050 Maharashtra Seamless Ltd 1,867,703
87 Mahindra GESCO Developers Ltd * 39
1,084,000 Maruti Udyog Ltd * 12,027,404
21,500 Mastek Ltd 112,027
21,275 NIIT Ltd * 87,433
164,000 Oil & Natural Gas Corp Ltd 2,610,368
1,430,920 Omax Autos Ltd 2,364,569
358,000 Patni Computer Systems Ltd * 1,991,219
160 Reliance Energy Ltd 2,625
900 Reliance Energy Ltd (Shares Under Objection) *(b) --
139,472 Reliance Energy Ltd GDR 6,736,498
2,117,968 Reliance Industries Ltd 26,013,994
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
INDIA -- CONTINUED
7,133 Reliance Industries Ltd (Shares Under Objection) *(b) 2
179,500 Reliance Industries Ltd GDR 144A 5,266,530
2,382,199 Sakthi Sugars Ltd * 1,516,687
593,900 SAW Pipes Ltd 3,387,337
910,000 Shasun Chemicals & Drugs Ltd (a) 6,638,665
83,772 Shaw Wallace & Co Ltd * 120,375
720,490 Sintex Industries Ltd 1,842,836
647,400 State Bank of India GDR 24,601,200
192,040 Sterlite Industries India 2,649,333
711,000 Tata Iron & Steel Co Ltd 6,755,561
1,520,000 Tata Power Co Ltd 11,722,162
312,246 Thermax Ltd 2,277,908
524,492 Thermax Ltd (Preference Shares) * 114,209
970,442 Uniphos Enterprises Ltd * 275,675
970,442 United Phosphorous Ltd * 10,254,698
206,046 Venky's (India) Ltd 302,908
5,241,000 Vijaya Bank India * 6,534,595
1,900,000 Welspun India Ltd * 3,433,735
9,420,800 Welspun-Gujarat Stahl Ltd * 6,831,043
2,100 Wockhardt Ltd 35,840
---------------
369,342,117
---------------
INDONESIA -- 4.8%
72,718,692 Astra International Tbk 46,443,635
110,838,000 Bank Central Asia Tbk 47,848,457
72,657,000 Bank NISP Tbk PT 3,523,284
10,686,000 Bank Rakyat Indonesia * 1,958,995
10,018,400 Bimantara Citra Tbk PT 4,236,047
180,959,000 Bumi Resources Tbk PT 12,841,561
8,207,000 Ciputra Surya Tbk PT * 1,019,202
7,514,500 Gudang Garam 12,531,573
48,065,500 HM Sampoerna Tbk 27,713,698
28,275,800 Indah Kiat Pulp & Paper * 2,675,416
101,622,500 Indofood Sukses Makmur Tbk 10,216,337
186,900 Indonesian Satellite Corp Tbk PT ADR 4,029,564
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
INDONESIA -- CONTINUED
3,873,000 Indonesian Satellite Corp Tbk PT Class A * 8,359,817
3,593,000 International Nickel 19,123,004
11,586,000 Limas Stokhomindo Tbk PT * 1,575,860
57,307,000 Mayora Indah Tbk 6,100,095
56,454,000 PT Bank Mandiri 9,347,794
29,868,000 PT Indo-Rama Synthetics Tbk 1,942,921
118,105,500 PT Matahari Putra Prima Tbk 9,428,884
121,676,780 Telekomunikasi Indonesia Tbk PT 105,055,055
301,969 Telekomunikasi Indonesia Tbk PT ADR 5,199,906
---------------
341,171,105
---------------
ISRAEL -- 0.0%
9,300 Bank Leumi Le-Israel 17,216
2,000 Check Point Software Technologies * 46,040
3,300 Machteshim Agan Industries 12,159
1,600 Teva Pharmaceutical Industries ADR 104,000
---------------
179,415
---------------
LEBANON -- 0.0%
12,059 Banque Libanaise pour le Commerce Sal *(b) 70,907
---------------
MALAYSIA -- 1.0%
26,774,000 Arab-Malaysian Corp Berhad * 11,132,347
1,458,100 Astro All Asia Networks Plc * 1,826,462
7,238,000 Berjaya Sports Toto 8,685,600
6,445,000 Commerce Asset Holdings Berhad 8,904,276
1,311,000 Edaran Otomobil Berhad 3,156,750
4,805,000 Highlands and Lowlands Berhad 4,248,632
400 Hong Leong Credit Berhad 584
5,557,600 IJM Corp Berhad 6,844,623
3,024,000 Malaysian International Shipping (Foreign Registered) 10,345,263
282,667 OYL Industries Berhad 2,901,056
3,491,700 Saship Holdings *(b) (c) 9,189
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
MALAYSIA -- CONTINUED
14,079,000 Tan Chong International Ltd 2,622,680
4,591,000 Telekom Malaysia Berhad 12,202,395
---------------
72,879,857
---------------
MEXICO -- 3.0%
8,926,900 Alfa SA de CV Class A 33,079,028
835,510 America Movil SA de CV Class L ADR 29,794,287
4,456,000 Carso Global Telecom Class A * 6,524,217
71,397 Cemex SA de CV ADR (Participating Certificates) 2,059,803
605,129 Cemex SA de CV CPO 3,554,918
1,463,334 Consorcio ARA SA de CV * 4,496,666
5,095,900 Corporacion GEO SA de CV Series B * 36,476,595
4,640,000 Grupo Cementos de Chihuahua SA de CV 6,814,587
6,090,900 Grupo Financiero Banorte SA de CV 22,267,333
8,232,755 Grupo Financiero Serfin SA de CV Class B *(b) (c) 7,441
4,527,000 Grupo Televisa SA (Participating Certificates) 9,884,976
3,034,349 Hylsamex SA de CV * 2,454,465
1,618,400 Telefonos de Mexico Class L ADR 54,977,048
1,648,000 Wal-Mart de Mexico SA de CV Class V 5,049,230
---------------
217,440,594
---------------
PHILIPPINES -- 1.3%
166,821,254 Ayala Land Inc 16,291,138
4,192,200 Bank of the Philippine Islands 3,386,809
18,507,528 First Philippine Holdings * 7,722,424
216,212 Globe Telecom Inc 3,397,507
2,473,367 Philippine Long Distance Telephone * 42,598,828
278,900 Philippine Long Distance Telephone ADR * 4,864,016
50,000 Philippine Long Distance Telephone GDR 144A * 2,437,500
6,831,851 San Miguel Corp Class B 8,491,292
60,554,199 SM Prime Holdings 6,558,605
---------------
95,748,119
---------------
POLAND -- 0.6%
319,400 Bank Pekao SA 10,154,511
335,500 BRE Bank SA * 8,106,441
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
POLAND -- CONTINUED
602,600 KGHM Polska Miedz SA * 4,889,156
3,126,400 Polski Koncern Naftowy Orlen 22,662,275
---------------
45,812,383
---------------
RUSSIA -- 0.7%
1,027 AO Mosenergo ADR 8,216
2,649,789 Chelyabinsk Pipe Works * 1,020,169
7,500 Cherepovets MK Severstal 1,305,000
17,100 Dalmoreproduct * 23,940
19,368,800 Energomachexport Power Machin * 1,138,885
124,350 Lukoil ADR 13,927,200
37,000 Lukoil ADR 144A 4,144,000
104,079 MMC Norilsk Nickel ADR 7,363,589
785,700 North-West Telecom (b) 515,202
24,203 OAO Gazprom ADR 778,126
350,000 Onaco Oil Co * 787,500
40,000 Orenburgneft * 922,000
200 Rostelecom ADR 2,866
135,000 Russia Petroleum * 675,000
10,000 Seversky Tube Works ADR * 198,750
6,375 Severstal-Auto * 51,000
6,375 Severstal-Resursources * 57,375
8,896,214 Sibirtelecom (b) 461,292
116,810 Sun Interbrew Ltd Class A GDR * 642,455
718,000 Sun Interbrew Ltd Class B GDR * 5,744,000
37,000 Trade House GUM ADR * 140,600
2,400 Udmurtneft * 484,800
94,000 United Heavy Machinery ADR 144A * 916,500
641,380 United Heavy Machinery Uralmash-Izhora Group ADR * 6,253,455
7,981 Yukos Corp ADR 404,637
---------------
47,966,557
---------------
SOUTH AFRICA -- 5.2%
5,141,140 ABSA Group Ltd 36,088,074
2,252,800 AECI Ltd 12,365,591
5,685,030 African Bank Investments Ltd 9,273,484
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH AFRICA -- CONTINUED
4,862,890 Foschini Ltd 14,073,612
48 Impala Platinum Holdings Ltd 3,983
15,241,376 Iscor Ltd 78,824,827
9,312,400 MTN Group Ltd * 41,651,342
1,195,000 Naspers Ltd Class N 7,455,837
463,416 Nedcor Ltd 4,458,938
5,010,000 Old Mutual Plc 8,857,791
2,793,200 Premier Group Ltd * (b) 4,199
5,997,770 Remgro Ltd 66,050,763
27,979,257 Sanlam Ltd 38,489,093
1,912,410 Sasol Ltd 28,694,057
1,370,000 Standard Bank Investment Corp 8,300,534
1,225,200 Tongaat-Hulett Group 7,782,410
2,203,000 Venfin Ltd 6,789,672
---------------
369,164,207
---------------
SOUTH KOREA -- 14.7%
42,380 Amorepacific Corp 6,126,361
1,164,700 Cheil Industries Inc 15,747,219
6,970,200 Chohung Bank * 24,537,949
777,191 Clover Hitech Co Ltd * 5,154,838
388,920 Daelim Industrial Co Ltd 13,096,286
4,065,000 Daesang Corp 12,582,143
1,080,700 Daewoo Shipbuilding & Marine Engineering Co Ltd 12,589,787
535,200 Daibeck Advanced Materials Co Ltd 10,490,102
582,104 Fine Tec Corp 2,766,974
296,300 Hana Bank 6,424,872
1,396,600 Hanaro Telecom Inc * 3,924,969
78,450 Hanil Cement Manufacturing 4,356,110
659,200 Hanjin Shipping 11,771,429
672,300 Hankook Tire Co Ltd 5,579,633
3,143,948 Hanwha Corp 15,185,055
858,561 Hyosung Corp 7,884,744
644,000 Hyundai Autonet Co Ltd 1,530,595
125,700 Hyundai Heavy Industries 3,847,959
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
1,139,990 Hyundai Industrial Development 12,553,461
268,249 Hyundai Mipo Dockyard * 3,980,395
613,200 Hyundai Mobis 27,635,714
1,164,300 Hyundai Motor Co 49,502,551
2,983,300 Jusung Engineering Co Ltd * 18,670,993
1,273,463 Kangwon Land Inc 15,214,418
3,628,700 KIA Motors Corp 33,633,359
108,530 Kookmin Bank * 4,531,312
3,182,800 Korea Exchange Bank * 21,678,765
289,013 Korea Information Service Inc 8,085,483
1,538,200 Korean Air Lines * 22,366,684
902,300 KT Corp 33,375,893
1,899,900 KT&G Corp 44,670,268
576,000 KT&G Corp GDR 144A 6,710,400
567,110 LG Electronics Inc 31,924,049
617,300 LG Engineering & Construction Ltd 10,104,613
1,132,860 LG Industrial Systems Co Ltd * 15,268,564
2,742,390 LG International Corp 17,722,929
1,380,200 LG Investment & Securities Co Ltd 11,654,240
254,776 POSCO 37,479,803
753,500 Samsung Corp 7,432,483
498,150 Samsung Electronics 230,860,332
379,600 Samsung SDI Co Ltd 52,614,626
236,000 Shinhan Financial Group Co Ltd 4,344,728
2,862,870 SK Corp 106,262,139
11,600 SK Telecom Co Ltd 2,347,619
214,000 SK Telecom Co Ltd ADR 5,352,140
862,000 Ssangyong Motor Co * 7,000,085
366,800 Sungshin Cement Co Ltd 6,004,167
729,409 Taihan Electric Wire Co Ltd 3,274,898
4,729,300 Woori Finance Holdings Co Ltd 35,550,180
---------------
1,051,404,316
---------------
SRI LANKA -- 0.0%
333,600 Lanka Walltile Ltd 111,668
---------------
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TAIWAN -- 11.9%
24,660,839 Acer Inc 38,815,591
10,100,000 Advanced Semiconductor Engineering Inc * 11,385,400
12,342,290 Ambassador Hotel * 6,697,510
25,349,431 Asustek Computer Inc 66,499,032
12,893,000 AU Optronics Corp 21,452,901
50,471,000 Benq Corp 69,453,422
7,874,000 Cathay Financial Holding Co Ltd 15,462,359
19,686,000 Cathay Real Estate Development Co Ltd * 11,921,967
7,597,851 Chang Hwa Commercial Bank * 5,170,776
27,228,000 China Bills Finance Corp * 9,346,743
54,790,651 China Development Financial Holding Corp 30,553,324
3,397,000 China Motor Corp Ltd 6,823,535
52,441,000 China Petrochemical Development Corp * 11,398,508
66,932,165 China Steel Corp 68,226,461
22,240,956 Chinatrust Financial Holding Co 26,538,451
13,797,000 Chunghwa Picture Tubes Ltd * 8,066,002
3,855,000 Chunghwa Telecom Co Ltd 6,298,831
845,220 Chunghwa Telecom Co Ltd ADR 13,895,417
17,437,000 Compeq Manufacturing Co Ltd * 10,089,465
5,949,000 Elitegroup Computer Systems 6,099,709
10,361,000 Far Eastern Textile Co Ltd 7,455,074
195,000 First Financial Holding Co Ltd * 161,355
403,200 First Financial Holding Co Ltd GDR * 6,713,280
9,564,960 Formosa Chemicals & Fibre Co 15,198,407
3,828,812 GigaByte Technology Co Ltd 7,231,754
3,782,145 Hon Hai Precision Industry Co Ltd 16,781,816
26,889,920 Inventec Co Ltd 17,735,819
16,841,000 Macronix International * 5,200,489
2,537,600 MediaTek Inc 28,757,692
9,925,550 Mega Financial Holdings Co Ltd 7,231,026
6,343,000 Micro-Star International Co Ltd 10,459,152
782,000 Mosel Vitelic Inc * 84,167
12,438,093 Nan Ya Plastic Corp 16,817,808
41,509,886 Orient Semiconductor Electronics Ltd * 10,018,126
10,507,000 Prodisc Technology Inc * 10,017,167
5,648,000 Quanta Computer Inc 14,308,380
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
2,589,000 Realtek Semiconductor Corp 4,812,412
18,648,000 Ritek Corp * 13,585,561
7,658,000 Siliconware Precision Industries * 8,334,145
32,006,850 Taiwan Cement Corp 19,191,635
19,482,141 Taiwan Semiconductor Manufacturing Co Ltd * 37,089,371
119,016 Taiwan Semiconductor Manufacturing Co Ltd ADR * 1,236,576
23,932,000 Tatung Co * 9,686,164
29,857,914 Teco Electric & Machinery 13,158,787
28,013,190 United Microelectronics Corp * 25,531,434
741,764 United Microelectronics Corp ADR * 3,864,590
52,475,000 Walsin Lihwa Corp * 25,643,607
12,492,000 Waterland Financial Holdings * 4,569,102
40,058,040 Yageo Corp * 21,497,194
14,835,810 Yang Ming Marine Transport 18,013,800
24,322,000 Yieh Loong Enterprise Co Ltd * 12,687,837
10,607,000 Yulon Motor Co Ltd 15,550,361
---------------
852,819,492
---------------
THAILAND -- 4.1%
20,004,900 Advanced Info Service Pcl (Foreign Registered) (b) 44,296,928
10,156,000 Bangkok Expressway Pcl (Foreign Registered) (b) 6,526,826
35,523,700 Bank of Ayudhya Pcl (Foreign Registered) *(b) 10,578,450
4,051,700 Banpu Pcl (Foreign Registered) (b) 14,952,825
4,325,400 Central Pattana Pcl (Foreign Registered) (b) 5,476,932
35,132,000 Charoen Pokphand Foods Pcl (Foreign Registered) (b) 5,722,698
2,109,460 Electricity Generating Pcl (Foreign Registered) 4,268,314
1,612,300 Electricity Generating Pcl NVDR 3,098,209
26,285,119 Golden Land Property (Foreign Registered) * 7,559,731
5,075,226 Italian-Thai Development Pcl (Foreign Registered) (b) 13,821,562
8,095,200 Kasikornbank Pcl (Foreign Registered) * 10,507,895
1,131,000 Kasikornbank Pcl NVDR * 1,468,083
3,957,060 Kiatnakin Finance & Securities (Foreign Registered) (b) 4,557,317
29,057,000 Krung Thai Bank Pcl (Foreign Registered) (b) 8,282,983
12,869,250 Krungthai Card Pcl (Foreign Registered) (b) 9,498,810
47,740,910 Loxley Pcl (Foreign Registered) *(b) 7,047,526
3,649,000 National Petrochemical (Foreign Registered) (b) 11,423,441
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
THAILAND -- CONTINUED
13,610,900 PTT Public Pcl (Foreign Registered) (b) 55,773,859
5,900,000 Regional Container Lines Plc (Foreign Registered) (b) 2,913,209
16,716,000 Saha Pathana International Holdings Pcl (Foreign Registered) (b) 5,658,509
9,244,273 Sahaviriya Steel Industry (Foreign Registered) *(b) 7,999,625
42,939,166 Sansiri Pcl (Foreign Registered) *(b) 8,961,597
340,109 Siam Cement Pcl (Foreign Registered) 2,285,283
1,074,391 Siam Cement Pcl (Foreign Registered) NVDR 6,562,836
4,874,300 Siam Commercial Bank Pcl (Foreign Registered) * (b) 5,861,814
3,108,050 Star Block Co Ltd (Foreign Registered) *(b) (c) 791
4,833,000 Thai Airways International (Foreign Registered) (b) 7,380,504
4,694,000 Thai Petrochemical (Foreign Registered) *(b) 1,117,050
4,669,800 Thai Union Frozen Products Pcl (Foreign Registered) 3,209,076
9,478,800 Thai-German Ceramic (Foreign Registered) (b) 1,869,705
35,000,000 Univenture Plc (Foreign Registered) (b) 3,687,961
25,622,000 Vanachai Group Pcl (Foreign Registered) (b) 8,934,116
---------------
291,304,465
---------------
TURKEY -- 5.9%
515,993,600 Adana Cimento Class A 1,923,320
12,827,809,180 Akbank TAS 67,133,489
1,131,503,625 Akcansa Cimento AS 3,216,435
3,031,064,505 Aksigorta AS 10,499,169
395,563,300 Anadolu Isuzu Otomotiv Sanay * 5,063,687
262,055,000 Aselsan Askeri Elektroni 2,071,971
24,163,000 Brisa Bridgestone Sabanci 955,239
930,300,000 Carsi Buyuk Magazacilik AS * 1,338,007
480,492,000 Dogan Gazetecilik AS * 2,478,441
3,939,132,150 Dogan Sirketler Grubu Holdings AS * 9,195,263
2,819,780,005 Dogan Yayin Holding AS * 10,669,725
2,989,144,700 Doktas Dokumculuk Ticaret * 4,906,879
1,254,281,425 Eregli Demir ve Celik Fabrikalari TAS * 39,196,295
16,434,960,681 Finansbank * 18,192,313
1,877,931,339 Ford Otomotive Sanayii AS * 12,939,060
78,619,000 Galatasaray Sportif Sinai ve Ticari Yatirimlar AS 3,552,063
1,466,524,000 Global Menkul Degerler AS * 1,148,483
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TURKEY -- CONTINUED
722,740,862 Global Menkul Degerler AS (New Shares) * 549,675
1,189,985,000 Haci Omer Sabanci Holding AS 5,600,457
164,742,000 Mardin Cimento Sanayii 769,127
42,150,000 Medya Holding AS *(b) (c) --
58,823,000 Nortel Networks Netas Telekomunikasyon AS 1,793,924
5,995,882,000 Tansas Perakende Magazacilik Ticaret AS * 6,862,757
3,456,818,393 Tofas Turk Otomobil Fabrik * 7,678,926
3,644,442,687 Trakya Cam Sanayii 9,879,513
1,966,017,474 Tupras Turkiye Petrol Rafine 16,284,783
506,912,307 Turkcell Iletisim Hizmet AS * 6,298,233
18,071,536,668 Turkiye Garanti Bankasi Class C * 64,978,605
22,638,014,387 Turkiye IS Bankasi Class C 102,280,185
123,975,000 Uzel Makina Sanayii AS * 597,470
---------------
418,053,494
---------------
VENEZUELA -- 0.5%
1,863,912 Compania Anonima Nacional Telefonos de Venezuela (CANTV) ADR 34,538,289
---------------
TOTAL COMMON STOCKS (COST $3,939,233,558) 5,652,391,473
---------------
PREFERRED STOCKS -- 15.4%
BRAZIL -- 12.3%
3,009,072,600 Banco Bradesco SA 1.23% 15,084,106
525,361,000 Banco Itau Holding Financeira SA 50,505,005
25,598,000 Belgo Mineira (Registered) 6,899,375
904,428,638 Brasil Telecom Participacoes SA 2.19% 6,893,842
78,305,000 Caemi Mineracao e Metalurgica SA * 37,640,172
2,702,371,860 Centrais Electricas Brasileiras SA Class B 9.83% 32,010,928
127,210,000 Cia de Gas de Sao Paulo 8,473,387
1,818,313,000 Cia Energetica de Minas Gerais 2.88% 32,464,301
3,303,788,000 Cia Paranaense de Energia * 12,364,391
18,540,000 Companhia de Bebidas das Americas 1.67% 4,958,853
265,900 Compania Vale do Rio Doce Class A 13,329,236
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
BRAZIL -- CONTINUED
282,411,000 Eletropaulo Metropolitana de Sao Paulo SA * 6,135,955
11,278,698,123 Embratel Participacoes SA 31,289,916
1,638,863 Gerdau SA 35,056,194
64,011,268 Investimentos Itau SA 2.68% 76,923,412
8,833,913 Petroleo Brasileiro SA (Petrobras) 3.01% 248,714,460
521,700 Petroleo Brasileiro SA ADR 6.93% 14,659,770
10,378,823 Sadia SA 15,323,241
1,539,111,248 Siderurgica de Tubarao 3.50% 50,725,936
13,788,059,000 Tele Centro Oeste Celular Participacoes SA 6.78% 46,630,861
407,300 Tele Centro Oeste Celular SA ADR 2.38% 4,142,241
89,232 Tele Norte Leste Participacoes ADR 4.11% 1,298,326
2,206,592,060 Tele Norte Leste Participacoes SA 3.44% 32,426,486
684,063,000 Telemar Norte Leste SA 13,927,875
5,412,151 Telepar Celular SA 147,731
13,963,698 Unipar, Class B 2.52% 13,568,160
5,755,000 Usinas Siderrurgicas de Minas Gerais SA 4.57% 65,700,858
---------------
877,295,018
---------------
INDIA -- 0.0%
1,705,060 CBAY Systems Ltd Class E *(a)(b) 3,222,563
---------------
RUSSIA -- 0.2%
100,800 Red October 144A 413,280
16,125 Transneft 14,512,500
---------------
14,925,780
---------------
SOUTH KOREA -- 2.9%
325,700 Hyundai Motor Co 5.05% 6,716,178
367,600 LG Electronics Inc 9,658,878
678,453 Samsung Electronics (Non Voting) 4.08% 188,074,556
---------------
204,449,612
---------------
TOTAL PREFERRED STOCKS (COST $747,753,022) 1,099,892,973
---------------
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
UNITS DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
RIGHTS AND WARRANTS -- 1.2%
INDIA -- 1.2%
4,331,067 Arvind Warrants, Expires 12/6/04 (Goldman Sachs) *(d) 4,045,265
500,000 Bank of Baroda Warrants, Expires 1/6/05 (Goldman Sachs) *(d) 2,498,066
966,000 Bank of Baroda Warrants, Expires 12/20/04 (Goldman Sachs) *(d) 4,826,263
1,380,000 Bank of Baroda Warrants, Expires 4/4/05 (JP Morgan Chase) *(d) 7,089,780
1,098,000 Bharat Heavy Electricals Ltd Warrants, Expires 8/3/04
(Goldman Sachs) *(d) 14,105,180
211,000 Bharat Heavy Electricals Ltd Warrants, Expires 10/29/04
(Goldman Sachs) *(d) 2,710,558
122,350 Bharat Heavy Electricals Ltd Warrants, Expires 4/4/05
(JP Morgan Chase) *(d) 1,588,556
39,607 Bharat Heavy Electricals Ltd Warrants, Expires 9/9/05
(Merrill Lynch) (d) 508,801
53,000 Bharat Heavy Industries Ltd Warrants, Expires 9/12/05
(Merrill Lynch) (d) 543,767
142,800 Bharat Petroleum Corp Ltd Warrants, Expires 4/4/05
(JP Morgan Chase) *(d) 1,529,118
2,000,000 CBAY Systems Ltd Warrants, Expires 12/31/05 *(a)(b) --
5,638 e-Serve International Ltd Warrants, Expires 10/10/05
(Merrill Lynch) *(d) 88,493
1,012,935 HROH Warrants, Expires 5/5/06 (Merrill Lynch) *(d) 11,129,185
354,315 Hughes Software Systems Warrants, Expires 7/8/05
(JP Morgan Chase) *(d) 5,180,243
294,128 ING Vysya Bank Ltd Warrants, Expires 1/25/05 (Goldman Sachs) *(d) 3,486,550
94,361 Larsen Warrants, Expires 1/12/05 (Goldman Sachs) *(d) 1,198,813
900,000 Pantaln Warrants, Expires 1/18/05 (Goldman Sachs) *(d) 5,465,856
14,810 Ranbaxy Laboratories Ltd Warrants, Expires 4/4/05
(JP Morgan Chase) *(d) 312,047
488,000 Reliance Industries Ltd Warrants, Expires 1/5/05
(Goldman Sachs) *(d) 6,053,811
161,000 Reliance Industries Ltd Warrants, Expires 4/4/05
(JP Morgan Chase) *(d) 2,012,092
11,280 State Bank of India Warrants, Expires 12/23/05 (Merrill Lynch) (d) 145,853
476,330 Uniphos Enterprises Ltd Warrants, Expires 1/28/09 (Merrill Lynch) *(d) 134,259
476,330 United Phosphorus Ltd Warrants, Expires 1/28/09 (Merrill Lynch) *(d) 5,075,518
1,823,406 Zee Telefilms Warrants, Expires 1/18/05 (Goldman Sachs) *(d) 5,445,327
---------------
85,173,401
---------------
THAILAND -- 0.0%
2,689,393 Telecomasia Corp Pcl Warrants, Expires 4/03/08 *(b) --
---------------
TOTAL RIGHTS AND WARRANTS (COST $44,734,501) 85,173,401
---------------
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
PRIVATE EQUITY SECURITIES -- 0.9%
INDIA -- 0.0%
524,200 U TV Software Comm Ltd *(a)(b) 289,709
---------------
POLAND -- 0.9%
21,635,077 CHP Investors (Multimedia) *(a)(b) 37,047,906
25,091,031 MHP Investors (Tri Media Holdings Ltd) *(a)(b) 17,761,941
9,204,400 Polimex Investment Partners (Polimex Construction) *(a)(b) 4,623,370
---------------
59,433,217
---------------
RUSSIA -- 0.0%
124,330 Divot Holdings NV *(a)(b)(c) 1,243
90,000 Divot Holdings NV *(a)(b)(c) 900
46,624 Divot Holdings NV, Convertible Securities *(a)(b)(c) 466
---------------
2,609
---------------
SRI LANKA -- 0.0%
1,591,169 Millenium Information Technology *(a)(b) 787,470
---------------
TOTAL PRIVATE EQUITY SECURITIES (COST $65,609,989) 60,513,005
---------------
DEBT OBLIGATIONS -- 0.4%
UNITED STATES -- 0.4%
17,412,003 U.S. Treasury Inflation Indexed Bond, 3.00%, due 7/15/12 (e) 19,640,197
1,681,669 U.S. Treasury Inflation Indexed Note, 4.25%, due 1/15/10 (e) 2,009,791
7,457,143 U.S. Treasury Inflation Indexed Note, 3.88%, due 1/15/09 (e) 8,627,564
---------------
30,277,552
---------------
TOTAL DEBT OBLIGATIONS (COST $29,008,601) 30,277,552
---------------
</Table>
See accompanying notes to the financial statements.
17
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
INVESTMENT FUNDS -- 0.3%
INDIA -- 0.1%
170 SPG Infinity Technology Fund I (a)(b) 766,360
1,227,400 TDA India Technology Fund II LP *(a)(b) 702,613
10,400 UTI Masterplus 1991 Units * 6,736
100 UTI Masterplus 1991 Units (Shares Under Objection) *(b) --
---------------
1,475,709
---------------
KAZAKHSTAN -- 0.0%
450,000 Kazakhstan Investment Fund *(a) 72,000
---------------
POLAND -- 0.0%
1,749,150 The Emerging Europe Fund II LP *(a) 631,093
---------------
ROMANIA -- 0.0%
3,600 Romanian Investment Fund *(a) 1,224,000
---------------
RUSSIA -- 0.2%
9,500,000 NCH Eagle Fund LP *(a)(b) 15,166,780
---------------
UKRAINE -- 0.0%
16,667 Societe Generale Thalmann Ukraine Fund *(a)(b) 500,010
---------------
TOTAL INVESTMENT FUNDS (COST $21,679,788) 19,069,592
---------------
MUTUAL FUNDS -- 0.0%
UNITED STATES -- 0.0%
133,320 GMO Alpha LIBOR Fund 3,214,348
---------------
TOTAL MUTUAL FUNDS (COST $3,412,995) 3,214,348
---------------
</Table>
See accompanying notes to the financial statements.
18
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES -- 0.0%
INDONESIA -- 0.0%
26,000,000 APP Global Finance (VI) Mauritius Ltd, Zero Coupon, due 11/18/12 * (b) 682,500
---------------
MALAYSIA -- 0.0%
911,400 Berjaya Sports Toto Berhad, 8.00%, due 6/25/12 1,026,524
---------------
RUSSIA -- 0.0%
56,000 Lukinter Finance BV, 3.50%, due 11/29/07 * 86,912
---------------
TOTAL CONVERTIBLE SECURITIES (COST $6,086,061) 1,795,936
---------------
SHORT-TERM INVESTMENTS -- 1.4%
CASH EQUIVALENTS -- 1.4%
68,800,000 ING Bank GC Time Deposit, 1.06%, due 3/01/04 68,800,000
30,652,700 The Boston Global Investment Trust (f) 30,652,700
---------------
99,452,700
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $99,452,700) 99,452,700
---------------
TOTAL INVESTMENTS -- 98.8%
(Cost $4,956,971,215) 7,051,780,980
---------------
Other Assets and Liabilities (net)-- 1.2% 89,156,424
---------------
TOTAL NET ASSETS -- 100.0% $ 7,140,937,404
===============
</Table>
See accompanying notes to the financial statements.
19
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold
in transactions exempt from registration, normally to
qualified institutional investors.
ADR - American Depositary Receipt
Foreign Registered - Shares issued to foreigner investors in
markets that have foreign ownership limits.
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
* Non-income producing security.
See accompanying notes to the financial statements.
20
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
Additional information on each restricted security is as follows:
<Table>
<Caption>
VALUE AS A
PERCENTAGE
ACQUISITION ACQUISITION OF FUND'S VALUE AS OF
ISSUER, DESCRIPTION DATE COST NET ASSETS FEBRUARY 29, 2004
- -------------------------------------------------- ------------------- ------------- ---------- -----------------
CBAY Systems Ltd Class E 5/06/03 $ 3,444,220 0.05% $ 3,222,563
CBAY Systems Ltd Warrants, Expires 12/31/05 1/02/04 0 0.00 0
Centurion Bank Ltd 1/28/04 971,088 0.01 972,698
CHP Investors (Multimedia) 12/13/99 - 3/05/01 22,825,006 0.52 37,047,906
Divot Holdings NV, Private Equity Securities 9/21/01 124,330 0.00 1,243
Divot Holdings NV, Private Equity Securities 6/26/00 1,502,100 0.00 900
Divot Holdings NV, Convertible Securities 3/27/02 46,624 0.00 466
Kazakhstan Investment Fund 10/16/97 3,285,000 0.00 72,000
MHP Investors (Tri Media Holdings Ltd) 11/27/01 26,147,396 0.25 17,761,941
Millenium Information Technology 10/21/99 2,252,570 0.01 787,470
NCH Eagle Fund LP 1/21/97 9,500,000 0.21 15,166,779
Polimex Investment Partners (Polimex Construction) 7/07/99 - 9/21/01 9,707,005 0.06 4,623,370
Romanian Investment Fund 5/12/97 3,600,000 0.02 1,224,000
Shasun Chemicals & Drugs Ltd 11/06/03 4,901,004 0.09 6,638,665
Societe Generale Thalmann Ukraine Fund 7/15/97 1,123,189 0.01 500,010
SPG Infinity Technology Fund I 12/23/99 1,190,000 0.01 766,360
TDA India Technology Fund II LP 2/23/00 - 10/02/01 1,227,400 0.01 702,613
The Emerging Europe Fund II, LP 12/05/97 - 3/17/00 1,749,150 0.01 631,093
U TV Software Comm Ltd 2/29/00 3,004,959 0.00 289,709
</Table>
(a) Direct placement securities are restricted as to resale.
(b) Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees (Note 2).
(c) Bankrupt issuer.
(d) Structured warrants with risks similar to equity swaps.
(e) All or a portion of this security is held as collateral for open swap
contracts (Note 7).
(f) Represents investment of security lending collateral (Note 2).
See accompanying notes to the financial statements.
21
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
--------------------------------------------------------------------
Financials 18.3%
Energy 14.5
Information Technology 14.4
Materials 14.0
Telecommunications Services 13.0
Consumer Discretionary 8.6
Industrials 8.5
Utilities 3.9
Consumer Staples 3.3
Health Care 0.4
Media 0.2
Miscellaneous 0.9
------
100.0%
------
</Table>
See accompanying notes to the financial statements.
22
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value, including securities
on loan of $29,664,950 (cost $4,953,558,220) (Note 2) $ 7,048,566,632
Investments in affiliated issuers, at value (cost $3,412,995)
(Notes 2 and 9) 3,214,348
Cash 16,884
Foreign currency, at value (cost $71,159,486) (Note 2) 71,130,323
Receivable for investments sold 29,933
Receivable for Fund shares sold 50,433,554
Dividends and interest receivable 33,314,651
Foreign taxes receivable 1,125,564
Net receivable for open swap contracts (Notes 2 and 8) 3,560,592
Receivable for expenses reimbursed by Manager (Note 3) 187,734
---------------
Total assets 7,211,580,215
---------------
LIABILITIES:
Payable for investments purchased 2,979,196
Payable upon return of securities loaned (Note 2) 30,652,700
Payable for Fund shares repurchased 7,700,000
Accrued capital gain and repatriation taxes payable (Note 2) 18,742,864
Due to counterparty 1,821,095
Payable to affiliate for (Note 3):
Management fee 4,465,245
Shareholder service fee 682,457
Trustees fee 12,380
Accrued expenses 3,586,874
---------------
Total liabilities 70,642,811
---------------
NET ASSETS $ 7,140,937,404
===============
</Table>
See accompanying notes to the financial statements.
23
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004 (CONTINUED)
<Table>
NET ASSETS CONSIST OF:
Paid-in capital $ 5,100,104,311
Distributions in excess of net investment income (15,454,831)
Accumulated net realized loss (28,562,205)
Net unrealized appreciation 2,084,850,129
---------------
$ 7,140,937,404
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 4,079,171,650
===============
Class IV shares $ 1,799,735,580
===============
Class V shares $ 382,193,288
===============
Class VI shares $ 879,836,886
===============
SHARES OUTSTANDING:
Class III 258,558,099
===============
Class IV 114,253,154
===============
Class V 24,239,528
===============
Class VI 55,830,187
===============
NET ASSET VALUE PER SHARE:
Class III $ 15.78
===============
Class IV $ 15.75
===============
Class V $ 15.77
===============
Class VI $ 15.76
===============
</Table>
See accompanying notes to the financial statements.
24
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $15,729,015) $ 125,287,669
Interest (including securities lending income of $123,965) 4,262,770
Dividends from affiliated issuers 32,908
---------------
Total income 129,583,347
---------------
EXPENSES:
Management fee (Note 3) 35,124,975
Shareholder service fee (Note 3) - Class III 3,887,920
Shareholder service fee (Note 3) - Class IV 1,391,266
Shareholder service fee (Note 3) - Class V 80,373
Shareholder service fee (Note 3) - Class VI 179,294
Custodian fees 6,958,936
Transfer agent fees 65,200
Audit and tax fees 208,341
Legal fees 230,694
Trustees fees and related expenses (Note 3) 87,027
Registration fees 286,691
Miscellaneous 46,656
---------------
Total expenses 48,547,373
Fees and expenses reimbursed by Manager (Note 3) (709,377)
---------------
Net expenses 47,837,996
---------------
Net investment income 81,745,351
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments in unaffiliated issuers (net of foreign capital gains tax and
CPMF tax of $6,818,426 and $606,204, respectively) (Note 2) 361,512,788
Investments in affiliated issuers 125,469
Closed swap contracts 25,955,068
Foreign currency, forward contracts and foreign currency related transactions (7,526,012)
---------------
Net realized gain 380,067,313
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (net of foreign capital gains tax accrual of $13,734,012)
(Note 2) 2,181,409,455
Open swap contracts 4,513,177
Foreign currency, forward contracts and foreign currency related transactions 7,889
---------------
Net unrealized gain 2,185,930,521
---------------
Net realized and unrealized gain 2,565,997,834
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,647,743,185
===============
</Table>
See accompanying notes to the financial statements.
25
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 81,745,351 $ 21,466,584
Net realized gain (loss) 380,067,313 (50,725,570)
Change in net unrealized appreciation (depreciation) 2,185,930,521 (169,635,084)
----------------- -----------------
Net increase (decrease) in net assets from operations 2,647,743,185 (198,894,070)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (59,919,466) (14,313,177)
Class IV (27,150,683) (12,715,508)
Class V (1,361,896) --
Class VI (8,877,816) --
----------------- -----------------
Total distributions from net investment income (97,309,861) (27,028,685)
----------------- -----------------
Net share transactions (Note 7):
Class III 1,316,456,703 498,075,637
Class IV 46,866,132 385,039,223
Class V 311,518,061 --
Class VI 696,055,680 --
----------------- -----------------
Increase in net assets resulting from net share transactions 2,370,896,576 883,114,860
----------------- -----------------
Total increase in net assets 4,921,329,900 657,192,105
NET ASSETS:
Beginning of period 2,219,607,504 1,562,415,399
----------------- -----------------
End of period (including distributions in excess of net investment
income of $15,454,831 and $2,327,854, respectively) $ 7,140,937,404 $ 2,219,607,504
================= =================
</Table>
See accompanying notes to the financial statements.
26
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.82 $ 9.84 $ 9.04 $ 11.16 $ 6.31
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income + 0.23 0.11 0.18 0.17 0.13
Net realized and unrealized gain (loss) 6.97 (1.00) 0.80 (2.27) 4.77
----------- ----------- ----------- ----------- -----------
Total from investment operations 7.20 (0.89) 0.98 (2.10) 4.90
----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.24) (0.13) (0.18) (0.02) (0.05)
----------- ----------- ----------- ----------- -----------
Total distributions (0.24) (0.13) (0.18) (0.02) (0.05)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.78 $ 8.82 $ 9.84 $ 9.04 $ 11.16
=========== =========== =========== =========== ===========
TOTAL RETURN (a) 82.10% (9.14)% 11.15% (18.79)% 77.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 4,079,172 $ 1,215,653 $ 826,960 $ 560,205 $ 727,197
Net expenses to average daily net assets 1.12% 1.16% 1.19%(b) 1.23% 1.18%
Net investment income to average daily net assets 1.85% 1.12% 2.32% 1.69% 1.41%
Portfolio turnover rate 46% 59% 74% 90% 73%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.02% 0.02% 0.02% 0.02% 0.03%
Purchase and redemption fees consisted of the
following per share amounts: (c) $ 0.06 $ 0.05 $ 0.05 $ 0.03 --
</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. Calculation excludes purchase premiums
and redemption fees which are borne by the shareholder.
(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.
27
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.81 $ 9.83 $ 9.03 $ 11.16 $ 6.31
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income + 0.24 0.11 0.17 0.17 0.13
Net realized and unrealized gain (loss) 6.94 (0.99) 0.82 (2.28) 4.77
----------- ----------- ----------- ----------- -----------
Total from investment operations 7.18 (0.88) 0.99 (2.11) 4.90
----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.24) (0.14) (0.19) (0.02) (0.05)
----------- ----------- ----------- ----------- -----------
Total distributions (0.24) (0.14) (0.19) (0.02) (0.05)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.75 $ 8.81 $ 9.83 $ 9.03 $ 11.16
=========== =========== =========== =========== ===========
TOTAL RETURN (a) 81.97% (9.09)% 11.22% (18.82)% 77.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,799,736 $ 1,003,594 $ 735,455 $ 467,619 $ 480,208
Net expenses to average daily net assets 1.08% 1.12% 1.14%(b) 1.18% 1.13%
Net investment income to average daily
net assets 2.05% 1.16% 2.27% 1.73% 1.45%
Portfolio turnover rate 46% 59% 74% 90% 73%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.02% 0.02% 0.02% 0.02% 0.03%
Purchase and redemption fees consisted of the
following per share amounts: (c) $ 0.05 $ 0.02 $ 0.03 $ 0.03 --
</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. Calculation excludes purchase premiums
and redemption fees which are borne by the shareholder.
(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.
28
<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
FEBRUARY 29, 2004
-----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.81
-------------
Income from investment operations:
Net investment income + 0.13
Net realized and unrealized gain 5.02
-------------
Total from investment operations 5.15
-------------
Less distributions to shareholders:
From net investment income (0.19)
-------------
Total distributions (0.19)
-------------
NET ASSET VALUE, END OF PERIOD $ 15.77
=============
TOTAL RETURN (a) 47.82%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 382,193
Net expenses to average daily net assets 1.07%*
Net investment income to average daily net assets 1.69%*
Portfolio turnover rate 46%***
Fees and expenses reimbursed by the Manager to average daily net assets: 0.02%*
Purchase and redemption fees consisted of the following per share amouts: $ 0.03
</Table>
+ Computed using average shares throughout the period.
* Annualized.
** Not Annualized.
*** Calculation represents portfolio turnover for the Fund for the year ending
February 29, 2004.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown. Calculation excludes purchase premiums
and redemption fees which are borne by the shareholder.
See accompanying notes to the financial statements.
29
<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
FEBRUARY 29, 2004
-----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.45
-------------
Income from investment operations:
Net investment income + 0.14
Net realized and unrealized gain 5.42
-------------
Total from investment operations 5.56
-------------
Less distributions to shareholders:
From net investment income (0.25)
-------------
Total distributions (0.25)
-------------
NET ASSET VALUE, END OF PERIOD $ 15.76
=============
TOTAL RETURN (a) 53.62 %**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 879,837
Net expenses to average daily net assets 1.04%*
Net investment income to average daily net assets 1.54%*
Portfolio turnover rate 46%***
Fees and expenses reimbursed by the Manager to average daily net assets: 0.02%*
Purchase and redemption fees consisted of the following per share amounts: $ 0.04
</Table>
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
*** Calculation represents portfolio turnover of the Fund for the year ending
February 29, 2004.
(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 which are borne by the shareholder.
See accompanying notes to the financial statements.
30
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Emerging Markets Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees 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/IFC (Investable) Composite Index.
Throughout the year ended February 29, 2004, 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 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 February 29, 2004, less than 0.1% of the Fund was invested in the GMO
Alpha LIBOR Fund, a separate fund of GMO Trust managed by GMO. Shares of
the GMO Alpha LIBOR Fund are not publicly available for direct purchase.
The financial statements of the GMO Alpha LIBOR Fund should be read in
conjunction with the Fund's financial statements. These financial
statements are available, without charge, upon request, by calling
(617) 330-7500 or by visiting GMO's website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
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
31
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
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. 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 0.08% of the Fund's total
assets as of February 29, 2004. 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.
32
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 at
February 29, 2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. At February 29,
2004, 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
33
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
options which expire are treated as realized gains. Premiums received from
writing options which are exercised or closed are added to the proceeds or
offset against the amounts paid on the underlying future, security or
currency transaction to determine the realized gain or loss. The Fund as a
writer of an option has no control over whether the underlying future,
security or currency may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the future,
security or currency underlying the written option. In the event that the
Fund writes uncovered call options (i.e. options for investments that the
Fund does not own), it bears the risk of incurring substantial losses if
the price of the underlying investment increases during the term of the
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At February 29, 2004, there were
no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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 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,
34
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 on
swap contracts 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 8 for a summary of all open swap agreements at
February 29, 2004.
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
February 29, 2004, the Fund loaned securities having a market value of
$29,664,950 collateralized by cash in the amount of $30,652,700 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.
35
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. The Fund has recorded a deferred tax
liability in respect of unrealized appreciation on foreign securities of
$13,734,012 for potential capital gains and repatriation taxes at February
29, 2004. The accrual for capital gains and repatriation taxes is included
in net unrealized loss in the Statement of Operations. The Fund has
incurred $6,818,426 related to capital gain taxes which is included in net
realized gain in the Statement of Operations.
The Fund is subject to a Contribuicao Provisoria sobre Movimentacoes
Financiera ("CPMF") tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market. The CPMF
tax has been included in the net realized gain (loss) on investments at
year end.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $97,309,861
and $27,028,685, respectively
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $32,612,070 and $182,914 of undistributed ordinary
income and undistributed long-term capital gains, respectively. The
temporary differences between book and tax basis distributable earnings are
primarily due to passive foreign investment company transactions and losses
on wash sale transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net value of
the Fund and is primarily attributable to foreign currency transactions and
passive investment company transactions. The financial highlights exclude
these adjustments.
<Table>
<Caption>
DISTRIBUTIONS ACCUMULATED
IN EXCESS OF NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------------- ------------------- ---------------
$ 2,437,533 $ (6,860,477) $ 4,422,944
</Table>
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
36
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
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 years ended February 29,
2004 and February 28, 2003, the Fund received $18,802,646 and $7,148,446 in
purchase premiums and $382,793 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 typically less liquid than those of developed
markets.
3. 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
37
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 .81% of average daily net assets.
The Fund incurs fees and expenses indirectly as a shareholder in GMO Alpha
LIBOR Fund and GMO Short-Duration Collateral Fund. For the year ended
February 29, 2004, indirect operating expenses (excluding
investment-related expenses) were less than .001% 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% 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 year ended February 29, 2004 was $54,749. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the February 29, 2004 were as follows:
<Table>
<Caption>
PURCHASES SALES
---------------- ----------------
U.S. Government securities $ 18,915,224 $ 25,558,214
Investments (non-U.S. Government securities) 4,257,331,615 1,887,275,615
</Table>
At February 29, 2004, 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
---------------- ----------------- ----------------- ----------------
$ 5,031,657,765 $ 2,115,945,069 $ (95,821,854) $ 2,020,123,215
</Table>
38
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 0.58% of the Fund was held by forty-four related
parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
--------------------------------- ---------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 185,551,403 $ 2,177,625,406 78,465,027 $ 750,254,514
Shares issued to shareholders
in reinvestment of distributions 3,408,649 46,031,174 1,032,167 9,789,196
Shares repurchased (68,200,572) (907,199,877) (25,770,379) (261,968,073)
--------------- --------------- --------------- ---------------
Net increase 120,759,480 $ 1,316,456,703 53,726,815 $ 498,075,637
=============== =============== =============== ===============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
--------------------------------- ---------------------------------
CLASS IV: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 70,116,457 $ 882,226,680 39,386,555 $ 388,617,328
Shares issued to shareholders
in reinvestment of distributions 1,571,635 21,070,260 698,767 6,650,570
Shares repurchased (71,415,775) (856,430,808) (948,372) (10,228,675)
--------------- --------------- --------------- ---------------
Net increase 272,317 $ 46,866,132 39,136,950 $ 385,039,223
--------------- --------------- --------------- ---------------
</Table>
39
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
PERIOD FROM AUGUST 4, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
---------------------------------
CLASS V: SHARES AMOUNT
--------------- ---------------
Shares sold 50,310,591 $ 612,794,696
Shares issued to shareholders
in reinvestment of distributions 95,841 1,361,896
Shares repurchased (26,166,904) (302,638,531)
--------------- ---------------
Net increase 24,239,528 $ 311,518,061
=============== ===============
<Caption>
PERIOD FROM JUNE 30, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
---------------------------------
CLASS VI: SHARES AMOUNT
--------------- ---------------
Shares sold 57,429,557 $ 719,670,352
Shares issued to shareholders
in reinvestment of distributions 293,748 4,033,903
Shares repurchased (1,893,118) (27,648,575)
--------------- ---------------
Net increase 55,830,187 $ 696,055,680
=============== ===============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
TOTAL RETURN SWAP AGREEMENTS
<Table>
<Caption>
EXPIRATION NET UNREALIZED
NOTIONAL AMOUNT DATE DESCRIPTION APPRECIATION
----------------- ---------- ----------------------------------------------------------- ---------------
$ 13,226,358 9/13/04 Agreement with Merrill Lynch International dated 9/09/03 to $ 1,876,807
receive the notional amount multiplied by the return on the
MSCI Taiwan Index and to pay the notional amount multiplied
by the 3 month LIBOR adjusted by a specified spread.
$ 19,651,025 3/10/04 Agreement with Morgan Stanley & Co. International Limited 1,683,785
dated 3/7/03 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
specific spread.
---------------
$ 3,560,592
===============
</Table>
40
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING OF SALES DIVIDEND VALUE, END OF
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME PERIOD
----------------------------------- ------------ --------- ------------ --------- -------------
GMO Alpha LIBOR Fund $ 3,162,354 $ -- $ -- $ -- $ 3,214,348
GMO Short-Duration Collateral Fund 11,552,065 32,895 11,705,739 32,908 --
------------ --------- ------------ --------- -------------
Totals $ 14,714,419 $ 32,895 $ 11,705,739 $ 32,908 $ 3,214,348
============ ========= ============ ========= =============
</Table>
41
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO EMERGING MARKETS FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Emerging Markets Fund (the "Fund") (a series of GMO Trust) at February 29,
2004, and the results of its operations, the changes in its net assets and
the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
42
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund paid foreign taxes of $22,547,442 and recognized foreign source
income of $141,049,592.
The Fund's distributions to shareholders included: For taxable,
non-corporate shareholders, 59.29% of the Fund's income represents
qualified dividend income subject to the 15% rate category.
43
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA and Senior
02110 Associate Dean,
DOB: 10/03/1941 Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA Consultant,
02110 Provant, Inc.
DOB: 07/26/1944 (provider of
performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
44
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC.
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
45
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ------------------ ---------------------- ---------------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer since (1997 - present), Chief Operating
40 Rowes Wharf Officer October 2002; Vice Officer (2000 - present) and
Boston, MA 02110 President from August Member, Grantham, Mayo, Van
DOB: 01/20/1956 1998 - October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Officer Member, Grantham, Mayo, Van
c/o GMO Trust Officer and since February 2000; Otterloo & Co. LLC.
40 Rowes Wharf Treasurer Treasurer since
Boston, MA 02110 February 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo &
40 Rowes Wharf Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003) and
Boston, MA 02110 present and May 1999 Member, Grantham, Mayo, Van
DOB: 07/20/1965 - August 1999. Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Secretary Grantham, Mayo, Van Otterloo &
40 Rowes Wharf since March 2001. Co. LLC (June 1999 - present);
Boston, MA 02110 Associate/Junior Partner, Hale
DOB: 02/18/1945 and Dorr LLP (1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Officer (February 2003 - present)
40 Rowes Wharf Laundering and Compliance Officer, Grantham,
Boston, MA 02110 Compliance Officer Mayo, Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
46
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Quantitative team at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Tax-Managed International Equities Fund returned +55.0% for the fiscal
year ended February 29, 2004, as compared to +53.6% for the MSCI EAFE benchmark.
On an after-tax basis, the Fund returned +54.7% compared to the benchmark's
+53.7% for the same period. Consistent with the Fund's investment objectives and
policies, the Fund was invested substantially in international equity securities
throughout the period.
Much of the portfolio's outperformance for the fiscal year came from country
selection. First, the portfolio benefited from an overweight of emerging market
equities, which outperformed developed international equities by over 20% for
the period. In addition, the portfolio benefited from overweights in Germany and
some of the smaller European countries including Austria, Belgium, and Norway,
which also outperformed.
Sector selection detracted from relative performance for the period. Overweights
in utilities and telecommunications services proved costly, as these sectors
trailed the strong performing information technology and financial services
sectors.
Stock selection was positive for the year, as the portfolio benefited from
strong selection within both the developed and emerging markets. Both the
quality-adjusted value and intrinsic value stock selection strategies posted
gains for the year, offsetting losses by the momentum strategy.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
TAX-MANAGED INT'L. EQUITIES FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO TAX-MANAGED INTERNATIONAL
EQUITIES FUND* MSCI EAFE INDEX*
7/29/1998 5,000,000 5,000,000
9/30/1998 4,350,000 4,256,345
12/31/1998 5,078,975 5,135,730
3/31/1999 5,058,880 5,207,175
6/30/1999 5,556,230 5,339,495
9/30/1999 5,571,300 5,573,825
12/31/1999 5,853,680 6,520,540
3/31/2000 5,538,640 6,513,685
6/30/2000 5,635,185 6,255,635
9/30/2000 5,399,765 5,751,030
12/31/2000 5,602,525 5,596,710
3/31/2001 5,169,180 4,829,535
6/30/2001 5,427,125 4,779,075
9/30/2001 4,842,705 4,110,005
12/31/2001 5,114,370 4,396,625
3/31/2002 5,439,345 4,418,980
6/30/2002 5,588,515 4,325,315
9/30/2002 4,746,995 3,471,765
12/31/2002 4,995,425 3,695,800
3/31/2003 4,699,645 3,392,245
6/30/2003 5,625,335 4,045,880
9/30/2003 6,022,200 4,374,710
12/31/2003 7,046,215 5,121,850
2/29/2004 7,411,450 5,314,185
</Table>
Average Annual Returns
Inception 7/29/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
54.99 8.73 7.29
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
* Returns do not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 96.8%
ARGENTINA -- 0.2%
19,033 Grupo Financiero Galicia SA ADR * 156,451
11,500 Petrobras Energia Participaciones SA ADR * 153,525
5,600 Telecom Argentina SA ADR * 58,128
2,600 Tenaris SA ADR 90,090
---------------
458,194
---------------
AUSTRALIA -- 1.4%
51,532 Boral Ltd 244,123
190,037 General Property Trust Units 436,937
69,533 National Australia Bank Ltd 1,657,729
104,742 Santos Ltd 490,539
72,513 Stockland 299,878
190,882 Westfield Trust Units 521,354
46,802 Woodside Petroleum Ltd 549,595
---------------
4,200,155
---------------
AUSTRIA -- 1.6%
10,735 Austrian Airlines * 161,126
5,970 Boehler Uddeholm (Bearer) 452,481
6,941 Flughafen Wien AG 383,777
2,252 Generali Holding Vienna AG 81,705
7,877 Immofinanz Immobilien Anlagen AG * 62,149
446 Lenzing AG 88,105
3,049 Mayr-Melnhof Karton AG (Bearer) 371,451
684 Oesterreichische Elektrizitaetswirtschafts AG Class A 101,984
9,884 OMV AG 1,593,443
7,996 VA Technologie AG (Bearer) * 325,074
12,741 Voestalpine AG 583,361
14,696 Wienerberger AG 463,798
---------------
4,668,454
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
BELGIUM -- 3.3%
18,765 Almanij NV 1,144,559
1,676 Bekaert SA 96,604
800 CMB SA 83,645
5,590 Colruyt SA 636,909
17,854 Delhaize Group 970,976
56,070 Dexia 1,039,431
3,871 Electrabel SA 1,281,790
171 Exmar NV * 9,168
85,134 Fortis 1,968,547
23,914 KBC Bancassurance Holding 1,365,616
24,022 UCB SA 888,854
---------------
9,486,099
---------------
BRAZIL -- 0.3%
10,953 Banco do Brasil SA 81,419
3,838,669 Companhia Siderurgica Nacional SA 245,148
2,204,453 Compania Saneamento Basico SAO PA 115,729
6,200 Petroleo Brasileiro SA (Petrobras) 192,227
3,200 Petroleo Brasileiro SA (Petrobras) ADR 99,840
220,498 Tele Centro Oeste Celular Participacoes SA * 1,514
---------------
735,877
---------------
CANADA -- 1.4%
19,600 Bank of Nova Scotia 1,002,825
9,300 Canadian Natural Resources 507,714
25,500 EnCana Corp 1,099,251
18,200 National Bank of Canada 619,214
117,100 Nortel Networks Corp * 933,833
---------------
4,162,837
---------------
CHINA -- 0.7%
16,000 Angang New Steel Co Class H 9,558
146,000 Beijing Datang Power Co Ltd Class H 123,795
45,000 China International Marine Containers Co Ltd Class B * 84,001
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CHINA -- CONTINUED
104,000 China Mobile Ltd 366,091
390,000 China Petroleum & Chemical Corp Class H 164,090
4,000 China Unicom 5,139
88,000 CNOOC Ltd 178,061
68,000 Cosco Pacific Ltd 103,959
164,300 Denway Motors Ltd 191,026
68,000 Huaneng Power International Inc Class H 127,983
550,000 PetroChina Co Ltd Class H 295,002
144,000 Yanzhou Coal Mining Co Ltd Class H 165,574
106,000 Zhejiang Southeast Electric Power Co Class B 90,206
---------------
1,904,485
---------------
DENMARK -- 0.0%
1,600 DFDS A/S 69,094
---------------
FINLAND -- 0.8%
30,100 Finnair Class A 232,997
46,600 Fortum Oyj 493,312
12,900 Kemira Oyj 168,297
3,900 Orion-Yhtymae Oyj Class B 100,452
27,600 Rautaruukki Oyj * 231,821
59,100 Sampo Oyj Class A 663,089
26,700 UPM-Kymmene Oyj 525,820
---------------
2,415,788
---------------
FRANCE -- 4.8%
48,313 Alcatel SA * 781,576
24,934 Arcelor 455,723
29,517 BNP Paribas 1,864,917
4,173 Bongrain SA 264,433
14,473 Business Objects SA * 438,418
7,668 Chargeurs SA 257,242
25,843 Cie de Saint-Gobain 1,356,644
899 Eiffage SA 128,344
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
FRANCE -- CONTINUED
2,476 Eramet 134,194
2,228 Esso S.A.F. 290,947
97,421 France Telecom SA * 2,683,581
63,691 Havas SA 353,738
12,283 Peugeot SA 611,228
15,577 Societe Generale 1,382,874
60,101 Suez SA 1,334,451
786 Total Gabon 277,942
52,348 Vivendi Universal SA * 1,499,227
---------------
14,115,479
---------------
GERMANY -- 10.1%
14,924 Allianz AG (Registered) 1,861,724
39,025 Bankgesellschaft Berlin AG * 92,128
36,688 Bayer AG 1,039,334
14,600 Bayerische Vereinsbank * 321,087
40,840 Commerzbank AG 791,602
9,400 Continental AG 385,424
39,372 DaimlerChrysler AG (Registered) 1,766,002
709 Degussa AG 26,428
21,891 Deutsche Bank AG (Registered) 1,878,130
49,025 Deutsche Post AG 1,169,540
107,857 Deutsche Telekom (Registered) * 2,112,034
55,170 E. On AG 3,725,623
37,200 Infineon Technologies AG * 521,373
10,800 IWKA AG 259,658
22,600 MAN AG 790,466
15,600 Merck KGaA 688,097
11,396 Metro AG 509,743
4,443 Puma AG Rudolf Dassler Sport 913,631
20,900 RWE AG 917,978
13,400 SAP AG 2,086,182
38,827 Siemens AG (Registered) 3,005,511
8,141 Sudzucker AG 157,291
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
83,949 ThyssenKrupp AG 1,619,882
33,000 TUI AG 761,416
40,630 Volkswagen AG 1,923,394
---------------
29,323,678
---------------
HONG KONG -- 1.1%
135,900 CLP Holdings Ltd 700,115
226,000 Hang Lung Group Co Ltd 355,672
271,000 Hong Kong Electric Holdings Ltd 1,162,844
4,000 Hong Kong Land Holdings 7,600
239,000 New World Development Co Ltd 257,919
71,000 Sun Hung Kai Properties Ltd 697,791
---------------
3,181,941
---------------
HUNGARY -- 0.0%
6,800 OTP Bank Rt * 111,578
---------------
INDIA -- 0.2%
4,700 GAIL India Ltd GDR * 128,216
10,600 ICICI Bank Ltd ADR 157,940
6,600 Reliance Industries Ltd GDR 144A 193,644
---------------
479,800
---------------
INDONESIA -- 0.3%
130,000 Astra International Tbk 83,028
274,000 Bank Central Asia Tbk 118,285
44,500 Gudang Garam 74,211
920,000 Indah Kiat Pulp & Paper * 87,049
87,000 Indonesian Satellite Corp Tbk PT Class A * 187,788
953,000 PT Bank Mandiri 157,800
743,000 PT Matahari Putra Prima Tbk 59,317
287,000 Telekomunikasi Indonesia Tbk PT 247,794
---------------
1,015,272
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
IRELAND -- 0.5%
27,722 Allied Irish Banks Plc 420,913
29,188 Anglo Irish Bank Corp 495,032
32,520 Bank of Ireland 425,476
22,929 Greencore Group 95,154
---------------
1,436,575
---------------
ISRAEL -- 0.0%
1,700 Teva Pharmaceutical Industries ADR 110,500
---------------
ITALY -- 3.2%
301,394 Banca Intesa SPA 1,119,701
4,857 e.Biscom * 302,345
96,348 Enel SPA 744,611
284,030 ENI SPA 5,565,348
69,609 Fiat SPA * 537,098
8,675 Fiat SPA (Savings Shares) * 42,899
141,184 Parmalat Finanziaria SPA (a)(b) 1,754
44,994 Sanpaolo IMI SPA 578,617
55,716 Telecom Italia Mobile SPA 314,983
---------------
9,207,356
---------------
JAPAN -- 21.8%
19,240 Acom Co Ltd 1,158,697
10,100 Advantest Corp 751,538
99,000 AIOI Insurance Co Ltd 395,058
6,900 Aoki International 65,994
23,000 Canon Inc 1,122,003
60,300 Chubu Electric Power Co Inc 1,288,674
17,800 Chugoku Electric Power Co Inc 307,745
195,000 Cosmo Oil Co Ltd 417,628
60,000 Daiichi Pharmaceuticals Co Ltd 1,071,939
27,000 Daio Paper Corp 228,089
19,400 Daito Trust Construction Co Ltd 669,394
60,000 Daiwa House Industry Co Ltd 593,630
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
60,000 Daiwa Securities Co Ltd 403,075
19,000 Denso Corp 397,355
34,000 Ezaki Glico Co Ltd 242,413
173,000 Fuji Heavy Industries Ltd 850,275
16,000 Fuji Photo Film Co Ltd 499,359
304,000 Furukawa Electric Co Ltd* 1,087,900
302,000 Hitachi Ltd 1,970,767
163,000 Ishikawajima-Harima Heavy Industries 225,270
383,000 Isuzu Motors Ltd * 729,123
247,000 Itochu Corp 843,227
49,000 Itoham Foods Inc 200,018
12,000 Izumiya Co Ltd 60,077
37,000 JACCS Co 171,014
48 Japan Tobacco Inc 343,548
29,825 JFE Holdings Inc 753,405
272,000 Kajima Corp 950,979
75,000 Kamigumi Co Ltd 503,158
48,000 Kandenko Co 216,584
53,600 Kansai Electric Power Co Inc 971,334
72,000 Kansai Paint Co 342,010
31,000 Kao Corp 653,990
146 KDDI Corp 757,661
90,000 Kirin Brewery Co Ltd 820,428
46,000 Kyudenko Corp 189,456
29,400 Kyushu Electric Power Co Inc 511,796
31,000 Maeda Road Construction 172,506
297,000 Mazda Motor Corp 916,063
45 Millea Holdings Inc 576,606
1,000 Misawa Homes Holdings Inc * 1,528
241,000 Mitsubishi Electric Corp 1,155,812
240,000 Mitsubishi Motors Corp * 562,328
72,000 Mitsubishi Paper Mills Ltd * 110,049
107,000 Mitsui OSK Lines Ltd 513,161
20,000 Mitsui Trust Holding Inc * 89,694
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
825 Mizuho Financial Group Inc * 2,484,212
34,000 Mizuno Corp 149,991
10,000 MOS Food Services 104,887
9,000 Murata Manufacturing Co Ltd 500,000
59,000 Nagase & Co 417,957
175,000 NEC Corp 1,287,754
43,000 Nippo Corp 226,689
75,000 Nippon Express Co Ltd 411,175
34,000 Nippon Flour Mills Co Ltd 149,368
27,000 Nippon Paint Co 90,445
110,000 Nippon Suisan Kaisha Ltd 260,754
461,000 Nisshin Steel Co Ltd 797,446
36,000 Nisshinbo Industries Inc 190,774
17,000 Nitto Denko Corp 840,198
38,000 NOF Corp 138,074
48,000 Nomura Holdings Inc 762,219
296 NTT Docomo Inc 614,973
38,000 Okumura Corp 180,853
17,000 Ono Pharmaceutical Co Ltd 739,063
26,200 Promise Co 1,587,443
87 Rakuten Inc 446,705
10,200 Ryosan Co 191,378
96,000 Sankyo Co Ltd 2,077,979
66,000 Sanyo Electric Co Ltd 323,174
48,000 Seino Transportation Co Ltd 415,596
61,000 Sharp Corp 1,011,642
167,000 Shimizu Corp 745,891
128,000 Sumitomo Heavy Industries Ltd * 285,850
630,000 Sumitomo Metal Industries Ltd 593,904
149 Sumitomo Mitsui Financial Group Inc 829,142
150,000 Taiheiyo Cement Corp 380,286
230,000 Taisei Corp 799,927
53,000 Taisho Pharmaceutical Co Ltd 955,610
22,000 Takara Holdings Inc 191,287
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
100,700 Takeda Chemical Industries Ltd 4,147,446
11,500 Takefuji Corp 823,083
7,200 TDK Corp 502,142
30,000 TOA Corp 41,461
57,400 Tohoku Electric Power Co Inc 960,870
60,900 Tokyo Electric Power Co Inc 1,337,727
7,900 Tokyo Electron Ltd 476,487
96,000 TonenGeneral Sekiyu KK 770,566
51,000 Toppan Printing Co Ltd 597,007
199,000 Toshiba Corp 817,783
52,000 Toyo Ink Manufacturing Co Ltd 226,066
55,100 Toyota Motor Corp 1,901,217
176 UFJ Holdings Inc * 789,310
60 Yahoo Japan Corp * 1,103,789
20,000 Yamaha Corp 370,675
8,000 Yamanouchi Pharmaceutical Co Ltd 267,985
25,000 Yaskawa Electric Corp * 177,787
46,000 Yodogawa Steel Works 158,722
---------------
63,515,127
---------------
MALAYSIA -- 0.1%
35,000 Maxis Communications Berhad 79,671
316,000 Time Engineering BHD * 88,979
---------------
168,650
---------------
MEXICO -- 0.2%
4,500 America Movil SA de CV Class L ADR 160,470
22,000 Cemex SA de CV CPO 129,242
5,900 Telefonos de Mexico Class L ADR 200,423
---------------
490,135
---------------
NETHERLANDS -- 4.7%
134,341 ABN Amro Holdings NV 3,103,019
84,447 Aegon NV 1,249,661
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
NETHERLANDS -- CONTINUED
4,187 Boskalis Westminster NV 95,723
14,782 DSM NV 699,952
2,671 Gamma Holdings NV 130,260
223,370 ING Groep NV 5,461,933
142,553 Koninklijke Ahold NV * 1,184,947
2,003 Koninklijke Ten Cate 100,793
14,669 Koninklijke Wessanen NV 198,666
38,105 Philips Electronics NV 1,157,597
4,088 Van Ommeren Vopak NV 78,628
3,536 Wereldhave NV 293,704
---------------
13,754,883
---------------
NEW ZEALAND -- 0.1%
15,459 Fletcher Building Ltd 43,448
100,102 Telecom Corp of New Zealand 393,192
---------------
436,640
---------------
NORWAY -- 3.1%
29,786 Aker Kvaerner ASA * 594,497
229,786 DNB Holdings Class A 1,449,332
22,908 Frontline Ltd 732,202
33,675 Norsk Hydro ASA 2,418,188
25,675 Norske Skogindustrier ASA Class A 523,388
53,044 Orkla ASA 1,507,050
107,200 Statoil ASA 1,271,577
90,400 Telenor ASA 621,549
---------------
9,117,783
---------------
PHILIPPINES -- 0.1%
7,740 Philippine Long Distance Telephone * 133,306
33,000 San Miguel Corp Class B 41,016
---------------
174,322
---------------
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
POLAND -- 0.0%
2,200 BRE Bank SA * 53,157
13,300 Polski Koncern Naftowy Orlen 96,407
---------------
149,564
---------------
RUSSIA -- 0.2%
2,850 Lukoil ADR 319,200
2,590 MMC Norilsk Nickel ADR 183,243
100 Yukos Corp ADR 5,070
---------------
507,513
---------------
SINGAPORE -- 2.3%
788,000 Chartered Semiconductor Manufacturing Ltd * 791,588
27,400 Creative Technology Ltd 288,125
109,000 DBS Group Holdings Ltd 941,284
57,500 Fraser & Neave Ltd 479,659
124,780 Interra Resources Ltd * 14,661
41,000 Keppel Corp Ltd 175,826
479,000 Neptune Orient Lines Ltd * 590,924
135,000 Oversea-Chinese Banking Corp 1,007,196
1,395,100 Singapore Telecom Ltd 1,909,580
33,000 Venture Corp Ltd 416,801
---------------
6,615,644
---------------
SOUTH AFRICA -- 0.3%
16,771 ABSA Group Ltd 117,724
21,278 Iscor Ltd 110,045
15,000 Remgro Ltd 165,188
99,900 Sanlam Ltd 137,425
10,000 Sasol Ltd 150,041
5,000 Tiger Brands Ltd 62,166
---------------
742,589
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA -- 1.0%
10,300 Hana Bank 223,342
1,100 Hankuk Electric Glass Co Ltd 55,094
8,000 Hyundai Department Store Co Ltd 95,918
3,500 Hyundai Fire & Marine Insurance Co 117,708
2,900 Hyundai Mobis 130,697
4,600 Hyundai Motor Co 195,578
6,420 Kangwon Land Inc 76,702
13,000 KIA Motors Corp 120,493
21,700 LG Insurance Co Ltd 106,470
9,580 LG International Corp 61,912
1,400 POSCO 205,952
2,190 Samsung Electronics 1,014,923
1,500 Samsung SDI Co Ltd 207,908
6,100 SK Corp 226,416
700 SK Telecom Co Ltd 141,667
3,100 Sungshin Cement Co Ltd 50,744
---------------
3,031,524
---------------
SPAIN -- 3.4%
30,971 Altadis SA 996,670
500 Antena 3 Television SA * 22,266
70,504 Banco Santander Central Hispano SA 816,443
88,178 Endesa SA 1,725,588
39,664 Iberdrola SA 818,090
165,704 Repsol YPF SA 3,397,139
8,620 Tableros Defibras Class B * 11,567
128,848 Telefonica SA 2,092,424
---------------
9,880,187
---------------
SWEDEN -- 2.4%
29,400 Electrolux AB 620,053
19,400 Gambro AB Class A 164,182
232,800 Nordea AB 1,610,542
25,500 Skanska AB Class B 210,667
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SWEDEN -- CONTINUED
4,100 SSAB Swedish Steel Class B 71,324
5,500 Svenska Handelsbanken Class B 102,697
119,500 Swedish Match AB 1,139,746
1,050,400 Telefonaktiebolaget LM Ericsson * 3,061,938
---------------
6,981,149
---------------
SWITZERLAND -- 4.3%
6,497 Bobst Group AG (Registered) 232,757
94,076 Credit Suisse Group 3,422,158
7,020 Micronas Semiconductor Holding AG * 344,906
263 Movenpick Holdings (Bearer) * 164,627
41,414 Roche Holding AG (Genusschein) 4,271,670
955 SIG Holding AG (Registered) 142,116
5,659 Swisscom AG (Registered) 1,882,546
7,196 UBS AG (Registered) 528,630
886 Valora Holding AG 230,560
8,199 Zurich Financial Services AG * 1,342,775
---------------
12,562,745
---------------
TAIWAN -- 0.6%
105,338 Acer Inc 165,800
122,000 Benq Corp 167,885
305,000 China Development Financial Holding Corp 170,079
55,000 China Motor Corp Ltd 110,478
123,089 China Steel Corp 125,469
38,650 GigaByte Technology Co Ltd 73,001
33,000 Hon Hai Precision Industry Co Ltd 146,425
131,220 Inventec Co Ltd 86,549
5,800 MediaTek Inc 65,729
65,468 Micro-Star International Co Ltd 107,952
45,900 Quanta Computer Inc 116,281
170,000 Taiwan Cement Corp 101,934
81,000 Taiwan Semiconductor Manufacturing Co Ltd * 154,205
4,536 Taiwan Semiconductor Manufacturing Co Ltd ADR * 47,129
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
114,370 United Microelectronics Corp * 104,238
337,000 Waterland Financial Holdings * 123,262
---------------
1,866,416
---------------
THAILAND -- 0.2%
43,000 Advanced Info Service Pcl (Foreign Registered) (a) 95,215
56,600 Electricity Generating Pcl (Foreign Registered) 114,525
61,200 Kiatnakin Finance & Securities (Foreign Registered) (a) 70,484
50,600 PTT Public Pcl (Foreign Registered) (a) 207,345
5,000 Ratchaburi Electricity Generating Holding Pcl (Foreign Registered) (a) 5,090
68,000 Thai Union Frozen Products Pcl (Foreign Registered) 46,729
3,000 TPI Polene Co (Foreign Registered) *(a) 2,863
---------------
542,251
---------------
TURKEY -- 0.3%
28,177,643 Akbank TAS 147,466
8,139,450 Aksa Akrilik Kimya Sanayii 83,969
45,859,198 Aksigorta AS 158,850
4,859,669 Eregli Demir ve Celik Fabrikalari TAS * 151,865
39,605,905 Turkiye Garanti Bankasi Class C * 142,408
29,319,487 Turkiye IS Bankasi Class C * 132,468
---------------
817,026
---------------
UNITED KINGDOM -- 21.8%
102,229 Abbey National Plc 920,125
25,593 Alliance & Leicester Plc 412,498
106,800 Allied Domecq Plc 896,357
48,700 AstraZeneca Plc 2,306,433
348,513 Aviva Plc 3,647,785
39,067 AWG Plc * 405,278
56,634 BAA Plc 551,782
286,550 BAE Systems Plc 1,011,711
541,982 Barclays Plc 4,865,607
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
111,020 Barratt Developments Plc 1,142,441
122,883 Boots Group Plc 1,693,244
143,983 BP Plc 1,156,324
544,446 BT Group Plc 1,785,852
420,089 Cable & Wireless * 1,093,391
176,192 Centrica Plc 701,366
896,432 Corus Group Plc * 748,619
13,100 De Vere Group Plc 101,985
334,466 Dixons Group Plc (New Shares) 983,813
22,980 Enterprise Inns Plc 259,929
30,906 Gallaher Group Plc 378,545
100,844 GlaxoSmithKline Plc 2,097,910
45,849 Great Portland Estates Plc 211,866
70,629 GUS Plc 958,146
28,362 HBOS Plc 384,493
57,699 HSBC Holdings Plc 937,466
164,360 Imperial Chemical Industries Plc 718,320
81,632 Imperial Tobacco Group Plc 1,755,800
26,429 Inchcape Plc 745,513
61,038 Intercontinental Hotels Group Plc 589,026
294,820 ITV Plc * 757,771
7,793 ITV Plc (Convertible Shares) * 11,642
100,619 Kelda Group Plc 832,810
135,937 Kingfisher Plc 755,554
40,363 Laird Group 217,226
34,487 Land Securities Group Plc 705,291
542,723 Lloyds TSB Group Plc 4,509,672
109,683 LogicaCMG Plc 622,862
45,253 Mitchells & Butlers Plc 199,454
127,195 National Grid Transco Plc 1,017,369
49,343 Next Plc 1,273,749
51,932 Provident Financial Plc 717,515
90,498 RMC Group Plc 1,163,867
325,212 Rolls-Royce Group Plc 1,327,763
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
720,908 Royal & Sun Alliance Insurance Group 1,381,342
117,981 Sainsbury (J) Plc 655,205
48,558 Scottish & Newcastle Plc 382,984
93,533 Scottish & Southern Energy Plc 1,188,145
133,153 Scottish Power Plc 905,641
48,832 Severn Trent Plc 671,512
145,230 Tate & Lyle Plc 778,907
255,417 Taylor Woodrow Plc 1,282,178
465,953 Tesco Plc 2,226,643
63,318 United Business Media Plc 650,393
32,700 United Utilities Plc 306,458
1,458,326 Vodafone Group Plc 3,633,290
56,997 Whitbread Plc 781,678
141,283 Wimpey (George) 1,011,409
---------------
63,429,955
---------------
TOTAL COMMON STOCKS (COST $239,779,978) 281,867,265
---------------
PREFERRED STOCKS -- 1.4%
BRAZIL -- 0.5%
1,424,000 Banco Itau Holding Financeira SA 136,895
20,834,000 Cia Paranaense de Energia * 77,971
2,000 Compania Vale do Rio Doce Class A 100,258
6,906 Gerdau SA 147,723
136,663 Investimentos Itau SA 2.68% 164,230
12,181 Petroleo Brasileiro SA (Petrobras) 3.01% 342,950
67,401 Sadia SA 99,510
37,210,000 Tele Centro Oeste Celular Participacoes SA 6.78% 125,843
25,300 Usinas Siderrurgicas de Minas Gerais SA 4.57% 288,833
---------------
1,484,213
---------------
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
GERMANY -- 0.8%
2,000 Krones AG 2.00% 170,223
800 Porsche AG (Non Voting) 0.83% 465,888
4,991 RWE AG 4.35% 188,210
24,807 Villeroy & Boch AG (Non Voting) 5.78% 274,322
33,240 Volkswagen AG 5.30% 1,065,558
---------------
2,164,201
---------------
ITALY -- 0.0%
11,419 Fiat SPA 4.95% * 53,631
---------------
SOUTH KOREA -- 0.1%
4,200 Hyundai Motor Co 5.05% 86,607
1,100 Samsung Electronics (Non Voting) 4.08% 304,932
---------------
391,539
---------------
TOTAL PREFERRED STOCKS (COST $3,183,604) 4,093,584
---------------
SHORT-TERM INVESTMENTS -- 0.2%
CASH EQUIVALENTS -- 0.2%
700,000 Banc One Corp, 1.01%, due 3/01/04 700,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $700,000) 700,000
---------------
TOTAL INVESTMENTS -- 98.4%
(Cost $243,663,582) 286,660,849
Other Assets and Liabilities (net) -- 1.6% 4,699,440
---------------
TOTAL NET ASSETS -- 100.0% $ 291,360,289
===============
</Table>
See accompanying notes to the financial statements.
17
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
NOTES TO SCHEDULE OF INVESTMENTS:
* 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
2).
(b) Bankrupt issuer.
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
Foreign Registered - Shares issued to foreign investors in
markets that have foreign ownership limits.
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
See accompanying notes to the financial statements.
18
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
----------------------------------------------------------------
Financials 26.7%
Consumer Discretionary 12.4
Utilities 8.9
Energy 8.3
Industrials 8.3
Information Technology 7.8
Telecommunication Services 7.7
Consumer Staples 7.1
Health Care 7.0
Materials 5.8
------
100.0%
======
</Table>
See accompanying notes to the financial statements.
19
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $243,663,582) (Note 2) $ 286,660,849
Cash 45,131
Foreign currency, at value (cost $4,460,487) (Note 2) 4,465,226
Dividends and interest receivable 340,010
Foreign taxes receivable 77,763
Receivable for variation margin on closed futures contracts (Note 2) 4
Receivable for expenses reimbursed by Manager (Note 3) 29,877
---------------
Total assets 291,618,860
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 122,138
Shareholder service fee 33,927
Trustees fee 380
Accrued expenses 102,126
---------------
Total liabilities 258,571
---------------
NET ASSETS $ 291,360,289
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 260,696,512
Accumulated undistributed net investment income 488,640
Accumulated net realized loss (12,835,302)
Net unrealized appreciation 43,010,439
---------------
$ 291,360,289
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 291,360,289
===============
SHARES OUTSTANDING:
Class III 22,096,725
===============
NET ASSET VALUE PER SHARE:
Class III $ 13.19
===============
</Table>
See accompanying notes to the financial statements.
20
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $461,414) $ 3,654,001
Interest 50,795
---------------
Total income 3,704,796
---------------
EXPENSES:
Management fee (Note 3) 780,818
Shareholder service fee (Note 3) - Class III 216,894
Custodian fees 283,849
Transfer agent fees 27,815
Audit and tax fees 46,374
Legal fees 6,302
Trustees fees and related expenses (Note 3) 2,932
Registration fees 7,659
Miscellaneous 3,078
---------------
Total expenses 1,375,721
Fees and expenses reimbursed by Manager (Note 3) (372,823)
---------------
Net expenses 1,002,898
---------------
Net investment income 2,701,898
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments (net of CPMF tax of $1,150) (Note 2) 1,364,358
Closed futures contracts 221,220
Foreign currency, forward contracts and foreign currency related transactions 1,446,042
---------------
Net realized gain 3,031,620
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 56,329,313
Foreign currency, forward contracts and foreign currency related transactions (462,858)
---------------
Net unrealized gain 55,866,455
---------------
Net realized and unrealized gain 58,898,075
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 61,599,973
===============
</Table>
See accompanying notes to the financial statements.
21
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,701,898 $ 1,740,563
Net realized gain (loss) 3,031,620 (3,068,842)
Change in net unrealized appreciation (depreciation) 55,866,455 (6,184,656)
-------------- --------------
Net increase (decrease) in net assets from operations 61,599,973 (7,512,935)
-------------- --------------
Distributions to shareholders from:
Net investment income
Class III (3,864,362) (2,648,333)
-------------- --------------
Net share transactions (Note 7):
Class III 138,915,936 29,583,367
-------------- --------------
Increase in net assets resulting from net share transactions 138,915,936 29,583,367
-------------- --------------
Total increase in net assets 196,651,547 19,422,099
NET ASSETS:
Beginning of period 94,708,742 75,286,643
-------------- --------------
End of period (including accumulated undistributed net investment
income of $488,640 and $122,674, respectively) $ 291,360,289 $ 94,708,742
============== ==============
</Table>
See accompanying notes to the financial statements.
22
<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>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.73 $ 9.70 $ 10.79 $ 10.43 $ 9.71
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (b) 0.21 0.19 0.25 0.23 0.15
Net realized and unrealized gain (loss) 4.55 (0.90) (1.03) 0.29 0.70
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.76 (0.71) (0.78) 0.52 0.85
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.30) (0.26) (0.31) (0.16) (0.13)
---------- ---------- ---------- ---------- ----------
Total distributions (0.30) (0.26) (0.31) (0.16) (0.13)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.19 $ 8.73 $ 9.70 $ 10.79 $ 10.43
========== ========== ========== ========== ==========
TOTAL RETURN (a) 54.99% (7.47)% (7.16)% 5.03% 8.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 291,360 $ 94,709 $ 75,287 $ 75,538 $ 112,623
Net expenses to average daily net assets 0.69% 0.70% 0.69% 0.69% 0.69%
Net investment income to average daily net assets 1.87% 1.98% 2.49% 2.11% 1.36%
Portfolio turnover rate 36% 48% 50% 56% 5%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.26% 0.45% 0.41% 0.34% 0.34%
</Table>
(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 TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Tax-Managed International Equities Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund
24
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
be valued using fair value prices supplied by an independent pricing
service to the extent that such prices are available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
gains and losses on disposition of 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
February 29, 2004.
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
25
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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.
26
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap contracts 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 February 29, 2004, 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
February 29, 2004, 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.
27
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. The Fund is subject to a
Contribuicao Provisoria sobre Movimentacoes Financiera ("CPMF") tax which
is applied to foreign exchange transactions representing capital inflows or
outflows to the Brazilian market. The CPMF tax has been included in the net
realized gain (loss) on investments at year end.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis for distributions from ordinary income was $3,864,362 and
$2,648,333, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $1,578,031 of undistributed ordinary income. The
temporary differences between book and tax basis distributable earnings are
primarily due to foreign currency transactions.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code,
of $667,336, $6,951,109, and $4,807,000 expiring in 2009, 2010 and 2011,
respectively. The Fund has elected to defer to March 1, 2004 post-October
capital losses of $322,816.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED
UNDISTRIBUTED NET ACCUMULATED NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- --------------- ---------------
$ 1,528,430 $ (1,528,431) $ 1
</Table>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
28
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
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.
3. 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 .54% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $1,810. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
29
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the February 29, 2004, aggregated $186,606,675
and $50,671,529, respectively. At February 29, 2004, 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
---------------- ------------------ ------------------ ----------------
$ 244,823,413 $ 44,536,137 $ (2,698,701) $ 41,837,436
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 58.9% 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. At February 29, 2004, 1.15% of the Fund was
held by two related parties.
30
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
--------------------------- ---------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
---------- -------------- ---------- --------------
Shares sold 12,008,797 $ 146,663,950 3,123,659 $ 29,900,170
Shares issued to shareholders
in reinvestment of distributions 200,502 2,362,450 194,117 1,784,356
Shares repurchased (963,205) (10,110,464) (229,938) (2,101,159)
---------- -------------- ---------- --------------
Net increase 11,246,094 $ 138,915,936 3,087,838 $ 29,583,367
========== ============== ========== ==============
</Table>
31
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Tax-Managed International
Equities Fund (the "Fund") (a series of GMO Trust) at February 29, 2004, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
32
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of
$461,414 and recognized foreign source income of $4,115,415.
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 82.58% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
33
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory Counsel,
Glazer, Esq. December 2000 Goodwin Procter 41 None
c/o GMO Trust LLP; Secretary
40 Rowes Wharf and Consultant,
Boston, MA 02110 Provant, Inc.
DOB: 07/26/1944 (provider of
performance
improvement
training services
and products)(1998
- present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
34
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- ---------------- ------------------- ----------------- -------------- ---------------
R. Jeremy Chairman of the Since September Chairman,
Grantham(3) Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
35
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ -------------------- --------------------- -------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997 - present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van Otterloo
40 Rowes Wharf Secretary since March & Co. LLC (June 1999 -
Boston, MA 02110 2001. present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
36
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Active Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Foreign Fund returned +52.8% for the fiscal year
ended February 29, 2004, as compared to +53.6% for the MSCI EAFE Index.
Consistent with the Fund's investment objectives and policies, the Fund was
invested substantially in international equity securities throughout the fiscal
year.
Stock selection subtracted 3.0% from returns for the fiscal year. Stock
selection was negative in Japan, Norway, Finland, and Sweden. Stock selection
was positive in the Netherlands, Australia, and Hong Kong.
Country selection added 2.2% to performance for the fiscal year. The largest
positive contributions to country selection came from overweight positions in
Germany and Norway, which added 1.1% and 0.6%, respectively. An underweight
position in Japan added an additional 0.3% to returns.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
FOREIGN FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO FOREIGN FUND MSCI EAFE INDEX
2/28/1994 35,000,000 35,000,000 35,000,000
3/31/1994 33,893,300 33,492,515 35,000,000
6/30/1994 34,506,045 35,203,700 35,000,000
9/30/1994 35,343,140 35,237,790 35,000,000
12/31/1994 34,756,225 34,878,305 35,000,000
3/31/1995 34,491,485 35,528,010 35,000,000
6/30/1995 36,708,350 35,785,960 35,000,000
9/30/1995 38,816,960 37,277,870 35,000,000
12/31/1995 39,570,265 38,787,385 35,000,000
3/31/1996 40,706,225 39,908,155 35,000,000
6/30/1996 42,209,545 40,539,590 35,000,000
9/30/1996 42,293,965 40,488,735 35,000,000
12/31/1996 45,236,345 41,132,875 35,000,000
3/31/1997 45,661,490 40,488,630 35,000,000
6/30/1997 51,145,955 45,742,970 35,000,000
9/30/1997 53,192,755 45,420,900 35,000,000
12/31/1997 48,340,530 41,864,200 35,000,000
3/31/1998 54,632,620 48,022,415 35,000,000
6/30/1998 54,111,890 48,532,260 35,000,000
9/30/1998 47,121,760 41,633,935 35,000,000
12/31/1998 55,084,575 50,235,745 35,000,000
3/31/1999 55,263,425 50,934,625 35,000,000
6/30/1999 60,226,390 52,228,925 35,000,000
9/30/1999 63,407,575 54,521,075 35,000,000
12/31/1999 71,039,185 63,781,515 35,000,000
3/31/2000 68,719,945 63,714,455 35,000,000
6/30/2000 68,518,275 61,190,325 35,000,000
9/30/2000 64,846,985 56,254,485 35,000,000
12/31/2000 66,398,325 54,744,970 35,000,000
3/31/2001 60,536,245 47,240,725 35,000,000
6/30/2001 62,567,680 46,747,155 35,000,000
9/30/2001 54,698,175 40,202,575 35,000,000
12/31/2001 59,695,405 43,006,180 35,000,000
3/31/2002 62,128,325 43,224,860 35,000,000
6/30/2002 63,849,170 42,308,700 35,000,000
9/30/2002 53,474,190 33,959,590 35,000,000
12/31/2002 56,270,025 36,151,010 35,000,000
3/31/2003 52,945,795 33,181,750 35,000,000
6/30/2003 62,918,450 39,575,410 35,000,000
9/30/2003 67,924,255 42,791,910 35,000,000
12/31/2003 79,278,255 50,100,155 35,000,000
2/29/2004 82,173,420 51,981,475 35,000,000
</Table>
Average Annual Returns
Inception 8/31/1984
<Table>
<Caption>
1YR 5YR 10YR(ITD)
52.76 9.25 8.91
</Table>
FOREIGN FUND-II
As Of: 2/29/2004
Average Annual Returns
Inception 9/30/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
52.49 9.17 9.29
</Table>
FOREIGN FUND-IV
As Of: 2/29/2004
AVerage Annual Returns
Inception 1/9/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
52.84 9.32 9.47
</Table>
FOREIGN FUND-CLASS M
As Of: 2/29/2004
Average Annual Returns
Inception 1/25/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
52.1 N/A 17.17
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. The Fund commenced operations on June 28, 1996
subsequent to a transaction involving, in essence, the reorganization of the GMO
International Equities Pool of the Common Fund for Non-Profit Organizations (the
"GMO Pool") as the Foreign Fund. All information relating to the time periods
prior to June 28, 1996 relates to the GMO Pool. Performance for Classes II, IV
and M may vary due to different shareholder servicing fees. Past performance is
not indicative of future performance. Information is unaudited. Current
performance of the Fund may be lower or higher than the performance quoted.
Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 93.2%
AUSTRALIA -- 2.4%
2,217,930 Amcor Ltd 13,193,690
1,414,200 AMP Ltd 5,346,517
12,673 Batvia Mining Ltd * 1,222
392,400 Brambles Industries Ltd 1,607,636
530,700 Commonwealth Bank of Australia 12,971,743
855,418 Foodland Associated 13,417,754
2,135,000 Foster's Group Ltd 7,198,523
4,218,080 John Fairfax Holdings Ltd 11,032,618
824,550 Lihir Gold Ltd 706,162
76,000 Lihir Gold Ltd ADR 144A * 1,314,800
171,700 National Australia Bank Ltd 4,093,482
10,946,321 Pasminco Ltd *(a) --
577,300 Sons of Gwalia Ltd * 1,411,968
1,226,727 Westpac Banking Corp 15,948,209
769,320 Woolworths Ltd 6,962,563
---------------
95,206,887
---------------
AUSTRIA -- 0.6%
49,785 Erste Bank Der Oesterreichischen Sparkassen AG 6,952,824
24,410 Flughafen Wien AG 1,349,659
37,070 OMV AG 5,976,217
406,120 Telekom Austria AG * 5,878,638
26,424 VA Technologie AG (Bearer) * 1,074,257
117,410 Wienerberger AG 3,705,401
---------------
24,936,996
---------------
BELGIUM -- 1.4%
68,534 Almanij NV 4,180,185
25,192 CIE Francois d' Entreprises 6,166,309
355,520 Dexia 6,590,665
31,893 Electrabel SA 10,560,609
153,095 Fortis 3,540,004
43,735 Groupe Bruxelles Lambert SA 2,613,789
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
BELGIUM -- CONTINUED
225,760 KBC Bancassurance Holding 12,892,093
60,242 Solvay SA 5,089,847
83,779 UCB SA 3,099,961
---------------
54,733,462
---------------
BRAZIL -- 0.4%
533,600 Cia de Concessoes Rodoviarias 4,479,492
108,700,000 Electrobas (Centro) 1,216,694
66,800 Unibanco-Uniao de Bancos Brasileiros SA GDR 1,519,700
257,100 Votorantim Celulose e Papel SA ADR 8,741,400
---------------
15,957,286
---------------
CANADA -- 0.4%
1,418,900 Hudson's Bay Co 13,789,794
220,100 KAP Resources Ltd *(a) 1,640
190,600 Methanex Corp 2,166,313
---------------
15,957,747
---------------
CHILE -- 0.1%
122,500 CorpBanca SA ADR 144A 3,322,555
---------------
CHINA -- 0.6%
4,108,500 China Mobile Ltd 14,462,368
3,923,230 Shanghai Industrial Holdings Ltd 10,282,044
---------------
24,744,412
---------------
FINLAND -- 2.6%
1,429,400 Huhtamaki Oyj 18,470,707
136,100 Jaakko Poyry Group 3,737,204
2,108,100 Nokia Oyj 46,178,510
621,400 Rapala VMC Oyj * 4,671,141
118,400 Stockmann Oyj AB Class A 2,758,350
348,400 Stockmann Oyj AB Class B 8,159,920
539,800 Uponor Oyj 17,974,800
---------------
101,950,632
---------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
FRANCE -- 4.9%
38,960 Accor SA 1,709,279
203,700 Arcelor 3,723,061
99,740 Assurances Generales de France 6,407,023
377,340 Axa 8,664,255
93,105 BIC SA 4,024,610
310,271 BNP Paribas 19,603,271
6,082 Cap Gemini SA * 252,098
25,010 Casino Guichard Perrachon SA 2,479,779
33,520 Christian Dior SA 2,284,426
198,260 Cie de Saint-Gobain 10,407,783
157,617 Credit Agricole SA 4,053,870
250,300 France Telecom SA * 6,894,820
45,638 Group Danone 7,955,742
15,875 Guyenne et Gascogne SA 1,841,300
20,198 Imerys SA 4,424,427
21,678 Lafarge SA 1,866,590
137,866 Lagardere S.C.A. 8,350,802
71,300 M6-Metropole Television 2,172,233
138,404 Michelin SA Class B 6,672,318
25,783 Pernod Ricard 3,163,494
220,092 Peugeot SA 10,952,246
61,800 Publicis Groupe 2,136,200
86,064 Schneider Electric SA 5,720,997
1,194,920 Suez SA 26,531,376
23,110 Technip SA 3,215,988
92,614 Thales SA 3,523,532
174,757 Total SA 31,918,929
98,431 Wendel Investissement 4,878,568
23,331 Worms et Cie SA 602,966
---------------
196,431,983
---------------
GERMANY -- 9.5%
60,530 Aareal Bank AG 1,857,651
241,120 Adidas-Salomon AG 27,202,917
228,881 Allianz AG (Registered) 28,552,218
477,500 BASF AG 25,392,972
363,110 Commerzbank AG 7,038,161
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
1,289,020 Continental AG 52,853,043
1,049,417 DaimlerChrysler AG (Registered) 47,070,812
63,030 Depfa Bank Plc 9,867,662
1,656,370 Deutsche Lufthansa AG 29,635,772
2,279,223 Deutsche Telekom (Registered) * 44,631,289
132,900 E. On AG 8,974,720
322,750 Fraport AG * 9,684,558
146,748 Fresenius Medical Care AG 9,836,940
238,140 K&S AG 7,752,290
36,310 Koelnische Rueckversicherungs-Gesellschaft AG (New Shares) * 3,338,523
117,410 Koelnische Rueckversicherungs-Gesellschaft AG (Registered) * 10,723,780
101,490 MG Technologies AG 1,538,436
87,014 Muenchener Rueckversicherungs AG (Registered) 10,162,800
89,770 Repower Systems AG 2,303,285
61,000 Rheinmetall AG 2,122,190
148,600 Schering AG 7,348,493
947,300 ThyssenKrupp AG 18,279,124
262,800 Volkswagen AG 12,440,755
---------------
378,608,391
---------------
GREECE -- 0.1%
117,800 Greek Organization of Football Prognostics SA 2,177,934
---------------
HONG KONG -- 2.9%
964,400 Dah Sing Financial Services 7,464,828
9,915,430 Hang Lung Group Co Ltd 15,604,619
8,147,420 Hang Lung Properties Ltd 11,775,468
5,344,000 Hong Kong Land Holdings 10,153,600
5,761,000 Hopewell Highway Infrastructure Ltd 3,552,586
4,252,000 Hysan Development Co Ltd 8,002,698
2,412,573 Jardine Strategic Holdings Ltd 11,773,356
1,017,740 Swire Pacific Ltd Class A 7,191,261
10,731,290 Swire Pacific Ltd Class B 12,476,882
3,510,000 Wharf Holdings Ltd 10,957,688
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
HONG KONG -- CONTINUED
8,444,000 Wheelock and Co Ltd 11,770,191
2,173,000 Yue Yuen Industrial Holdings 6,281,275
---------------
117,004,452
---------------
INDIA -- 1.1%
416,217 Bharat Petrol Corp 4,270,284
100,000 Corporation Bank 555,543
135,100 Gail India Ltd GDR 144A 3,685,528
60,000 Hindalco Industries Ltd 1,658,074
228,700 Hindalco Industries Ltd GDR 144A 6,925,036
850,000 ICICI Bank Ltd 5,111,087
349,000 ITC Ltd GDR 9,660,320
3,151,500 Mirc Electronics Ltd 1,905,461
218,945 Reliance Industries Ltd GDR 144A 6,423,846
483,333 Satyam Computer Services Ltd 3,312,330
---------------
43,507,509
---------------
INDONESIA -- 0.5%
9,523,915 Astra International Tbk 6,082,690
6,183,000 Bank Rakyat Indonesia * 1,133,489
7,677,000 Indocement Tunggal Prakarsa * 2,156,461
38,700 Indonesian Satellite Corp Tbk PT ADR 834,372
2,402,500 Indonesian Satellite Corp Tbk PT Class A * 5,185,763
32,788,000 PT Bank Mandiri 5,429,119
---------------
20,821,894
---------------
IRELAND -- 1.4%
1,624,753 Allied Irish Banks Plc 24,669,193
1,689,670 Bank of Ireland 22,106,840
141,122 CRH Plc 2,945,781
400,000 Grafton Group Plc (New Units) * 2,982,000
200,000 Irish Life & Permanent Plc 3,255,350
---------------
55,959,164
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
ITALY -- 4.0%
628,600 Alleanza Assicurazioni SPA 7,380,785
211,131 Assicurazioni Generali SPA 5,705,683
1,058,431 Banca Intesa SPA 3,932,151
790,023 Banca Intesa SPA (Savings Shares) 2,242,964
680,524 Banca Monte dei Paschi di Siena SPA 2,219,572
276,039 Banca Nazionale Del Lavoro SPA * 720,255
206,054 Buzzi Unicem SPA 2,498,776
1,247,760 CIR-Compagnie Industriali Riunite SPA 2,480,547
178,447 Danieli and Co SPA (Savings Shares) 354,753
1,939,257 Edison SPA * 3,592,604
1,561,635 Enel SPA 12,068,862
1,983,321 ENI SPA 38,861,638
47,647 Ericsson SPA 1,542,196
640,410 Fiat SPA * 4,941,356
179,346 Grouppo Editoriale L'Espresso 1,109,730
382,970 Italcementi SPA 3,007,310
58,000 Pagnossin SPA * 93,612
539,071 RAS SPA 9,792,413
129,452 Sanpaolo IMI SPA 1,664,737
568,000 Snam Rete Gas SPA 2,625,353
1,017,900 Telecom Italia Mobile SPA 5,754,570
841,906 Telecom Italia Mobile SPA (Savings Shares) 4,696,846
5,335,098 Telecom Italia SPA * 16,771,014
7,722,676 Telecom Italia SPA (Savings Shares)* 17,127,833
1,268,782 UniCredito Italiano SPA 6,684,197
---------------
157,869,757
---------------
JAPAN -- 20.7%
152,200 Acom Co Ltd 9,165,989
553,900 Aeon Co Ltd 20,126,149
622,700 Aisin Seiki Co Ltd 10,441,025
619,000 Ajinomoto Co Inc 6,747,474
395,000 Alps Electric Co Ltd 5,158,933
237,883 Arisawa Manufacturing 8,164,573
540,900 Bandai Co 12,302,183
804,000 Bank of Fukuoka Ltd 3,252,499
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
928,000 Canon Inc 45,270,364
1,019,500 Chubu Electric Power Co Inc 21,787,777
888,000 Daikin Industries Ltd 19,505,766
1,244,000 Daimaru Inc 7,867,509
1,719,000 Daiwa Securities Co Ltd 11,548,105
1,027,500 Denso Corp 21,488,537
3,905 East Japan Railway Co 18,227,622
415,600 Eisai Co Ltd 11,278,180
125,000 Fanuc Ltd 7,848,252
464,400 Fuji Photo Film Co Ltd 14,493,904
746,000 Fujikura Ltd 3,625,535
1,051,200 Honda Motor Co Ltd 45,796,376
111,000 Isetan Co Ltd 1,273,970
2,303,000 Itochu Corp 7,862,154
823,900 JFE Holdings Inc 20,812,411
146,000 Kajima Corp 510,452
892,000 Kaneka Corp 7,666,008
1,101,000 Kao Corp 23,227,210
4,439 KDDI Corp 23,035,997
1,163,000 Komatsu Ltd 7,067,838
1,702,000 Konica Minolta Holdings Inc 19,534,212
62,800 Kose Corp 2,103,679
589,100 Marui Co Ltd 8,680,679
2,111,000 Mitsubishi Corp 20,827,915
4,471,000 Mitsubishi Electric Corp 21,442,468
1,574,000 Mitsubishi Rayon Co Ltd 5,459,876
2,539 Mitsubishi Tokyo Finance Group Inc 19,520,044
897,000 Mitsui Fudosan Co Ltd 9,556,178
1,959,000 Mitsui Mining & Smelting Co Ltd 7,781,494
1,030,000 Mitsui OSK Lines Ltd 4,939,777
88,800 Namco Ltd 2,186,271
154,700 NEC Electronics Corp * 9,769,632
1,407,000 Nippon Express Co Ltd 7,713,646
1,796,000 Nippon Mining Holdings Inc 6,262,823
2,710,200 Nissan Motor Co 30,088,528
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
227,300 Nissin Food Products 5,575,362
1,535,000 NTN Corp 6,954,283
5,689 NTT Docomo Inc 11,819,541
672,600 Omron Corp 14,620,401
134,000 ORIX Corp 12,325,645
1,225,000 Ricoh Company Ltd 24,778,052
199,000 Rinnai Corp 4,954,055
1,681,000 Sanyo Electric Co Ltd 8,231,146
117,000 Seino Transportation Co Ltd 1,013,015
542,000 Sekisui House Ltd 5,168,991
1,226,000 Sharp Corp 20,332,345
432,700 Showa Corp 3,904,834
259,000 Sompo Japan Insurance Inc 2,197,446
1,435,000 Sumitomo Electric Industries Ltd 12,306,379
1,948 Sumitomo Mitsui Financial Group Inc 10,840,051
1,111,000 Sumitomo Trust & Banking 5,979,023
1,555,000 Taisei Corp 5,408,201
345,500 Takeda Chemical Industries Ltd 14,229,819
387,500 Tokyo Broadcasting System Inc 6,281,004
3,164,000 Tokyo Gas Co 11,757,130
1,693,000 Toray Industries Inc 6,445,982
255,640 Tostem Inax Holding Corp 4,527,397
701,000 Toto Ltd 6,107,926
525,000 Ushio Inc 9,047,913
1,733 Vodafone 3,981,173
1,515 West Japan Railway Co 5,504,805
402,500 Yamaha Corp 7,459,843
215,000 Yamanouchi Pharmaceutical Co Ltd 7,202,087
507,000 Yokogawa Electric Corp 6,881,576
850,000 Zeon Corp 6,060,315
---------------
823,315,754
---------------
MALAYSIA -- 0.2%
1,020,000 Malaysian International Shipping (Foreign Registered) 3,489,474
1,547,400 Perusahaan Otomobil Nasional 3,929,582
---------------
7,419,056
---------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
MEXICO -- 0.1%
600,000 Alfa SA de CV Class A 2,223,327
1,909,700 Grupo Financiero BBVA Bancomer SA Class B * 2,048,727
203,946 Hylsamex SA de CV * 164,971
---------------
4,437,025
---------------
NETHERLANDS -- 3.7%
172,700 ABN Amro Holdings NV 3,989,038
453,785 Aegon NV 6,715,190
264,802 Akzo Nobel NV 10,196,221
334,350 Fortis NV 7,735,304
22,308 Fugro NV 1,289,150
1,033,254 Hagemeyer NV 2,452,093
139,274 Hal Trust (Participating Units) 4,585,771
919,740 ING Groep NV 22,489,850
189,013 Koninklijke Ahold NV * 1,571,137
462,800 Koninklijke KPN NV * 3,651,434
404,744 Koninklijke Vendex KBB NV 6,939,943
96,631 Koninklijke Wessanen NV 1,308,698
214,320 Laurus NV * 340,855
1,021,832 Philips Electronics NV 31,042,362
92,391 Philips Electronics NV ADR 2,810,534
274,870 Royal Dutch Petroleum 13,558,581
115,807 TPG NV 2,528,151
83,123 Unilever NV 6,026,407
36,434 Univar NV * 748,753
100,010 Van Ommeren Vopak NV 1,923,582
67,067 VNU NV 2,184,932
49,287 Wereldhave NV 4,093,834
469,507 Wolters Kluwer NV 8,382,918
---------------
146,564,738
---------------
NEW ZEALAND -- 0.9%
1,972,386 Air New Zealand * 554,349
3,316,577 Carter Holt Harvey Ltd 4,342,411
7,447,043 Telecom Corp of New Zealand 29,251,352
8,100,237 Trans Tasman Properties Ltd * 1,998,976
---------------
36,147,088
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
NORWAY -- 2.2%
813,300 Ekornes ASA 15,828,239
1,043,020 Prosafe ASA 23,558,684
4,016,720 Statoil ASA 47,645,217
---------------
87,032,140
---------------
SINGAPORE -- 1.0%
4,142,940 Allgreen Properties Ltd 2,798,873
1,820,580 DBS Group Holdings Ltd 15,721,854
7,262,000 MobileOne Ltd 6,612,483
6,132,000 Singapore Post Ltd 2,701,718
5,593,000 Singapore Telecom Ltd 7,655,568
6,934,320 SMRT Corp Ltd 2,383,068
---------------
37,873,564
---------------
SOUTH AFRICA -- 0.1%
226,334 Allied Technologies Ltd 1,097,387
2,088,861 Old Mutual Plc 3,693,153
255,341 Western Areas Ltd * 1,222,289
---------------
6,012,829
---------------
SOUTH KOREA -- 0.8%
19,865 Hansol Paper Co 170,609
289,650 Korea Electric Power Corp 5,098,431
1,301,900 KT Corp ADR 24,762,138
8,420 SK Telecom Co Ltd 1,704,048
---------------
31,735,226
---------------
SPAIN -- 4.5%
118,370 ACS Actividades Cons y Serv 5,988,883
345,460 Altadis SA 11,117,162
890,000 Amadeus Global Travel Distribution Class A 5,296,902
7,475 Antena 3 Television SA * 332,871
1,325,392 Banco Bilbao Vizcaya Argentaria SA 18,279,475
129,863 Banco Popular Espanol 7,882,181
1,542,332 Banco Santander Central Hispano SA 17,860,359
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SPAIN -- CONTINUED
1,050,118 Endesa SA 20,550,153
292,900 Gas Natural SDG SA 7,296,761
1,007,423 Iberdrola SA 20,778,603
76,000 Inditex SA 1,661,968
142,650 Red Electrica de Espana 2,428,224
928,629 Repsol YPF SA 19,038,055
2,231,622 Telefonica SA 36,240,370
116,477 Transportes Azkar SA 835,050
255,290 Union Fenosa SA 5,240,108
---------------
180,827,125
---------------
SWEDEN -- 1.0%
538,090 Autoliv Inc SDR 23,745,005
1,063,500 Billerud AB 16,429,233
---------------
40,174,238
---------------
SWITZERLAND -- 3.5%
314,296 ABB Ltd * 1,903,024
158,220 Baloise Holding Ltd 7,580,557
1,460 Bank Sarasin & Cie AG Class B (Registered) 2,643,990
2,822 Banque Cantonale Vaudoise * 364,401
2,516 Belimo Holding AG (Registered) 1,069,753
20,560 Bobst Group AG (Registered) 736,569
78,780 Converium Holding AG 4,177,657
208,500 Credit Suisse Group 7,584,505
8,485 Energiedienst Holding AG (Registered) 2,471,911
25,103 Fischer (George) AG (Registered) * 5,633,129
5,897 Forbo Holdings AG (Registered) * 1,657,595
10,978 Geberit AG (Registered) 5,583,865
116,095 Holcim Ltd 6,019,334
740 Jelmoli Holding AG (Bearer) 806,976
4,586 Jelmoli Holding AG (Registered) 992,992
27,999 Lonza Group AG (Registered) 1,409,815
72,940 Nestle SA (Registered) 19,239,321
516,354 Novartis AG (Registered) 22,747,141
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SWITZERLAND -- CONTINUED
19,100 Rieter Holding AG (Registered) 4,752,254
1,674 Sulzer AG (Registered) 421,779
504 Swiss National Insurance Co (Registered) 246,831
114,436 Swiss Reinsurance Co 8,235,463
30,650 Swisscom AG (Registered) 10,196,154
154,690 UBS AG (Registered) 11,363,786
34,280 Unique Zurich Airport AG * 2,441,342
16,811 Valora Holding AG 4,374,659
26,051 Zurich Financial Services AG * 4,266,452
---------------
138,921,255
---------------
TAIWAN -- 0.5%
375,300 Chunghwa Telecom Co Ltd ADR 6,169,932
485,512 Compal Electronics GDR 144A 3,252,930
646,070 Standard Foods Corp 197,569
464,863 Taiwan Cement Corp 278,737
9,160,160 United Microelectronics Corp * 8,348,639
---------------
18,247,807
---------------
THAILAND -- 0.5%
1,268,600 PTT Exploration & Production Pcl (Foreign Registered) (a) 8,136,605
333,000 Siam Cement Pcl (Foreign Registered) 2,237,516
813,500 Siam Cement Pcl (Foreign Registered) NVDR 4,969,203
2,959,000 Thai Airways International (Foreign Registered) (a) 4,518,707
1,450,800 Tipco Asphalt Pcl (Foreign Registered) *(a) 1,513,942
---------------
21,375,973
---------------
UNITED KINGDOM -- 20.6%
1,311,388 Abbey National Plc 11,803,318
3,010,200 Aggregate Industries Plc 4,818,209
1,467,891 Allied Domecq Plc 12,319,797
362,539 Amersham Plc 5,348,759
286,000 Amvescap Plc 2,262,359
599,900 Associated British Foods Plc 6,523,905
281,200 AstraZeneca Plc 13,317,637
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
1,600,606 Aviva Plc 16,753,082
174,372 AWG Plc * 1,808,922
761,428 BAA Plc 7,418,555
5,236,410 BAE Systems Plc 18,487,981
4,355,194 Barclays Plc 39,098,460
676,942 BBA Group Plc 3,470,443
131,635 Berkeley Group Plc 2,215,694
2,156,846 BG Group Plc 12,688,479
346,047 BHP Billiton Plc 3,172,438
534,990 Boots Group Plc 7,371,796
3,671,051 BP Plc 29,482,117
397,033 BPB Plc 2,740,947
501,600 British Energy Plc (Deferred Shares) *(a) --
359,476 British Sky Broadcasting Plc * 4,809,903
6,708,601 BT Group Plc 22,005,060
487,820 Bunzl Co 4,037,622
219,001 Cable & Wireless * 570,007
559,100 Cadbury Schweppes Plc 4,606,845
727,200 Cattle's Plc 4,740,251
4,246,064 Centrica Plc 16,902,269
115,900 Cobham Group Plc 2,699,345
1,430,972 Diageo Plc 19,784,204
1,450,035 Dixons Group Plc (New Shares) 4,265,195
526,698 FKI Plc 1,163,161
1,536,913 Gallaher Group Plc 18,824,541
1,669,593 GlaxoSmithKline Plc 34,733,408
620,089 GUS Plc 8,412,064
471,658 Hanson Plc 3,803,191
1,580,900 Hays Plc 4,107,368
2,642,189 HBOS Plc 35,819,150
1,485,092 Hilton Group Plc 6,097,725
1,961,694 HSBC Holdings Plc 31,872,680
1,597,593 Imperial Chemical Industries Plc 6,982,135
807,118 Imperial Tobacco Group Plc 17,360,077
220,416 Intercontinental Hotels Group Plc 2,127,050
1,125,640 International Power Plc * 2,934,993
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
1,339,500 John Wood Group Plc 3,430,465
213,370 Johnson Matthey Plc 3,638,983
283,803 Kesa Electricals Plc 1,432,574
617,973 Kidde Plc 1,092,360
1,336,484 Kingfisher Plc 7,428,340
5,249,144 Legal & General Group Plc 9,741,361
3,179,920 Lloyds TSB Group Plc 26,423,051
64,438 Lonmin Plc 1,443,379
663,869 Marks & Spencer Group Plc 3,609,784
880,000 Matalan Plc 2,555,808
202,128 Mitchells & Butlers Plc 890,884
1,647,501 mmO2 Plc * 3,240,878
1,751,944 National Grid Transco Plc 14,012,921
255,132 Next Plc 6,586,023
278,000 Northern Rock Plc 3,995,742
892,000 Pearson Plc 10,263,316
1,105,017 Peninsular & Oriental Steam Navigation Co 4,706,335
837,500 Photo-Me International Plc * 2,082,672
963,481 Prudential Plc 8,801,568
328,240 Rank Group Plc 1,914,247
257,990 Reed Elsevier Plc 2,373,541
3,239,220 Rentokil Initial Plc 11,752,178
491,169 Reuters Group Plc 3,564,010
625,836 Rexam Plc 5,261,262
128,941 RMC Group Plc 1,658,271
1,501,035 Royal Bank of Scotland Group 47,466,978
1,090,400 SABMiller Plc 11,412,903
1,064,183 Sainsbury (J) Plc 5,909,921
1,144,921 Scottish & Newcastle Plc 9,030,164
492,360 Scottish & Southern Energy Plc 6,254,425
1,335,700 Scottish Power Plc 9,084,773
668,263 Severn Trent Plc 9,189,604
4,900,050 Shell Transport & Trading Co Plc (Registered) 33,464,127
497,860 Smith (David S.) Holdings Plc 1,658,452
140,434 Standard Chartered Plc 2,418,530
226,228 TI Automotive Ltd Class A *(a) --
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
948,246 Tomkins Plc 4,724,942
135,125 Travis Perkins Plc 3,407,896
340,847 Trinity Mirror Plc 3,763,636
737,532 Unilever Plc 7,699,004
358,784 United Utilities Plc 3,362,448
194,657 United Utilities Plc Class A 1,100,892
402,580 Viridian Group Plc 4,329,491
14,501,030 Vodafone Group Plc 36,128,033
256,654 Whitbread Plc 3,519,846
591,321 Wolseley Plc 8,927,134
358,600 WPP Group Plc 4,006,249
---------------
818,520,543
---------------
TOTAL COMMON STOCKS (COST $2,862,315,353) 3,707,795,422
---------------
PREFERRED STOCKS -- 1.2%
BRAZIL -- 0.4%
217,300 Cia de Bebidas das Americas ADR 5,845,370
115,193 Gerdau SA 2,464,042
1,467,000 Suzano (Registered) 4.28% 6,840,124
112,300 Ultrapar Participacoes SA ADR 1,330,755
---------------
16,480,291
---------------
FRANCE -- 0.1%
19,958 Casino Guichard Perrachon SA 3.74% 1,678,812
---------------
GERMANY -- 0.7%
198,504 Rheinmetall AG (Non Voting) 3.92% 7,436,233
626,249 Volkswagen AG 5.30% 20,075,351
---------------
27,511,584
---------------
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------
ITALY -- 0.0%
157,533 Fiat SPA 4.95% * 739,877
57,871 IFI Istituto Finanziario Industries 4.82% * 499,019
---------------
1,238,896
---------------
THAILAND -- 0.0%
383,480 Siam Commercial Bank Ltd *(a) 463,612
---------------
TOTAL PREFERRED STOCKS (COST $38,805,268) 47,373,195
---------------
DEBT OBLIGATIONS -- 0.0%
UNITED KINGDOM -- 0.0%
GBP 102,000 BG Transco Holdings Plc, 4.98%, due 12/14/09 189,389
GBP 102,000 BG Transco Holdings Plc, 7.00%, due 12/16/24 214,534
GBP 102,000 BG Transco Holdings Plc Index Linked, 4.19%, due 12/14/22 234,741
---------------
638,664
---------------
TOTAL DEBT OBLIGATIONS (COST $381,364) 638,664
---------------
CONVERTIBLE SECURITIES -- 1.1%
JAPAN -- 1.1%
JPY 2,211,000,000 SMFG Finance 144A, 2.25%, due 07/11/05 40,016,955
JPY 192,000,000 SMFG Finance Reg S 144A, 2.25%, due 07/11/05 * 3,475,014
---------------
43,491,969
---------------
TOTAL CONVERTIBLE SECURITIES (COST $20,311,925) 43,491,969
---------------
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 8.2%
CASH EQUIVALENTS -- 8.2%
107,900,000 Dresdner GC Time Deposit, 1.03%, due 03/01/04 107,900,000
218,338,706 The Boston Global Investment Trust (b) 218,338,706
---------------
326,238,706
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $326,238,706) 326,238,706
---------------
TOTAL INVESTMENTS -- 103.7%
(Cost $3,248,052,616) 4,125,537,956
Other Assets and Liabilities (net) -- (3.7%) (147,945,212)
---------------
TOTAL NET ASSETS -- 100.0% $ 3,977,592,744
===============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
* 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 2).
(b) Represents investment of security lending collateral
(Note 2).
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
Foreign Registered - Shares issued to foreign investors in
markets that have foreign ownership limits.
NVDR - Non-Voting Depository Receipt
SDR - Swedish Depository Receipt
CURRENCY ABBREVIATIONS:
GBP - British Pound USD - United States Dollar
JPY - Japanese Yen
See accompanying notes to the financial statements.
17
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
----------------------------------------------------------------
Financials 23.8%
Consumer Discretionary 17.4
Industrials 11.7
Telecommunication Services 9.3
Energy 7.7
Materials 7.7
Consumer Staples 7.4
Utilities 6.3
Information Technology 5.3
Health Care 3.4
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
18
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $206,500,978
(cost $3,248,052,616) (Note 2) $ 4,125,537,956
Cash 19,894
Foreign currency, at value (cost $81,404,882) (Note 2) 81,348,826
Receivable for investments sold 6,206,956
Receivable for Fund shares sold 57,228,342
Dividends and interest receivable 4,248,423
Foreign taxes receivable 956,395
Receivable for expenses reimbursed by Manager (Note 3) 412,121
---------------
Total assets 4,275,958,913
---------------
LIABILITIES:
Payable for investments purchased 58,117,616
Payable upon return of securities loaned (Note 2) 218,338,706
Payable for Fund shares repurchased 17,592,235
Accrued capital gain and repatriation taxes payable (Note 2) 1,362,829
Payable to affiliate for (Note 3):
Management fee 1,861,863
Shareholder service fee 468,832
12b-1 fee - Class M 4,552
Administration fee - Class M 1,926
Trustees fee 6,819
Accrued expenses 610,791
---------------
Total liabilities 298,366,169
---------------
NET ASSETS $ 3,977,592,744
===============
</Table>
See accompanying notes to the financial statements.
19
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
STATEMENTS OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004 (CONTINUED)
<Table>
NET ASSETS CONSIST OF:
Paid-in capital $ 3,098,745,399
Accumulated undistributed net investment income 17,862,818
Accumulated net realized loss (15,176,544)
Net unrealized appreciation 876,161,071
---------------
$ 3,977,592,744
===============
NET ASSETS ATTRIBUTABLE TO:
Class II shares $ 781,447,788
===============
Class III shares $ 2,260,045,925
===============
Class IV shares $ 923,221,324
===============
Class M shares $ 12,877,707
===============
SHARES OUTSTANDING:
Class II 58,782,035
===============
Class III 169,480,452
===============
Class IV 69,208,520
===============
Class M 971,600
===============
NET ASSET VALUE PER SHARE:
Class II $ 13.29
===============
Class III $ 13.34
===============
Class IV $ 13.34
===============
Class M $ 13.25
===============
</Table>
See accompanying notes to the financial statements.
20
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $7,493,569) $ 65,231,053
Interest (including securities lending income of $1,510,418) 4,393,154
---------------
Total income 69,624,207
---------------
EXPENSES:
Management fee (Note 3) 17,489,452
Shareholder service fee (Note 3) - Class II 1,245,348
Shareholder service fee (Note 3) - Class III 3,034,257
Shareholder service fee (Note 3) - Class IV 286,069
12b-1 fee (Note 3) - Class M 20,373
Administration fee (Note 3) - Class M 16,299
Custodian fees 1,873,796
Transfer agent fees 80,623
Audit and tax fees 86,846
Legal fees 140,057
Trustees fees and related expenses (Note 3) 60,036
Registration fees 161,584
Miscellaneous 77,466
---------------
Total expenses 24,572,206
Fees and expenses reimbursed by Manager (Note 3) (2,412,606)
---------------
Net expenses 22,159,600
---------------
Net investment income 47,464,607
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments (net of CPMF tax of $20,063) (Note 2) 66,292,604
Foreign currency, forward contracts and foreign currency related transactions 11,617,376
---------------
Net realized gain 77,909,980
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (net of foreign capital gains tax accrual of $1,362,829) (Note 2) 1,084,054,978
Foreign currency, forward contracts and foreign currency related transactions (170,146)
---------------
Net unrealized gain 1,083,884,832
---------------
Net realized and unrealized gain 1,161,794,812
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,209,259,419
===============
</Table>
See accompanying notes to the financial statements.
21
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 47,464,607 $ 26,594,966
Net realized gain (loss) 77,909,980 (29,666,452)
Change in net unrealized appreciation (depreciation) 1,083,884,832 (151,205,766)
--------------- ---------------
Net increase (decrease) in net assets from operations 1,209,259,419 (154,277,252)
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class II (12,221,276) (3,740,934)
Class III (42,896,461) (21,554,280)
Class IV (5,965,746) (4,218,845)
Class M (157,180) (48,153)
--------------- ---------------
Total distributions from net investment income (61,240,663) (29,562,212)
--------------- ---------------
Net share transactions (Note 7):
Class II 255,214,331 230,185,805
Class III 216,601,466 320,862,731
Class IV 593,330,028 103,451,466
Class M 5,137,787 4,689,233
--------------- ---------------
Increase in net assets resulting from net share transactions 1,070,283,612 659,189,235
--------------- ---------------
Total increase in net assets 2,218,302,368 475,349,771
NET ASSETS:
Beginning of period 1,759,290,376 1,283,940,605
--------------- ---------------
End of period (including accumulated undistributed net investment
income of $17,862,818 and $19,995,289, respectively) $ 3,977,592,744 $ 1,759,290,376
=============== ===============
</Table>
See accompanying notes to the financial statements.
22
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.88 $ 9.94 $ 11.21 $ 13.14 $ 11.79
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (b) 0.17 0.15 0.16 0.20 0.17
Net realized and unrealized gain (loss) 4.46 (1.03) (1.20) (0.41) 2.89
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.63 (0.88) (1.04) (0.21) 3.06
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.22) (0.18) (0.11) (0.29) (0.21)
From net realized gains -- -- (0.12) (1.43) (1.50)
---------- ---------- ---------- ---------- ----------
Total distributions (0.22) (0.18) (0.23) (1.72) (1.71)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.29 $ 8.88 $ 9.94 $ 11.21 $ 13.14
========== ========== ========== ========== ==========
TOTAL RETURN (a) 52.49% (9.00)% (9.37)% (1.84)% 25.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 781,448 $ 305,423 $ 100,127 $ 61,681 $ 60,278
Net expenses to average daily net assets 0.82% 0.82% 0.82% 0.82% 0.82%
Net investment income to average daily net assets 1.47% 1.54% 1.56% 1.63% 1.28%
Portfolio turnover rate 25% 22% 22% 38% 35%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.08% 0.09% 0.09% 0.09% 0.10%
</Table>
(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 III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.90 $ 9.95 $ 11.22 $ 13.16 $ 11.81
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (b) 0.19 0.17 0.19 0.21 0.20
Net realized and unrealized gain (loss) 4.47 (1.04) (1.23) (0.43) 2.86
------------ ------------ ------------ ------------ ------------
Total from investment operations 4.66 (0.87) (1.04) (0.22) 3.06
------------ ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.22) (0.18) (0.11) (0.29) (0.21)
From net realized gains -- -- (0.12) (1.43) (1.50)
------------ ------------ ------------ ------------ ------------
Total distributions (0.22) (0.18) (0.23) (1.72) (1.71)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 13.34 $ 8.90 $ 9.95 $ 11.22 $ 13.16
============ ============ ============ ============ ============
TOTAL RETURN (a) 52.76% (8.89)% (9.33)% (1.85)% 25.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 2,260,046 $ 1,241,562 $ 1,049,456 $ 1,019,541 $ 1,022,498
Net expenses to average daily net assets 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income to average daily
net assets 1.67% 1.77% 1.88% 1.71% 1.48%
Portfolio turnover rate 25% 22% 22% 38% 35%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.08% 0.09% 0.09% 0.09% 0.10%
</Table>
(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.
24
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.90 $ 9.96 $ 11.22 $ 13.16 $ 11.81
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (b) 0.19 0.18 0.20 0.22 0.21
Net realized and unrealized gain (loss) 4.48 (1.05) (1.22) (0.43) 2.86
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.67 (0.87) (1.02) (0.21) 3.07
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.23) (0.19) (0.12) (0.30) (0.22)
From net realized gains -- -- (0.12) (1.43) (1.50)
---------- ---------- ---------- ---------- ----------
Total distributions (0.23) (0.19) (0.24) (1.73) (1.72)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.34 $ 8.90 $ 9.96 $ 11.22 $ 13.16
========== ========== ========== ========== ==========
TOTAL RETURN (a) 52.84% (8.92)% (9.19)% (1.79)% 25.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 923,221 $ 207,858 $ 134,357 $ 144,425 $ 141,175
Net expenses to average daily net assets 0.70% 0.69% 0.69% 0.69% 0.69%
Net investment income to average daily net assets 1.65% 1.79% 1.97% 1.77% 1.55%
Portfolio turnover rate 25% 22% 22% 38% 35%
Fees and expenses reimbursed by the Manager
to average daily net assets: 0.09% 0.09% 0.09% 0.09% 0.10%
</Table>
(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.
25
<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,
----------------------------------
2004 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) 4.45 (0.93) 0.08
-------- -------- --------
Total from investment operations 4.59 (0.88) 0.08
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.20) (0.19) --
-------- -------- --------
Total distributions (0.20) (0.19) --
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.25 $ 8.86 $ 9.93
======== ======== ========
TOTAL RETURN (a) 52.10% (9.09)% 0.81%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 12,878 $ 4,449 $ 1
Net expenses to average daily net assets 1.05% 1.06% 1.05%*
Net investment income to average daily net assets 1.23% 0.55% 0.35%*
Portfolio turnover rate 25% 22% 22%**
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.08% 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.
See accompanying notes to the financial statements.
26
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees 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 year ended February 29, 2004, the Fund had four classes of
shares outstanding: Class II, Class III, Class IV, and Class M. Class M
shares bear an administration fee and a 12b-1 fee while classes II, III,
and IV bear a shareholder service fee (See Note 3). The principal economic
difference among the classes of shares is the 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
27
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
gains and losses on disposition of 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
February 29, 2004.
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
28
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. As of February 29, 2004, 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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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.
29
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap contracts 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 February 29, 2004, 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
February 29, 2004, the Fund loaned securities having a market value of
$206,500,978, collateralized by cash in the amount of $218,338,706, 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
30
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. The Fund has recorded a deferred tax
liability in respect of unrealized appreciation on foreign securities of
$1,362,829 for potential capital gains and repatriation taxes as of
February 29, 2004. The accrual for capital gains and repatriation taxes is
included in net unrealized loss in the Statement of Operations.
The Fund is subject to a Contribuicao Provisoria sobre Movimentacoes
Financiera ("CPMF") tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market. The CPMF
tax has been included in the net realized gain (loss) on investments at
year end.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ U.S.
GAAP. During the years ended February 29, 2004 and February 28, 2003, the
tax basis of distributions paid were as follows: ordinary income -
$61,240,662 and $29,562,212, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $30,784,273 of undistributed ordinary income. The
temporary differences between book and tax basis distributable earnings are
primarily due to passive foreign investment company transactions and losses
on wash sale transactions.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code of
$9,653,648 expiring in 2011.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net value of
the Fund and is primarily attributable to foreign currency transactions.
The financial highlights exclude these adjustments.
31
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS
------------------- ---------------
$ 11,643,585 $ (11,643,585)
</Table>
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.
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.
3. 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.
32
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Class M shares of the Fund pay 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 .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
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 .60% of average daily
net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $36,596. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004 aggregated
$1,728,703,975 and $697,511,084, respectively.
At February 29, 2004, 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
--------------- ---------------- ----------------- ----------------
$ 3,266,327,390 $ 896,651,404 $ (37,440,838) $ 859,210,566
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
33
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, .01% of the Fund was held by twelve related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------- ----------------------------
CLASS II: SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
Shares sold 36,379,827 $ 400,113,008 26,662,327 $ 252,786,694
Shares issued to shareholders in
reinvestment of distributions 923,501 10,828,541 330,624 3,216,043
Shares repurchased (12,916,787) (155,727,218) (2,675,281) (25,816,932)
------------ -------------- ------------ --------------
Net increase 24,386,541 $ 255,214,331 24,317,670 $ 230,185,805
============ ============== ============ ==============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------- ----------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
Shares sold 80,433,342 $ 866,883,356 50,940,076 $ 493,560,075
Shares issued to shareholders in
reinvestment of distributions 2,637,614 30,890,205 1,230,614 12,079,797
Shares repurchased (53,040,942) (681,172,095) (18,151,641) (184,777,141)
------------ -------------- ------------ --------------
Net increase 30,030,014 $ 216,601,466 34,019,049 $ 320,862,731
============ ============== ============ ==============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------- ----------------------------
CLASS IV: SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
Shares sold 46,117,020 $ 597,114,492 9,587,705 $ 100,892,832
Shares issued to shareholders in
reinvestment of distributions 312,385 3,665,536 272,027 2,678,839
Shares repurchased (564,544) (7,450,000) (11,514) (120,205)
------------ -------------- ------------ --------------
Net increase 45,864,861 $ 593,330,028 9,848,218 $ 103,451,466
============ ============== ============ ==============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------- ----------------------------
CLASS M: SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
Shares sold 2,646,118 $ 27,978,088 561,276 $ 5,236,694
Shares issued to shareholders in
reinvestment of distributions 13,702 157,180 5,216 48,153
Shares repurchased (2,190,315) (22,997,481) (64,484) (595,614)
------------ -------------- ------------ --------------
Net increase 469,505 $ 5,137,787 502,008 $ 4,689,233
============ ============== ============ ==============
</Table>
34
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO FOREIGN FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Foreign Fund (the "Fund") (a
series of GMO Trust) at February 29, 2004, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
35
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of
$7,494,255 and recognized foreign source income of $72,724,622.
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 71.04% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
36
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since December Advisory Counsel, 41 None
Glazer, Esq. 2000 Goodwin Procter
c/o GMO Trust LLP; Secretary
40 Rowes Wharf and Consultant,
Boston, MA 02110 Provant, Inc.
DOB: 07/26/1944 (provider of
performance
improvement
training services
and products)(1998
- present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
37
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ------------------ ---------------- -------------- ---------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo
40 Rowes Wharf February 2002 - & Co. LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
38
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ -------------------- --------------------- -------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since Otterloo & Co. LLC (June
40 Rowes Wharf March 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
39
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
Emerging Markets Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Emerging Countries Fund returned +81.5% for the
fiscal year ended February 29, 2004, as compared to +75.4% for the S&P/IFC
Investable Composite. Consistent with the Fund's investment objectives and
policies, the Fund was invested substantially in emerging markets equities
throughout the fiscal year.
Country selection added 2.0% to performance during the period. Three of the
Fund's four largest overweights - Brazil (+4.8%), Indonesia (+2.4%), and
Thailand (+2.2%) - were the best contributors to performance. Each market moved
up in excess of 110% for the period, contributing a total of 3.5% to
performance. One of the Fund's largest underweights, Malaysia (-3.5%), was the
worst performing market and contributed 1.4% to performance.
Stock selection added 4.1% during the period. Stock selection was particularly
successful in Brazil, China, India, Korea, and South Africa. Stock selection in
Taiwan subtracted from performance.
For the period, value, momentum and reversal models all outperformed, with the
macroeconomic model the only laggard.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
EMERGING COUNTRIES FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO EMERGING COUNTRIES FUND S&P/IFC INVESTABLE COMPOSITE INDEX
8/29/1997 5,000,000 5,000,000
9/30/1997 5,030,000 5,163,370
12/31/1997 4,065,000 4,166,325
3/31/1998 4,485,000 4,458,770
6/30/1998 3,190,000 3,512,705
9/30/1998 2,487,725 2,749,805
12/31/1998 3,088,115 3,248,735
3/31/1999 3,324,085 3,603,545
6/30/1999 5,345,210 4,459,725
9/30/1999 4,673,210 4,320,075
12/31/1999 6,012,325 5,430,055
3/31/2000 6,058,535 5,502,860
6/30/2000 5,283,250 4,939,395
9/30/2000 4,806,035 4,298,110
12/31/2000 4,298,210 3,705,630
3/31/2001 4,156,855 3,524,770
6/30/2001 4,502,385 3,780,335
9/30/2001 3,670,270 2,934,460
12/31/2001 4,557,470 3,770,980
3/31/2002 5,571,415 4,258,385
6/30/2002 5,143,655 3,922,555
9/30/2002 4,246,505 3,308,250
12/31/2002 4,552,125 3,622,790
3/31/2003 4,407,360 3,389,325
6/30/2003 5,490,435 4,242,520
9/30/2003 6,271,150 4,845,435
12/31/2003 7,709,855 5,693,205
2/29/2004 8,308,465 6,171,390
</Table>
Average Annual Returns
Inception 8/29/1997
<Table>
<Caption>
1YR 5YR 10YR(ITD)
81.45 23.06 8.12
</Table>
EMERGING COUNTRIES FUND-CLASS M
As Of: 2/29/2004
Average Annual Returns
Inception 7/9/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
80.98 N/A 31.25
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Performance for Class M shares may vary due to
different shareholder servicing fees. Past performance is not indicative of
future performance. Information is unaudited. Current performance of the Fund
may be lower or higher than the performance quoted. Performance data current to
the most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 83.9%
ARGENTINA -- 1.3%
13,000 BBVA Banco Frances SA ADR * 114,270
57,955 Grupo Financiero Galicia SA ADR * 476,390
25,300 IRSA Inversiones y Representaciones SA GDR * 247,181
92,350 Petrobras Energia Participaciones SA ADR * 1,232,873
63,900 Telecom Argentina SA ADR * 663,282
22,493 Tenaris SA ADR 779,382
73,700 Transportadora de Gas del Sur ADR * 378,818
---------------
3,892,196
---------------
BRAZIL -- 6.0%
334,118 Banco do Brasil SA 2,483,658
134,042,930 Companhia Siderurgica Nacional SA 8,560,338
40,558,328 Compania Saneamento Basico SAO PA 2,129,225
69,378,000 Electrobas (Centr) 776,557
62,400 Petroleo Brasileiro SA (Petrobras) 1,934,668
26,500 Petroleo Brasileiro SA (Petrobras) ADR 826,800
131,423 Souza Cruz (Registered) 1,380,788
48,895,153 Tele Norte Leste Participacoes SA 562,399
---------------
18,654,433
---------------
CHILE -- 1.7%
15,500 Banco de Chile ADR 485,150
10,900 Banco Santander Chile SA ADR 300,295
8,900 Compania Cervecerias ADR 216,715
55,300 Compania de Telecommunicaciones de Chile ADR 867,104
22,100 Empresa Nacional de Electricidad SA ADR * 293,046
344,500 Enersis SA ADR 2,470,065
53,150 Quinenco SA ADR 518,744
---------------
5,151,119
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CHINA -- 9.5%
570,000 Aluminum Corp of China Ltd 461,340
227,000 Bengang Steel Plates Co Ltd Class B * 118,110
3,109,500 Brilliance China Automotive Holdings Ltd 1,478,080
682,000 China Everbright Ltd 468,753
242,950 China International Marine Containers Co Ltd Class B * 453,511
1,316,000 China Mobile Ltd 4,632,463
9,600 China Mobile Ltd ADR 169,248
4,689,900 China Petroleum & Chemical Corp Class H 1,973,242
394,000 China Resources Enterprise Ltd 554,263
16,000 China Telecom Corp Ltd ADR 616,000
45,800 China Unicom 58,840
34,000 China Unicom ADR 434,180
304,900 Chongqing Changan Automobile Co Ltd Class B 406,202
496,000 CNOOC Ltd 1,003,616
7,500 CNOOC Ltd ADR 305,850
520,000 Cosco Pacific Ltd 794,979
1,341,892 Denway Motors Ltd 1,560,169
5,836,100 Guangdong Investments Ltd * 1,132,153
1,090,000 Huadian Power International Corp Ltd Class H 427,102
3,600 Huaneng Power International Inc ADR 269,568
781,600 Huaneng Power International Inc Class H 1,471,051
3,814,000 Maanshan Iron & Steel Co Ltd Class H 1,469,967
13,736,000 PetroChina Co Ltd Class H 7,367,537
2,442,000 Stone Electronic Technology Ltd * 263,530
276,000 Tsingtao Brewing Co Ltd Class H 336,851
474,000 Yanzhou Coal Mining Co Ltd Class H 545,013
594,000 Zhejiang Southeast Electric Power Co Class B 505,494
---------------
29,277,112
---------------
CZECH REPUBLIC -- 0.2%
8,455 Ceski Telecom AS 104,003
33,379 CEZ AS 229,210
825 Komercni Banka AS 92,654
77 Philip Morris CR AS 52,610
24,200 Unipetrol * 61,219
---------------
539,696
---------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
EGYPT -- 0.4%
90,296 Commercial International Bank 332,036
5,100 Eastern Tobacco Co 62,210
38,459 MobiNil-Egyptian Mobile Services Co 493,980
3,600 Orascom Construction Industries 51,765
11,600 Orascom Telecommunications * 187,395
---------------
1,127,386
---------------
HUNGARY -- 0.3%
1,400 Egis Rt 71,830
1,400 Gedeon Richter Rt 159,245
4,500 MOL Magyar Olaj es Gazipari Rt (New Shares) 148,113
38,000 OTP Bank Rt * 623,525
---------------
1,002,713
---------------
INDIA -- 6.0%
34,900 Bharat Heavy Electricals Ltd 448,334
127,087 Bharat Petrol Corp 1,303,881
6,750 Cipla Ltd 178,766
210,650 GAIL India Ltd 939,741
39,150 Hero Honda Motors Ltd 430,144
11,100 Hindalco Industries Ltd GDR 336,108
4,100 Hindalco Industries Ltd GDR 144A 124,148
87,100 ICICI Bank Ltd ADR 1,297,790
32,000 Indian Oil Corp Ltd 321,733
550 ITC Ltd 13,448
1,400 Larsen & Toubro Ltd 17,610
46,922 Larsen & Toubro Ltd GDR 1,157,566
28,620 Ranbaxy Laboratories Ltd GDR 632,502
89,800 Reliance Industries Ltd 1,102,971
78,300 Reliance Industries Ltd GDR 144A 2,297,322
79,100 State Bank of India GDR 3,005,800
251,400 Tata Iron & Steel Co Ltd 2,388,675
149,300 Tata Motors Ltd 1,687,237
56,100 Tata Power Co Ltd 432,640
94,900 ZEE Telefilms Ltd 280,599
---------------
18,397,015
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
INDONESIA -- 2.6%
864,000 Astra International Tbk 551,815
3,682,300 Bank Central Asia Tbk 1,589,639
3,084,000 Gajah Tunggal Tbk * 200,615
223,000 Gudang Garam 371,886
1,249,000 HM Sampoerna Tbk 720,151
1,780,000 Indofood Sukses Makmur Tbk 178,947
1,408,000 PT Bank Mandiri 233,140
8,722,000 PT Matahari Putra Prima Tbk 696,316
732,000 Ramayana Lestari Sentosa 316,002
3,521,112 Telekomunikasi Indonesia Tbk PT 3,040,109
---------------
7,898,620
---------------
ISRAEL -- 1.6%
63,100 Bank Hapoalim Ltd 159,402
754,700 Bank Leumi Le-Israel 1,397,097
44,400 Check Point Software Technologies * 1,022,088
177,400 Israel Chemicals Ltd 270,704
154,900 Machteshim Agan Industries 570,739
20,000 Partner Communications ADR * 150,600
66,600 Super-Sol Ltd 150,588
19,900 Teva Pharmaceutical Industries ADR 1,293,500
---------------
5,014,718
---------------
MALAYSIA -- 2.7%
1,138,000 Commerce Asset Holdings Berhad 1,572,237
382,000 Magnum Corp Berhad 327,716
661,000 Malakoff Berhad 1,026,289
264,000 Malaysian International Shipping (Foreign Registered) 903,158
386,600 Maxis Communications Berhad 880,024
318,000 Perusahaan Otomobil Nasional 807,553
398,000 PLUS Expressways Berhad 254,511
1,042,000 Public Bank Berhad 828,116
513,000 Telekom Malaysia Berhad 1,363,500
117,000 Tenaga Nasional Berhad 298,658
---------------
8,261,762
---------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
MEXICO -- 4.8%
732,800 Alfa SA de CV Class A 2,715,423
70,900 America Movil SA de CV Class L ADR 2,528,294
36,100 Apasco SA de CV 367,052
268,500 Carso Global Telecom Class A * 393,122
443,900 Grupo Financiero Banorte SA de CV 1,622,826
260,580 Grupo Mexico SA Class B * 1,000,446
655,000 Grupo Televisa SA (Participating Certificates) 1,430,232
249,087 Hylsamex SA de CV * 201,485
170,700 Organizacion Soriana SA de CV Class B * 507,572
118,500 Telefonos de Mexico Class L ADR 4,025,445
---------------
14,791,897
---------------
PERU -- 0.1%
18,000 Cia de Minas Buenaventura SA ADR 435,780
---------------
PHILIPPINES -- 0.9%
9,425,253 Ayala Land Inc 920,435
249,400 Equitable PCI Bank * 170,488
814,902 Ginebra San Miguel Inc 455,778
63,836 Philippine Long Distance Telephone * 1,099,448
4,200 Philippine Long Distance Telephone ADR * 73,248
---------------
2,719,397
---------------
POLAND -- 1.3%
306,900 Bank Millennium SA * 231,829
5,500 Bank Pekao SA 174,859
18,300 BRE Bank SA * 442,170
4,600 Debica SA 147,415
7,802 Grupa Kety SA 246,060
700 KGHM Polska Miedz SA * 5,679
67,800 Optimus SA * 188,824
27,259 Orbis SA 180,259
291,000 Polski Koncern Naftowy Orlen 2,109,366
41,000 Telekomunikacja Polska SA 172,061
8,300 Telekomunikacja Polska SA GDR 144A 35,109
---------------
3,933,631
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
RUSSIA -- 3.2%
72,200 AO Mosenergo ADR 577,600
21,225 Lukoil ADR 2,377,200
1,500 Lukoil ADR 144A 168,000
20,400 MMC Norilsk Nickel ADR 1,443,300
140,500 OAO Gazprom ADR 4,517,075
27,250 Rostelecom ADR 390,493
650 Sberbank RF 224,250
1,044 Yukos Corp ADR 52,931
---------------
9,750,849
---------------
SOUTH AFRICA -- 7.1%
120,400 ABSA Group Ltd 845,144
56,000 AECI Ltd 307,383
34,000 Amalgamated Beverage Industries Ltd 357,814
30,563 Edgars Consolidated Stores Ltd 555,983
113,000 Foschini Ltd 327,032
7,055 Impala Platinum Holdings Ltd 585,486
36,000 Investec Ltd 736,075
1,129,767 Iscor Ltd 5,842,890
443,000 MTN Group Ltd * 1,981,395
39,700 Naspers Ltd Class N 247,696
58,156 Nedcor Ltd 559,571
3,000 Pick'n Pay Stores Ltd 7,938
13,700 Pretoria Portland Cement Co Ltd 283,207
347,100 Remgro Ltd 3,822,457
1,056,000 Sanlam Ltd 1,452,665
120,000 Sasol Ltd 1,800,496
222,600 Venfin Ltd 686,056
1,458,000 Woolworths Holdings Ltd 1,499,319
---------------
21,898,607
---------------
SOUTH KOREA -- 15.0%
1,700 Amorepacific Corp 245,748
54,470 Cheil Industries Inc 736,457
392,600 Chohung Bank * 1,382,112
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
84,100 Daesang Corp 260,310
56,100 Daewoo Shipbuilding & Marine Engineering Co Ltd 653,546
22,800 Dongbu Steel Co 170,418
28,800 Hana Bank 624,490
145,100 Hanaro Telecom Inc * 407,785
104,000 Hanjin Heavy Industry 397,959
35,000 Hanjin Shipping 625,000
11,800 Hyundai Heavy Industries 361,224
19,100 Hyundai Industrial Development 210,327
45,400 Hyundai Mobis 2,046,088
91,700 Hyundai Motor Co 3,898,810
58,682 Kangwon Land Inc 701,090
236,500 KIA Motors Corp 2,192,049
6,735 Kookmin Bank * 281,198
28,000 Korea Electric Power Corp ADR 289,240
181,800 Korea Exchange Bank * 1,238,281
50,100 Korean Air Lines * 728,495
40,300 KT Corp 1,490,689
10,600 KT Freetel 182,075
110,500 KT&G Corp 2,598,065
14,500 KT&G Corp GDR 144A 168,925
29,400 LG Electronics Inc 1,655,000
25,300 LG Engineering & Construction Ltd 414,137
176,040 LG International Corp 1,137,673
27,200 LG Investment & Securities Co Ltd 229,673
86,000 LG Telecom Co Ltd * 252,296
8,990 POSCO 1,322,509
13,234 Samsung Electronics 6,133,104
1,614 Samsung Electronics GDR 144A (Non Voting) 225,960
39,500 Samsung Heavy Industries Co Ltd 183,057
31,700 Samsung SDI Co Ltd 4,393,793
9,700 Shinhan Financial Group Co Ltd 178,576
187,636 SK Corp 6,964,551
190,600 Woori Finance Holdings Co Ltd 1,432,742
---------------
46,413,452
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TAIWAN -- 12.5%
1,163,850 Acer Inc 1,831,873
189,000 Advanced Semiconductor Engineering Inc * 213,054
1,281,843 Asustek Computer Inc 3,362,652
352,000 AU Optronics Corp 585,699
2,338,000 Benq Corp 3,217,335
5,316,533 China Development Financial Holding Corp 2,964,698
434,000 China Motor Corp Ltd 871,773
2,279,815 China Steel Corp 2,323,901
1,055,076 Chinatrust Financial Holding Co 1,258,942
2,144,000 Chunghwa Picture Tubes Ltd * 1,253,425
191,000 Chunghwa Telecom Co Ltd 312,082
31,050 Chunghwa Telecom Co Ltd ADR 510,462
426,000 Compeq Manufacturing Co Ltd * 246,494
539,000 Far Eastern Textile Co Ltd 387,828
26,200 First Financial Holding Co Ltd GDR * 436,230
347,000 Formosa Chemicals & Fibre Co 551,372
184,000 Fubon Financial Holding Co Ltd 195,833
140,000 Hon Hai Precision Industry Co Ltd 621,196
2,021,370 Inventec Co Ltd 1,333,238
103,400 MediaTek Inc 1,171,794
210,000 Micro-Star International Co Ltd 346,275
2,063,000 Mosel Vitelic Inc * 222,041
540,048 Nan Ya Plastic Corp 730,210
542,000 Quanta Computer Inc 1,373,078
2,516,000 Ritek Corp * 1,832,973
364,000 Taiwan Cellular Corp 351,396
2,273,140 Taiwan Cement Corp 1,362,998
739,500 Taiwan Pulp & Paper Corp * 301,520
1,317,520 Taiwan Semiconductor Manufacturing Co Ltd * 2,508,245
1,461,846 United Microelectronics Corp * 1,332,338
3,631,000 Walsin Lihwa Corp * 1,774,406
557,000 Winbond Electronics Corp * 295,575
711,960 Yageo Corp * 382,074
1,170,000 Yang Ming Marine Transport 1,420,627
539,000 Yulon Motor Co Ltd 790,199
---------------
38,673,836
---------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
THAILAND -- 2.6%
614,900 Advanced Info Service Pcl (Foreign Registered) (a) 1,361,575
7,000 Bangkok Bank Pcl NVDR * 16,925
216,500 Banpu Pcl (Foreign Registered) (a) 798,995
116,300 Electricity Generating Pcl NVDR 223,483
719,600 Kasikornbank Pcl (Foreign Registered) * 934,070
172,000 Kasikornbank Pcl NVDR * 223,263
1,552,000 Krung Thai Bank Pcl (Foreign Registered) (a) 442,413
85,600 Land & House Pcl (Foreign Registered) 28,105
313,000 Land & House Pcl NVDR 94,800
62,640 PTT Exploration & Production Pcl (Foreign Registered) (a) 401,763
321,100 PTT Public Pcl (Foreign Registered) (a) 1,315,783
768,000 Shin Corp Pcl (Foreign Registered) (a) 713,464
285,300 Shin Satellite (Foreign Registered) *(a) 232,364
3,900 Siam Cement Pcl (Foreign Registered) (a) 26,205
49,100 Siam Cement Pcl (Foreign Registered) NVDR 299,924
423,400 Thai Airways International (Foreign Registered) (a) 646,577
345,200 Thai Union Frozen Products Pcl (Foreign Registered) 237,221
---------------
7,996,930
---------------
TURKEY -- 3.9%
453,576,142 Akbank TAS 2,373,761
22,372,000 Aksa Akrilik Kimya Sanayii 230,795
97,013,330 Aksigorta AS 336,040
7,657,000 Anadolu Isuzu Otomotiv Sanay * 98,019
2,315,000 Brisa Bridgestone Sabanci 91,519
41,422,000 Carsi Buyuk Magazacilik AS * 59,575
35,491,000 Dogan Gazetecilik AS * 183,067
51,676,100 Eregli Demir ve Celik Fabrikalari TAS * 1,614,878
107,643,555 Ford Otomotive Sanayii AS * 741,671
50,511,000 Global Menkul Degerler AS * 39,557
24,893,123 Global Menkul Degerler AS (New Shares) * 18,932
205,333,200 Is Gayrimenkul Yatirim Ortakligi AS * 216,466
190,302,550 Tansas Perakende Magazacilik Ticaret AS * 217,816
35,790,837 Tupras Turkiye Petrol Rafine 296,460
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TURKEY -- CONTINUED
531,828,482 Turkiye Garanti Bankasi Class C * 1,912,260
831,195,295 Turkiye IS Bankasi Class C 3,755,400
---------------
12,186,216
---------------
VENEZUELA -- 0.2%
31,100 Compania Anonima Nacional Telefonos de Venezuela (CANTV) ADR 576,283
---------------
TOTAL COMMON STOCKS (COST $175,290,321) 258,593,648
---------------
PREFERRED STOCKS -- 13.3%
BRAZIL -- 8.8%
26,708,000 Banco Itau Holding Financeira SA 2,567,544
20,618,000 Centrais Electricas Brasileiras SA Class B 9.83% 244,230
123,293,000 Cia Energetica de Minas Gerais 2.88% 2,201,283
7,850 Compania Vale do Rio Doce Class A 393,511
352,118,000 Embratel Participacoes SA 976,863
91,957 Gerdau SA 1,967,012
2,638,688 Investimentos Itau SA 2.68% 3,170,956
53,118,000 Lojas Americanas SA 474,186
377,028 Petroleo Brasileiro SA (Petrobras) 3.01% 10,615,037
58,305,163 Siderurgica de Tubarao 3.50% 1,921,618
448,662,000 Tele Centro Oeste Celular Participacoes SA 6.78% 1,517,363
180,000 Tele Norte Leste Participacoes SA 3.44% 2,645
41,229,400 Telemar Norte Leste SA 839,452
10,780,414 Telepar Celular SA 294,264
---------------
27,185,964
---------------
RUSSIA -- 0.1%
325 Transneft 292,500
---------------
SOUTH KOREA -- 4.4%
33,000 Dongbu Steel Co 11.70% 117,436
10,200 Hyundai Motor Co 5.05% 210,332
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES/ UNITS /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
47,260 Samsung Electronics (Non Voting) 4.08% 13,100,986
3,000 Samsung SDI Co Ltd 3.63% 215,306
---------------
13,644,060
---------------
TOTAL PREFERRED STOCKS (COST $25,501,725) 41,122,524
---------------
RIGHTS AND WARRANTS -- 0.1%
BRAZIL -- 0.0%
2,658,679 Tele Centro Oeste Celular Participacoes SA, Expires 3/08/04 * 18,257
---------------
THAILAND -- 0.1%
720,600 Land & House Warrants, Expires 9/02/08 (Foreign Registered) * 176,069
116,526 Telecomasia Corp Pcl Warrants, Expires 4/03/08 *(a) --
---------------
176,069
---------------
TOTAL RIGHTS AND WARRANTS (COST $0) 194,326
---------------
SHORT-TERM INVESTMENTS -- 2.0%
CASH EQUIVALENTS -- 2.0%
6,200,000 Banc One Corp, 1.01%, due 3/01/04 6,200,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $6,200,000) 6,200,000
---------------
TOTAL INVESTMENTS -- 99.3%
(Cost $206,992,046) 306,110,498
Other Assets and Liabilities (net) -- 0.7% 2,079,579
---------------
TOTAL NET ASSETS -- 100.0% $ 308,190,077
===============
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold
in transactions exempt from registration, normally to
qualified institutional investors.
ADR - American Depositary Receipt
Foreign Registered - Shares issued to foreign investors in
markets that have foreign ownership limits.
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
* Non-income producing security.
(a) Security valued at fair value using methods determined in
good faith by or at the direction of the Trustees
(Note 2).
See accompanying notes to the financial statements.
12
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
-----------------------------------------------------------------
Energy 17.4%
Financials 16.4
Information Technology 16.0
Materials 12.9
Telecommunication Services 11.8
Consumer Discretionary 9.8
Industrials 7.1
Utilities 5.1
Consumer Staples 2.7
Health Care 0.8
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $206,992,046) (Note 2) $ 306,110,498
Cash 48,440
Foreign currency, at value (cost $1,492,921) (Note 2) 1,491,730
Receivable for Fund shares sold 320,782
Dividends and interest receivable 1,427,840
Foreign taxes receivable 394
Receivable for expenses reimbursed by Manager (Note 3) 28,995
---------------
Total assets 309,428,679
---------------
LIABILITIES:
Payable for Fund shares repurchased 165,938
Accrued capital gain and repatriation taxes payable (Note 2) 639,746
Payable to affiliate for (Note 3):
Management fee 154,731
Shareholder service fee - Class III 29,003
12b-1 fee - Class M 22,604
Administration fee - Class M 8,938
Trustees fee 544
Accrued expenses 217,098
---------------
Total liabilities 1,238,602
---------------
NET ASSETS
$ 308,190,077
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 200,041,178
Distributions in excess of net investment income (1,396,833)
Accumulated net realized gain 10,916,948
Net unrealized appreciation 98,628,784
---------------
$ 308,190,077
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 249,843,728
===============
Class M shares $ 58,346,349
===============
SHARES OUTSTANDING:
Class III 16,663,603
===============
Class M 3,914,269
===============
NET ASSET VALUE PER SHARE:
Class III $ 14.99
===============
Class M $ 14.91
===============
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $734,982) $ 5,980,103
Interest 83,937
---------------
Total income 6,064,040
---------------
EXPENSES:
Management fee (Note 3) 1,338,503
Shareholder service fee (Note 3) - Class III 264,027
12b-1 fee (Note 3) - Class M 74,764
Administration fee (Note 3) - Class M 59,812
Custodian fees 695,358
Transfer agent fees 48,072
Audit and tax fees 54,518
Legal fees 9,716
Trustees fees and related expenses (Note 3) 4,210
Registration fees 43,651
Miscellaneous 6,784
---------------
Total expenses 2,599,415
Fees and expenses reimbursed by Manager (Note 3) (119,080)
---------------
Net expenses 2,480,335
---------------
Net investment income 3,583,705
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (net of foreign capital gains tax and CPMF tax of $288,270 and
$20,935, respectively) (Note 2) 25,037,374
Foreign currency, forward contracts and foreign currency related
transactions (248,389)
---------------
Net realized gain 24,788,985
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (net of foreign capital gains tax accrual of $498,584) (Note 2) 98,626,993
Foreign currency, forward contracts and foreign currency related
transactions 4,778
---------------
Net unrealized gain 98,631,771
---------------
Net realized and unrealized gain 123,420,756
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 127,004,461
===============
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,583,705 $ 588,797
Net realized gain 24,788,985 1,384,046
Change in net unrealized appreciation (depreciation) 98,631,771 (8,305,395)
----------------- -----------------
Net increase (decrease) in net assets from operations 127,004,461 (6,332,552)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (3,419,674) (1,010,952)
Class M (662,571) --
----------------- -----------------
Total distributions from net investment income (4,082,245) (1,010,952)
----------------- -----------------
Net realized gains
Class III (3,567,682) --
Class M (770,686) --
----------------- -----------------
Total distributions from net realized gains (4,338,368) --
----------------- -----------------
(8,420,613) (1,010,952)
----------------- -----------------
Net share transactions (Note 7):
Class III 59,346,080 23,980,200
Class M 40,639,294 579,467
----------------- -----------------
Increase in net assets resulting from net share transactions 99,985,374 24,559,667
----------------- -----------------
Total increase in net assets 218,569,222 17,216,163
NET ASSETS:
Beginning of period 89,620,855 72,404,692
----------------- -----------------
End of period (including distributions in excess of net investment
income of $1,396,833 and accumulated undistributed net investment
income of $579,393, respectively) $ 308,190,077 $ 89,620,855
================= =================
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.54 $ 9.65 $ 8.81 $ 11.41 $ 5.74
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.18 0.08 0.14 0.08 0.05
Net realized and unrealized gain (loss) 6.71 (1.04) 0.77 (2.48) 5.63
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.89 (0.96) 0.91 (2.40) 5.68
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.22) (0.15) (0.07) -- --
From net realized gains (0.22) -- -- (0.20) (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions (0.44) (0.15) (0.07) (0.20) (0.01)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.99 $ 8.54 $ 9.65 $ 8.81 $ 11.41
========== ========== ========== ========== ==========
TOTAL RETURN (a) 81.45% (10.15)% 10.49% (21.27)% 98.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 249,844 $ 89,042 $ 72,405 $ 52,239 $ 65,191
Net expenses to average daily net assets 1.16% 1.27% 1.40% 1.40% 1.28%
Net investment income to average daily net assets 1.82% 0.78% 2.12% 0.91% 0.54%
Portfolio turnover rate 57% 108% 109% 98% 157%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.06% 0.31% 0.17% 0.15% 0.17%
Purchase and redemption fees consisted of the
following per share amounts: (b) -- $ 0.00(c) $ 0.04 $ 0.02 --
</Table>
(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
fee was rescinded effective April 1, 2002.
See accompanying notes to the financial statements.
17
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-------------------------
2004 2003 (1)
---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.51 $ 9.85
---------- ----------
Income from investment operations:
Net investment income 0.11 0.01
Net realized and unrealized gain (loss) 6.71 (1.35)
---------- ----------
Total from investment operations 6.82 (1.34)
---------- ----------
Less distributions to shareholders:
From net investment income (0.20) --
From net realized gains (0.22) --
---------- ----------
Total distributions (0.42) --
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.91 $ 8.51
========== ==========
TOTAL RETURN (a) 80.98% (13.60)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 58,346 $ 579
Net expenses to average daily net assets 1.45% 1.57%*
Net investment income to average daily net assets 1.27% 0.20%*
Portfolio turnover rate 57% 108%***
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.06% 0.41%*
</Table>
(1) Period from July 9, 2002 (commencement of operations) through February 28,
2003.
* Annualized.
** Not annualized.
*** Calculation represents portfolio turnover of the Fund for the year ended
February 28, 2003.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
See accompanying notes to the financial statements.
18
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Emerging Countries Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees 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/IFC (Investable) Composite Index.
Throughout the year ended February 29, 2004, 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 3).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
19
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
gains and losses on disposition of 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
February 29, 2004.
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
20
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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.
21
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap contracts 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 February 29, 2004, 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.
22
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. The Fund has recorded a deferred tax
liability in respect of unrealized appreciation on foreign securities of
$498,584 for potential capital gains and repatriation taxes at February 29,
2004. The accrual for capital gains and repatriation taxes is included in
net unrealized gain in the Statement of Operations. The Fund has incurred
$288,270 related to capital gain taxes which is included in net realized
gain in the Statement of Operations.
The Fund is subject to a Contribuicao Provisoria sobre Movimentacoes
Financiera ("CPMF") tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market. The CPMF
tax has been included in the net realized gain (loss) on investments at
year end.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $4,082,245
and $1,010,952, respectively. For the years ended February 29, 2004 and
February 28, 2003, the distributions paid from long-term capital gains were
$4,338,368 and $0, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $11,626,115 and $4,008,650 of undistributed ordinary
income and undistributed long-term capital gains, respectively. These
temporary differences between book and tax basis distributable earnings are
primarily due to passive foreign investment company transactions and
capital loss carryover limitations.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code of
$4,100,655 and $156,212 expiring in 2010 and 2011, respectively.
23
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
DISTRIBUTIONS ACCUMULATED
IN EXCESS OF NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
------------------------- ------------------------ ---------------------
$ (1,477,686) $ 1,477,690 $ (4)
</Table>
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. 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
24
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
3. 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 pay 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 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 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 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 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 year ended February 29, 2004 was $2,608. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
25
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004 aggregated
$203,014,862 and $112,070,167, respectively.
At February 29, 2004, 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
---------------- ----------------- ----------------- ----------------
$ 208,849,632 $ 98,677,231 $ (1,416,365) $ 97,260,866
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 42.6% 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. At February 29, 2004, 0.05% of the Fund was
held by ten related parties.
26
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 12,332,933 $ 125,864,439 7,169,991 $ 63,503,546
Shares issued to shareholders
in reinvestment of distributions 398,921 5,181,351 99,670 970,789
Shares repurchased (6,500,805) (71,699,710) (4,337,592) (40,494,135)
------------- ------------- ------------- -------------
Net increase 6,231,049 $ 59,346,080 2,932,069 $ 23,980,200
============= ============= ============= =============
</Table>
<Table>
<Caption>
PERIOD FROM JULY 9, 2002
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 2004 THROUGH FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS M: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 5,942,439 $ 63,088,565 170,323 $ 1,468,988
Shares issued to shareholders
in reinvestment of distributions 110,703 1,433,257 -- --
Shares repurchased (2,206,847) (23,882,528) (102,349) (889,521)
------------- ------------- ------------- -------------
Net increase 3,846,295 $ 40,639,294 67,974 $ 579,467
============= ============= ============= =============
</Table>
27
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO EMERGING COUNTRIES FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Emerging Countries Fund (the
"Fund") (a series of GMO Trust) at February 29, 2004, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
28
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of $734,982
and recognized foreign source income of $6,715,085.
The Fund's distributions to shareholders included:
$4,338,368 from long-term capital gains, all of which was subject to the
15% rate gains category.
For taxable, non-corporate shareholders, 66.43% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
29
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, 41 None
c/o GMO Trust Goodwin Procter
40 Rowes Wharf LLP; Secretary
Boston, MA 02110 and Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)(1998
- present);
Consultant -
Business and
Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
30
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- ---------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
31
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ --------------------- ----------------------- -------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van Otterloo
40 Rowes Wharf Secretary since March & Co. LLC (June 1999 -
Boston, MA 02110 2001. present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
32
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
Emerging Markets Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Asia Fund returned +91.0% for the fiscal year ended February 29, 2004,
as compared to +80.6% for the GMO Asia 7 benchmark. Consistent with the Fund's
investment objectives and policies, the Fund was invested substantially in
emerging market equities tied economically to the Asia region throughout the
fiscal year.
Country selection added 6.1% to performance during the period. The Fund's second
largest overweight, Thailand (+7.3%), was the best performing market for the
fiscal year, rising 125%. The Fund's largest underweight, Malaysia (-11.7%) was
the worst performing market. These two positions added 6.7% to performance.
Stock selection added 4.3% during the period, contributing positively within
every market except Taiwan. Selection was strong in China and Indonesia, adding
2.6% and 3.2%, respectively.
For the period, the value, momentum and reversal models all outperformed, with
the macroeconomic model the only laggard.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
ASIA FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO ASIA FUND MSCI EMF ASIA INDEX GMO ASIA 7 INDEX*
2/18/1998 4,960,000 5,000,000 5,000,000
3/31/1998 5,232,800 5,344,570 5,516,170
6/30/1998 3,412,480 3,571,890 3,395,020
9/30/1998 2,772,390 3,061,010 3,117,360
12/31/1998 4,237,175 4,094,440 4,861,245
3/31/1999 4,206,835 4,547,665 4,781,140
6/30/1999 6,724,870 6,362,540 7,632,655
9/30/1999 5,389,385 5,873,865 6,322,115
12/31/1999 7,097,205 6,935,885 8,111,910
3/31/2000 6,655,255 7,239,755 7,988,520
6/30/2000 5,448,990 6,260,225 6,878,265
9/30/2000 4,652,810 4,875,075 5,538,250
12/31/2000 4,197,000 4,037,630 4,755,460
3/31/2001 3,989,815 4,047,605 4,727,445
6/30/2001 4,155,565 4,002,705 4,909,675
9/30/2001 3,721,760 3,212,825 4,147,810
12/31/2001 4,058,460 4,274,680 4,925,015
3/31/2002 5,236,915 4,930,555 5,920,795
6/30/2002 5,110,650 4,637,785 5,774,535
9/30/2002 4,235,170 3,869,425 4,883,960
12/31/2002 4,404,575 4,061,335 4,996,985
3/31/2003 4,344,075 3,706,025 4,840,830
6/30/2003 5,584,375 4,531,800 6,147,195
9/30/2003 6,450,825 5,243,350 7,032,350
12/31/2003 8,039,190 6,105,990 8,314,815
2/29/2004 8,312,950 6,657,570 8,897,705
</Table>
Average Annual Returns
Inception 2/18/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
88 16.29 8.79
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 80 bp on the purchase and 80 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future results. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
* The GMO Asia 7 Index is composed of the IFC Investable Country Indexes,
equally weighted, for seven Asian countries (China, Indonesia, Korea, Malaysia,
the Philipines, Taiwan and Thailand).
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 98.1%
CHINA -- 21.4%
396,000 Aluminum Corp of China Ltd 320,510
640,000 Angang New Steel Co Class H 382,330
571,000 Bengang Steel Plates Co Ltd Class B * 297,096
885,000 China Everbright Ltd 608,279
307,000 China International Marine Containers Co Ltd Class B * 573,072
158,000 China Life Insurance Co Ltd * 112,656
1,275,800 China Mobile Ltd 4,490,955
45,200 China Mobile Ltd ADR 796,876
2,059,400 China Petroleum & Chemical Corp Class H 866,478
520,000 China Shipping Development Co Ltd, Class H 410,851
7,200 China Telecom Corp Ltd ADR 277,200
4,200 China Unicom ADR 53,634
584,800 Chongqing Changan Automobile Co Ltd Class B 779,097
154,600 CNOOC Ltd 312,821
14,500 CNOOC Ltd ADR 591,310
230,800 Cosco Pacific Ltd 352,849
209,000 CSG Holding Co Ltd, Class B 140,696
2,790,400 Denway Motors Ltd 3,244,297
7,873,300 Guangdong Investments Ltd * 1,527,353
2,014,400 Huadian Power International Corp Ltd Class H 789,316
6,000 Huaneng Power International Inc ADR 449,280
351,800 Huaneng Power International Inc Class H 662,124
1,053,200 Maanshan Iron & Steel Co Ltd Class H 405,917
13,037,400 PetroChina Co Ltd Class H 6,992,831
60,000 PICC Property & Casualty Co Ltd * 26,208
131,000 Shandong Chenming Paper Holdings Ltd Class B 121,511
208,800 Shanghai Industrial Holdings Ltd 547,225
543,000 Shenzhen SEG Co Ltd, Class B * 290,201
373,000 Sinopec Shanghai Petrochemical Co Ltd Class H 171,313
740,000 Sinopec Yizheng Chemical Fibre Co Ltd 172,074
3,180,000 Stone Electronic Technology Ltd * 343,172
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CHINA -- CONTINUED
1,121,800 TCL International Holdings Ltd 511,622
660,000 Tsingtao Brewing Co Ltd Class H 805,514
62,000 Weiqiao Textile Co 108,327
940,600 Yanzhou Coal Mining Co Ltd Class H 1,081,518
782,000 Zhejiang Southeast Electric Power Co Class B 665,482
---------------
30,281,995
---------------
INDONESIA -- 29.2%
2,245,000 Astra International Tbk 1,433,826
13,833,900 Bank Central Asia Tbk 5,972,056
2,500,000 Bank NISP Tbk PT 121,230
366,000 Bank Rakyat Indonesia * 67,096
1,180,600 Bimantara Citra Tbk PT 499,189
4,107,000 Bumi Resources Tbk PT 291,449
3,792,000 Ciputra Development Tbk PT * 224,246
286,000 Ciputra Surya Tbk PT * 35,517
9,188,800 Citra Marga Nusaphala Persad * 451,017
7,682,000 Gajah Tunggal Tbk * 499,716
88,650 Gudang Garam 147,837
5,396,800 HM Sampoerna Tbk 3,111,697
13,929,500 Indah Kiat Pulp & Paper * 1,317,989
1,314,000 Indocement Tunggal Prakarsa * 369,101
10,563,000 Indofood Sukses Makmur Tbk 1,061,922
21,000 Indonesian Satellite Corp Tbk PT ADR 452,760
1,435,100 International Nickel 7,638,025
237,000 Limas Stokhomindo Tbk PT * 32,235
1,932,000 PT Bank Mandiri 319,905
7,415,000 PT Bank Pan Indonesia Tbk 306,949
5,135,000 PT Indo-Rama Synthetics Tbk 334,033
18,941,500 PT Matahari Putra Prima Tbk 1,512,184
1,000,000 Ramayana Lestari Sentosa 431,697
14,925,600 Telekomunikasi Indonesia Tbk PT 12,886,680
93,200 Telekomunikasi Indonesia Tbk PT ADR 1,604,904
1,668,000 United Tractors Tbk PT * 286,056
---------------
41,409,316
---------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
PHILIPPINES -- 16.1%
4,141,325 Aboitiz Equity Ventures Inc 227,949
3,356,256 Ayala Corp 351,596
48,871,798 Ayala Land Inc 4,772,637
681,995 Equitable PCI Bank * 466,208
11,988,850 Filinvest Land Inc * 221,385
2,868,190 First Philippine Holdings * 1,196,777
2,097,500 Ginebra San Miguel Inc 1,173,140
98,412 Globe Telecom Inc 1,546,424
14,213,000 Megaworld Corp * 257,409
497,127 Philippine Long Distance Telephone * 8,562,024
36,600 Philippine Long Distance Telephone ADR * 638,304
765,474 San Miguel Corp Class B 951,406
21,747,900 SM Prime Holdings 2,355,508
---------------
22,720,767
---------------
SINGAPORE -- 2.9%
148,000 DBS Group Holdings Ltd 1,278,073
3,707 Haw Par Corp Ltd 10,627
273,000 Oversea-Chinese Banking Corp 2,036,775
90,690 United Overseas Bank Ltd 751,199
---------------
4,076,674
---------------
SOUTH KOREA -- 3.8%
1,184 Clover Hitech Co Ltd * 7,853
12,100 Daibeck Advanced Materials Co Ltd 237,164
203 Hyosung Corp 1,864
4,400 Hyundai Autonet Co Ltd 10,458
17,300 Hyundai Motor Co 735,544
16,588 Kangwon Land Inc 198,182
9,740 KT Corp 360,281
15,800 KT&G Corp 371,488
8,480 LG Industrial Systems Co Ltd * 114,293
3,800 Samsung Electronics 1,761,054
4,000 Samsung SDI Co Ltd 554,422
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
26,990 SK Corp 1,001,797
7,600 Ssangyong Motor Co * 61,718
---------------
5,416,118
---------------
TAIWAN -- 3.8%
89,000 Acer Inc 140,085
211,000 Advanced Semiconductor Engineering Inc * 237,853
830,000 Ambassador Hotel * 450,397
183,212 Asustek Computer Inc 480,619
443,000 Benq Corp 609,615
307,000 China Life Insurance Co * 228,260
78,000 China Motor Corp Ltd 156,678
146,000 Chinatrust Financial Holding Co 174,211
9,900 Chunghwa Telecom Co Ltd ADR 162,756
1,198,020 Inventec Co Ltd 790,180
1,146,890 Taiwan Cement Corp 687,687
424,000 Taiwan Pulp & Paper Corp * 172,880
167,120 Taiwan Semiconductor Manufacturing Co Ltd * 318,157
463,686 United Microelectronics Corp * 422,607
809,000 Walsin Lihwa Corp * 395,344
---------------
5,427,329
---------------
THAILAND -- 20.9%
315,000 Adkinson Securities Ltd (Foreign Registered) *(a) 85,785
2,453,400 Advanced Info Service Pcl (Foreign Registered) (a) 5,432,573
93,000 Aromatics Thailand Plc *(a) 144,388
3,078,900 Bangkok Expressway Pcl (Foreign Registered) (a) 1,978,677
8,568,000 Bangkok Land Co Ltd *(a) 305,299
302,600 Banpu Pcl (Foreign Registered) (a) 1,116,747
2,140,600 Central Pattana Pcl (Foreign Registered) (a) 2,710,482
7,793,800 Charoen Pokphand Foods Pcl (Foreign Registered) (a) 1,269,542
100,800 Electricity Generating Pcl (Foreign Registered) 203,960
118,100 Electricity Generating Pcl NVDR 226,942
2,164,000 Industrial Finance Corp of Thailand (Foreign Registered) *(a) 291,911
249,000 Italian-Thai Development Pcl (Foreign Registered) (a) 678,112
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
THAILAND -- CONTINUED
419,000 ITV Pcl (Foreign Registered) *(a) 206,887
6,971,000 Jasmine International Pcl *(a) 271,459
188,880 Kasikornbank Pcl (Foreign Registered) * 245,174
1,349,000 KGI Securities One Pcl (Foreign Registered) *(a) 165,492
74,000 Kiatnakin Finance & Securities (Foreign Registered) (a) 85,225
473,500 Krungthai Card Pcl (Foreign Registered) (a) 349,491
2,430,100 Land & House Pcl (Foreign Registered) 797,869
560,000 Land & House Pcl NVDR 169,611
2,930,000 Loxley Pcl (Foreign Registered) *(a) 432,527
638,000 National Petrochemical (Foreign Registered) (a) 1,997,302
404,420 PTT Exploration & Production Pcl (Foreign Registered) (a) 2,593,888
1,055,611 PTT Pcl (Foreign Registered) (a) 4,325,614
767,050 Sahaviriya Steel Industry (Foreign Registered) *(a) 663,775
65,780 Siam Cement Pcl (Foreign Registered) 441,993
173,500 Siam Cement Pcl (Foreign Registered) NVDR 1,059,812
484,000 Sino Thai Engineering & Construction PCL (Foreign Registered) *(a) 231,591
2,439,000 Tanayong Co Ltd (Foreign Registered) *(a) (b) 621
91,000 Thai Airways International (Foreign Registered) (a) 138,967
309,280 Thai Petrochemical (Foreign Registered) *(a) 73,601
695,000 Thai Union Frozen Products Pcl (Foreign Registered) 477,602
120,000 TPI Polene Co (Foreign Registered) *(a) 114,533
1,168,000 TT&T Pcl (Foreign Registered) *(a) 252,685
---------------
29,540,137
---------------
TOTAL COMMON STOCKS (COST $86,900,501) 138,872,336
---------------
PREFERRED STOCKS -- 0.4%
SOUTH KOREA -- 0.4%
7,300 Hyundai Motor Co 5.05% 150,532
1,600 Samsung Electronics (Non Voting) 4.08% 443,537
---------------
594,069
---------------
TOTAL PREFERRED STOCKS (COST $441,743) 594,069
---------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
UNITS /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
RIGHTS AND WARRANTS -- 0.3%
MALAYSIA -- 0.0%
162,600 Affin Holdings Berhad Warrants, Expires 7/08/05 * 9,628
---------------
THAILAND -- 0.3%
1,138,620 Charoen Pokphand Foods Pcl Warrants, Expires 4/29/05 (Foreign
Registered)* 88,678
13,600,000 Jasmine International Pcl Warrants, Expires 2/08/09 *(a) 356,528
480,663 Telecomasia Corp Pcl Warrants, Expires 4/03/08 *(a) --
---------------
445,206
---------------
TOTAL RIGHTS AND WARRANTS (COST $366,616) 454,834
---------------
SHORT-TERM INVESTMENTS -- 1.3%
CASH EQUIVALENTS -- 1.3%
1,800,000 Banc One Corp, 1.01%, due 3/01/04 1,800,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,800,000) 1,800,000
---------------
TOTAL INVESTMENTS -- 100.1%
(Cost $89,508,860) 141,721,239
Other Assets and Liabilities (net) -- (0.1%) (106,771)
---------------
TOTAL NET ASSETS -- 100.0% $ 141,614,468
===============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
Foreign Registered - shares issued to foreign investors in
markets that have foreign ownership limits.
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 2).
(b) Bankrupt issuer.
See accompanying notes to the financial statements.
6
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
------------------------------------------------------------
Telecommunication Services 27.3%
Financials 17.6
Materials 13.8
Energy 12.9
Consumer Discretionary 8.7
Industrials 6.1
Consumer Staples 5.8
Information Technology 4.6
Utilities 3.2
-----
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 -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $89,508,860) (Note 2) $ 141,721,239
Cash 36,715
Foreign currency, at value (cost $21,856) (Note 2) 21,741
Dividends and interest receivable 63,710
Receivable for expenses reimbursed by Manager (Note 3) 8,198
---------------
Total assets 141,851,603
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 92,734
Shareholder service fee 17,173
Trustees fee 286
Accrued expenses 126,942
---------------
Total liabilities 237,135
---------------
NET ASSETS $ 141,614,468
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 92,319,145
Accumulated undistributed net investment income 2,620,430
Accumulated net realized loss (5,537,624)
Net unrealized appreciation 52,212,517
---------------
$ 141,614,468
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 141,614,468
===============
SHARES OUTSTANDING:
Class III 10,285,922
===============
NET ASSET VALUE PER SHARE:
Class III $ 13.77
===============
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $610,344) $ 4,095,308
Interest 17,099
---------------
Total income 4,112,407
---------------
EXPENSES:
Management fee (Note 3) 1,107,505
Shareholder service fee (Note 3) - Class III 205,094
Custodian fees 387,888
Transfer agent fees 28,023
Audit and tax fees 53,875
Legal fees 6,867
Trustees fees and related expenses (Note 3) 2,850
Registration fees 3,179
Miscellaneous 3,222
---------------
Total expenses 1,798,503
Fees and expenses reimbursed by Manager (Note 3) (90,320)
---------------
Net expenses 1,708,183
---------------
Net investment income 2,404,224
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 30,646,222
Foreign currency, forward contracts and foreign currency related transactions 9,482
---------------
Net realized gain 30,655,704
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 55,011,918
Foreign currency, forward contracts and foreign currency related transactions (1,628)
---------------
Net unrealized gain 55,010,290
---------------
Net realized and unrealized gain 85,665,994
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 88,070,218
===============
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
2004 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,404,224 $ 915,389
Net realized gain (loss) 30,655,704 (4,512,054)
Change in net unrealized appreciation (depreciation) 55,010,290 (7,689,959)
----------------- -----------------
Net increase (decrease) in net assets from operations 88,070,218 (11,286,624)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (809,606) (749,692)
----------------- -----------------
Net share transactions (Note 7):
Class III (50,999,948) (487,810)
----------------- -----------------
Decrease in net assets resulting from net share transactions (50,999,948) (487,810)
----------------- -----------------
Total increase (decrease) in net assets 36,260,664 (12,524,126)
NET ASSETS:
Beginning of period 105,353,804 117,877,930
----------------- -----------------
End of period (including accumulated undistributed net investment income of
$2,620,430 and $803,288, respectively) $ 141,614,468 $ 105,353,804
================= =================
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25 $ 8.09 $ 7.87 $ 12.35 $ 7.67
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.23 0.06 0.07 0.09 0.03
Net realized and unrealized gain (loss) 6.35 (0.85) 0.26 (3.32) 5.01
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.58 (0.79) 0.33 (3.23) 5.04
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.06) (0.05) (0.11) (0.01) (0.02)
From net realized gains -- -- -- (1.24) (0.34)
---------- ---------- ---------- ---------- ----------
Total distributions (0.06) (0.05) (0.11) (1.25) (0.36)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.77 $ 7.25 $ 8.09 $ 7.87 $ 12.35
========== ========== ========== ========== ==========
TOTAL RETURN (a) 91.04% (9.82)% 4.41% (27.45)% 65.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 141,614 $ 105,354 $ 117,878 $ 113,927 $ 119,218
Net expenses to average daily net assets 1.25% 1.35% 1.28% 1.30% 1.25%
Net investment income to average daily net assets 1.76% 0.80% 1.01% 1.22% 0.22%
Portfolio turnover rate 39% 72% 68% 84% 121%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.07% 0.06% 0.09% 0.07% 0.07%
Purchase and redemption fees consisted
of the following per share amounts: (b) $ 0.02 $ 0.00(c) $ 0.00(c) $ 0.03 --
</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 which are borne by the shareholder.
(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.
See accompanying notes to the financial statements.
11
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
12
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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
February 29, 2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of
13
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
a futures contract can vary from the previous day's settlement price,
thereby effectively preventing liquidation of unfavorable positions. Losses
may arise from the changes in the value of the underlying instrument, if
the Fund is unable to liquidate a futures position due to an illiquid
secondary market for the contracts or the imposition of price limits, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. As of February 29, 2004, 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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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
14
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap contracts 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 February 29, 2004, 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
February 29, 2004, 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
15
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distribution paid were as follows: ordinary income -
$809,606 and $749,692, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $2,635,874 of undistributed ordinary income.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code of
$5,276,432 expiring in 2011.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net value of
the Fund and is primarily attributable to passive foreign investment
company transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
---------------------- ------------------- ------------------
$ 222,524 $ (222,523) $ (1)
</Table>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
16
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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, it will waive the purchase premium or redemption
fee 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 cause the Fund to incur transaction
costs. All purchase premiums and redemption fees are paid to and recorded
by the Fund as paid-in capital. For the years ended February 29, 2004 and
February 28, 2003, the Fund received $59,456 and $32,588 in purchase
premiums, respectively and $247,420 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.
3. 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,
17
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 .81% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended was $1,741. No remuneration is paid to any Trustee or
officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$51,148,103 and $101,911,584, respectively.
At February 29, 2004, 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
----------------- ----------------- ----------------- --------------
$ 89,785,496 $ 56,612,827 $ (4,677,084) $ 51,935,743
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 76.5% of the outstanding shares of the Fund were held
by five 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. At February 29, 2004, 4.71% of the Fund was
held by fourteen related parties.
18
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 1,429,811 $ 15,578,285 507,393 $ 4,075,321
Shares issued to shareholders
in reinvestment of distributions 40,217 384,474 39,072 330,158
Shares repurchased (5,724,218) (66,962,707) (583,805) (4,893,289)
------------- ------------- ------------- -------------
Net decrease (4,254,190) $ (50,999,948) (37,340) $ (487,810)
============= ============= ============= =============
</Table>
19
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO ASIA FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Asia Fund (the "Fund") (a
series of GMO Trust) at, and the results of its operations, the changes in its
net assets and the financial highlights for the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
20
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of
$610,344 and recognized foreign source income of $4,705,652.
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 9.10% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
21
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- ---------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Glazer, Trustee Since December Advisory
Esq. 2000 Counsel, 41 None
c/o GMO Trust Goodwin Procter
40 Rowes Wharf LLP; Secretary
Boston, MA 02110 and Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)(1998
- present);
Consultant -
Business and
Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
22
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- ---------------
R. Jeremy Chairman of the Since September Chairman,
Grantham(3) Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
23
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ---------------------------- ----------------------- -------------------------- ----------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer since (1997-present), Chief Operating
40 Rowes Wharf October 2002; Vice Officer (2000 - present) and
Boston, MA 02110 President from August Member, Grantham, Mayo, Van
DOB: 01/20/1956 1998 - October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Officer Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Treasurer since February 2000; Otterloo & Co. LLC.
40 Rowes Wharf Treasurer since February
Boston, MA 02110 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo &
40 Rowes Wharf Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003) and
Boston, MA 02110 present and May 1999 - Member, Grantham, Mayo, Van
DOB: 07/20/1965 August 1999. Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Secretary Grantham, Mayo, Van Otterloo &
40 Rowes Wharf since March 2001. Co. LLC (June 1999 - present);
Boston, MA 02110 Associate/Junior Partner, Hale
DOB: 02/18/1945 and Dorr LLP (1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Laundering Officer (February 2003 - present)
40 Rowes Wharf Compliance Officer and Compliance Officer, Grantham,
Boston, MA 02110 Mayo, Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
24
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
Emerging Markets Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Taiwan Fund returned +49.5% for the fiscal year ended February 29, 2004,
as compared to +62.7% for the MSCI Taiwan Index. Consistent with the Fund's
investment objectives and policies, throughout the period the Fund was invested
substantially in emerging market equities tied economically to Taiwan.
Poor stock selection accounted for the bulk of underperformance. The value and
momentum strategies underperformed, costing the Fund almost 10%.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
TAIWAN FUND
As Of: 2/29/2004
<Table>
<Caption>
GMO TAIWAN FUND MSCI TAIWAN INDEX
10/4/2002 4,992,500 5,000,000
12/31/2002 4,999,990 5,537,665
3/31/2003 4,935,085 5,381,650
6/30/2003 5,516,710 6,211,165
9/30/2003 6,334,695 7,626,050
12/31/2003 6,442,145 7,858,570
2/29/2004 7,535,775 8,884,255
</Table>
Average Annual Returns
Inception 10/4/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
48.63 N/A 33.89
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 15 bp on the purchase and 45 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 100.0%
TAIWAN -- 100.0%
525,000 Accton Technology Corp 467,471
5,400,716 Acer Inc 8,500,602
2,272,000 Advanced Semiconductor Engineering Inc * 2,561,151
493,000 Arima Computer Corp * 205,447
834,000 Asia Cement Corp 592,589
5,378,000 Asustek Computer Inc 14,108,080
700,800 AU Optronics Corp 1,166,074
9,028,000 Benq Corp 12,423,481
1,723,000 BES Engineering Corp * 392,589
1,361,000 Cathay Financial Holding Co Ltd 2,672,628
4,499,000 Cathay Real Estate Development Co Ltd * 2,724,623
473,000 Chang Hwa Commercial Bank * 321,904
735,000 Cheng Loong Corp 330,535
1,113,000 Chi Mei Optoelectronics Corp * 1,655,068
5,732,000 China Bills Finance Corp * 1,967,663
19,023,037 China Development Financial Holding Corp 10,607,959
3,646,000 China Life Insurance Co * 2,710,862
1,370,000 China Motor Corp Ltd 2,751,911
10,898,000 China Petrochemical Development Corp * 2,368,775
10,568,015 China Steel Corp 10,772,373
2,108,340 Chinatrust Financial Holding Co 2,515,723
8,000 Chunghwa Picture Tubes Ltd * 4,677
1,187,000 Chunghwa Telecom Co Ltd 1,939,484
69,000 Compal Electronics Inc 93,089
2,152,000 Compeq Manufacturing Co Ltd * 1,245,199
558,410 Delta Electronics Inc 753,364
1,634,000 Elitegroup Computer Systems 1,675,395
274,000 Far Eastern Department Stores Ltd * 148,685
2,444,000 Far Eastern Textile Co Ltd 1,758,537
227,000 First Financial Holding Co Ltd * 187,834
143,100 First Financial Holding Co Ltd GDR * 2,382,615
1,394,000 Formosa Chemicals & Fibre Co 2,215,020
341,000 Formosa Taffeta Co 163,574
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
143,000 Fubon Financial Holding Co Ltd 152,196
975,050 GigaByte Technology Co Ltd 1,841,647
1,490,000 Goldsun Development & Construction Co Ltd * 386,404
469,000 Hon Hai Precision Industry Co Ltd 2,081,007
122,000 Hua Nan Financial Holdings Co Ltd * 114,484
510,150 International Bank of Taipei 397,658
7,432,400 Inventec Co Ltd 4,902,198
222,000 Lite-On Technology Corp 272,883
2,204,000 Macronix International * 680,594
432,400 MediaTek Inc 4,900,231
378,000 Mega Financial Holdings Co Ltd 275,383
2,052,000 Micro-Star International Co Ltd 3,383,601
3,222,000 Mosel Vitelic Inc * 346,784
6,837,571 Orient Semiconductor Electronics Ltd * 1,650,201
454,000 POU Chen Corp 524,029
58,000 President Chain Store Corp 116,504
1,430,000 Prodisc Technology Inc * 1,363,334
2,775,100 Quanta Computer Inc 7,030,309
429,000 Realtek Semiconductor Corp 797,422
784,000 Ritek Corp * 571,165
927,000 Siliconware Precision Industries * 1,008,847
491,000 Sinopac Holdings Co 279,688
499,000 Sunplus Technology Co Ltd 1,122,021
157,000 Synnex Technology International Corp 273,003
1,406,000 Taichung Commercial Bank * 429,956
262,000 Taishin Financial Holdings Co Ltd 238,003
1,022,000 Taiwan Cellular Corp 986,611
12,489,520 Taiwan Cement Corp 7,488,844
4,915,400 Taiwan Semiconductor Manufacturing Co Ltd * 9,357,754
2,237,000 Taiwan Synthetic Rubber Corp * 979,169
6,000 Taiwan Tea Corp * 1,583
7,656,000 Tatung Co * 3,098,666
3,491,000 Teco Electric & Machinery 1,538,531
4,455,000 United Microelectronics Corp * 4,060,321
18,043,000 Walsin Lihwa Corp * 8,817,296
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
1,238,000 Waterland Financial Holdings * 452,814
4,067,000 Winbond Electronics Corp * 2,158,174
2,445,000 Yageo Corp * 1,312,112
1,626,000 Yang Ming Marine Transport 1,974,307
5,693,000 Yieh Loong Enterprise Co Ltd * 2,969,816
4,444,000 Yulon Motor Co Ltd 6,515,113
---------------
181,235,644
---------------
TOTAL COMMON STOCKS (COST $146,194,616) 181,235,644
---------------
SHORT-TERM INVESTMENTS -- 0.1%
CASH EQUIVALENTS -- 0.1%
200,000 Banc One Corp, 1.01%, due 3/01/04 200,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $200,000) 200,000
---------------
TOTAL INVESTMENTS -- 100.1%
(Cost $146,394,616) 181,435,644
Other Assets and Liabilities (net) -- (0.1%) (122,575)
---------------
TOTAL NET ASSETS -- 100.0% $ 181,313,069
===============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
GDR - Global Depository Receipt
* Non-income producing security.
See accompanying notes to the financial statements.
3
<Page>
SCHEDULE OF INVESTMENTS - INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
---------------------------------------------------
Information Technology 51.8%
Financials 15.7
Materials 15.5
Industrials 9.7
Consumer Discretionary 5.6
Telecommunication Services 1.6
Consumer Staples 0.1
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $146,394,616) (Note 2) $ 181,435,644
Cash 84,383
Foreign currency, at value (cost $48,321) (Note 2) 48,031
Interest receivable 17
---------------
Total assets 181,568,075
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 110,747
Shareholder service fee 20,509
Trustees fee 308
Accrued expenses 123,442
---------------
Total liabilities 255,006
---------------
NET ASSETS $ 181,313,069
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 136,847,932
Distributions in excess of net investment income (426,894)
Accumulated net realized gain 9,851,293
Net unrealized appreciation 35,040,738
---------------
$ 181,313,069
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 181,313,069
===============
SHARES OUTSTANDING:
Class III 6,111,325
===============
NET ASSET VALUE PER SHARE:
Class III $ 29.67
===============
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $256,039) $ 1,063,649
Interest 13,242
---------------
Total income 1,076,891
---------------
EXPENSES:
Management fee (Note 3) 909,838
Shareholder service fee (Note 3) - Class III 168,489
Custodian fees 368,784
Transfer agent fees 27,177
Audit and tax fees 45,591
Legal fees 7,218
Trustees fees and related expenses (Note 3) 1,978
Miscellaneous 734
---------------
Total expenses 1,529,809
---------------
Net investment loss (452,918)
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 11,257,496
Foreign currency, forward contracts and foreign currency related transactions 113,143
---------------
Net realized gain 11,370,639
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 35,060,666
Foreign currency, forward contracts and foreign currency related transactions (293)
---------------
Net unrealized gain 35,060,373
---------------
Net realized and unrealized gain 46,431,012
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 45,978,094
===============
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
PERIOD FROM OCTOBER 4, 2002
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 2004 THROUGH FEBRUARY 28, 2003
----------------- ----------------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss $ (452,918) $ (274,013)
Net realized gain 11,370,639 1,295,721
Change in net unrealized appreciation (depreciation) 35,060,373 (19,635)
----------------- ----------------
Net increase in net assets from operations 45,978,094 1,002,073
----------------- ----------------
Distributions to shareholders from:
Net investment income
Class III (115,236) --
Net realized gains
Class III (2,399,795) --
----------------- ----------------
(2,515,031) --
----------------- ----------------
Net share transactions (Note 7):
Class III 96,682,649 40,165,284
----------------- ----------------
Increase in net assets resulting from net share transactions 96,682,649 40,165,284
----------------- ----------------
Total increase in net assets 140,145,712 41,167,357
NET ASSETS:
Beginning of period 41,167,357 --
----------------- ----------------
End of period (including distributions in excess of net
investment income of $426,894 and $0, respectively) $ 181,313,069 $ 41,167,357
================= ================
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------
2004 2003(a)
---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.28 $ 20.00
---------- ----------
Income from investment operations:
Net investment loss+ (0.10) (0.12)
Net realized and unrealized gain 10.03 0.40
---------- ----------
Total from investment operations 9.93 0.28
---------- ----------
Less distributions to shareholders:
From net investment income (0.02) --
From net realized gains (0.52) --
---------- ----------
Total distributions (0.54) --
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 29.67 $ 20.28
========== ==========
TOTAL RETURN (b) 49.53% 1.40%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 181,313 $ 41,167
Net expenses to average daily net assets 1.36% 1.76%*
Net investment income to average daily net assets (0.40)% (1.43)%*
Portfolio turnover rate 86% 50%**
Purchase and redemption fees consisted of the following per share
amounts: $ 0.04 $ 0.01
</Table>
* Annualized.
** Not Annualized.
+ Computed using average shares outstanding throughout the period.
(a) Period from October 4, 2002 (commencement of operations) through February
28, 2003.
(b) Calculation excludes purchase premiums and redemption fees which are borne
by the shareholders.
See accompanying notes to the financial statements.
8
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Taiwan Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees 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 principally available to other GMO Funds and certain
accredited investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign securities held by the Fund be valued using
fair value prices supplied by an independent pricing service to the extent
that such prices are available.
9
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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
February 29, 2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of
10
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
a futures contract can vary from the previous day's settlement price,
thereby effectively preventing liquidation of unfavorable positions. Losses
may arise from the changes in the value of the underlying instrument, if
the Fund is unable to liquidate a futures position due to an illiquid
secondary market for the contracts or the imposition of price limits, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. As of February 29, 2004, 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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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
11
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap contracts 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 February 29, 2004, there were no outstanding swap
contracts.
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
February 29, 2004, 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
12
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 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. During the year ended February 29, 2004, the tax basis of
distributions paid for ordinary income was $2,515,031.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $6,091,720 and $3,832,549 of undistributed ordinary
income and undistributed long-term gains, respectively. The temporary
differences between book and tax basis distributable earnings are primarily
due to passive foreign investment transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net value of
the Fund and is primarily attributable to foreign currency transactions and
net operating loss. The financial highlights exclude these adjustments.
<Table>
<Caption>
DISTRIBUTIONS ACCUMULATED
IN EXCESS OF NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
------------------------ --------------------- -----------------
$ 141,260 $ (141,259) $ (1)
</Table>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
13
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
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 years
ended February 29, 2004 and February 28, 2003, the Fund received $154,266
and $74,686 in purchase premiums, respectively and $38,972 and $43,358 in
redemption fees, respectively. 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
14
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Taiwanese markets are relatively illiquid. Accordingly, the Fund may not be
able to realize in an actual sale amounts approximating those used to value
its holdings. The Fund may concentrate investments in the securities of a
small number of issuers. As a result, the value of the Fund's shares can be
expected to change in light of factors affecting those issuers and may
fluctuate more widely than the value of shares of a portfolio that invests
in a broader range of securities.
3. 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% of average daily
net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $1,379. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchase and proceeds from sales of securities, excluding
short-term investments, for the February 29, 2004, aggregated $187,095,015
and $93,611,482, respectively.
At February 29, 2004, 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
---------------------- ---------------------- ---------------------- ---------------------
$ 146,894,486 $ 35,072,159 $ (531,001) $ 34,541,158
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
15
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 79.7% 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.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
PERIOD FROM OCTOBER 4, 2002
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 2004 THROUGH FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 4,355,258 $ 103,213,761 2,471,225 $ 49,791,166
Shares issued to shareholders
in reinvestment of distributions 101,473 2,495,888 -- --
Shares repurchased (375,789) (9,027,000) (440,842) (9,625,882)
------------- ------------- ------------- -------------
Net increase 4,080,942 $ 96,682,649 2,030,383 $ 40,165,284
============= ============= ============= =============
</Table>
16
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO TAIWAN FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Taiwan Fund (the "Fund") (a
series of the GMO Trust) at February 29, 2004, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
17
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$2,399,795 from short-term capital gains.
For taxable, non corporate shareholders, 51.97% of the Fund's income and
short-term capital gains represents qualified dividend income subject to
the 15% rate category.
18
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Glazer, Trustee Since Advisory
Esq. December 2000 Counsel, 41 None
c/o GMO Trust Goodwin Procter
40 Rowes Wharf LLP; Secretary
Boston, MA 02110 and Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)(1998
- present);
Consultant -
Business and
Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
19
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ---------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
20
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ---------------------------- ----------------------- -------------------------- ----------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member, Grantham,
DOB: 01/20/1956 August 1998 - October Mayo, Van Otterloo & Co. LLC.
2002.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since February Otterloo & Co. LLC.
40 Rowes Wharf Treasurer 2000; Treasurer since
Boston, MA 02110 February 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo &
40 Rowes Wharf Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 -August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Secretary Grantham, Mayo, Van Otterloo &
40 Rowes Wharf since March 2001. Co. LLC (June 1999 -
Boston, MA 02110 present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and Compliance
Boston, MA 02110 Compliance Officer Officer, Grantham, Mayo, Van
DOB: 10/07/1970 Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
21
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Active Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Foreign Small Companies Fund returned +65.8% for
the fiscal year ended February 29, 2004, as compared to +70.6% for the
S&P/Citigroup EMI World ex-U.S. Index. Consistent with the Fund's investment
objectives and policies, the Fund was invested substantially in equity
securities of small companies in countries outside of the U.S. throughout the
fiscal year.
Stock selection subtracted 5.9% from returns for the fiscal year. Stock
selection underperformed in Finland, Japan, Canada, Norway, and Ireland, and
outperformed in Switzerland, Italy, and Germany.
Country selection added 1.1% to performance for the fiscal year. Positive
impacts came from overweight positions in Norway, Finland, and Ireland, which
added 0.4%, 0.3%, and 0.2%, respectively, to returns. On the negative side, an
underweight position in the United Kingdom subtracted 0.4% from performance.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
FOREIGN SMALL COMPANIES FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO FOREIGN SMALL COMPANIES FUND S&P/CITIGROUP EMI WORLD EX-U.S. INDEX
1/4/1995 5,000,000 5,000,000
3/31/1995 4,968,070 5,030,975
6/30/1995 5,122,100 5,028,515
9/30/1995 5,372,135 5,227,435
12/31/1995 5,418,190 5,327,270
3/31/1996 5,714,765 5,633,435
6/30/1996 6,142,365 5,882,325
9/30/1996 6,113,925 5,749,270
12/31/1996 6,615,025 5,713,665
3/31/1997 6,589,325 5,608,450
6/30/1997 7,117,405 6,011,635
9/30/1997 7,086,510 5,769,340
12/31/1997 6,363,415 5,175,825
3/31/1998 7,054,840 6,066,135
6/30/1998 6,993,815 6,044,145
9/30/1998 5,777,190 5,129,600
12/31/1998 6,650,515 5,804,665
3/31/1999 6,852,875 5,887,175
6/30/1999 7,799,125 6,249,160
9/30/1999 8,555,355 6,566,910
12/31/1999 9,411,825 7,183,060
3/31/2000 9,522,740 7,329,120
6/30/2000 9,343,205 7,201,270
9/30/2000 8,689,180 6,822,215
12/31/2000 8,683,455 6,442,695
3/31/2001 8,608,275 5,755,870
6/30/2001 9,172,135 5,930,875
9/30/2001 8,306,640 5,017,005
12/31/2001 9,000,890 5,431,170
3/31/2002 9,810,390 5,757,295
6/30/2002 10,330,785 5,872,775
9/30/2002 8,846,700 4,838,080
12/31/2002 9,237,325 5,035,180
3/31/2003 8,895,925 4,803,505
6/30/2003 10,661,455 5,918,040
9/30/2003 11,881,095 6,696,825
12/31/2003 13,923,770 7,740,430
2/29/2004 14,762,190 8,260,450
</Table>
Average Annual Returns
Inception 1/4/1995
<Table>
<Caption>
1YR 5YR 10YR(ITD)
65.76 17.99 12.55
</Table>
FOREIGN SMALL COMPANIES FUND-IV
As Of: 2/29/2004
Average Annual Returns
Inception 6/14/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
65.92 N/A 24.11
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The Fund commenced operations on June 30, 2000 subsequent to a transaction
involving, in essence, the reorganization of the GMO Small Cap Active Pool of
the Common Fund for Non-Profit Organizations (the "GMO Pool") as the Foreign
Small Companies Fund. All information relating to the time periods prior to June
30, 2000 relates to the GMO Pool. The total returns would have been lower had
certain expenses not been reimbursed during the periods shown and do not include
the effect of taxes on distributions and redemptions. Performance for Class IV
may vary due to different fees. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 96.1%
AUSTRALIA -- 2.1%
379,910 Amcor Ltd 2,259,952
1,393,304 Brazin Ltd 1,462,005
480,797 Consolidated Rutile Ltd * 222,575
2,986,574 David Jones Ltd 3,202,965
276,587 Foodland Associated 4,338,436
705,372 John Fairfax Holdings Ltd 1,844,939
201,000 Lihir Gold Ltd 172,141
6,000 Lihir Gold Ltd ADR 144A * 103,800
608,500 Pacifica Group Ltd 1,985,935
825,000 Pasminco Ltd *(a) --
559,600 Sons of Gwalia Ltd * 1,368,677
---------------
16,961,425
---------------
AUSTRIA -- 1.2%
29,000 Boehler Uddeholm (Bearer) 2,197,982
22,350 Erste Bank Der Oesterreichischen Sparkassen AG 3,121,334
20,677 Flughafen Wien AG 1,143,257
15,480 OMV AG 2,495,599
35,000 Wienerberger AG 1,104,582
---------------
10,062,754
---------------
BELGIUM -- 1.6%
61,070 Almanij NV 3,724,923
37,918 Bekaert SA 2,185,577
167 CIE Francois d' Entreprises 40,877
68,300 KBC Bancassurance Holding 3,900,292
32,964 Omega Pharma SA 1,355,293
17,990 Solvay SA 1,519,975
5,006 Unibra SA 454,057
---------------
13,180,994
---------------
BRAZIL -- 0.5%
479,600 Cia de Concessoes Rodoviarias 4,026,170
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
CANADA -- 0.8%
635,000 Hudson's Bay Co 6,171,343
90,600 KAP Resources Ltd *(a) 675
---------------
6,172,018
---------------
CHILE -- 0.1%
30,600 CorpBanca SA ADR 144A 829,961
---------------
CROATIA -- 0.3%
160,000 Pliva D.D. 2,608,000
---------------
DENMARK -- 0.6%
36,000 Kobenhavns Lufthavne AS 4,741,897
---------------
FINLAND -- 4.3%
216,900 Aspocomp Group Oyj 3,233,979
302,150 Jaakko Poyry Group 8,296,812
1,178,160 Rapala VMC Oyj * 8,856,376
267,600 Stockmann Oyj AB Class B 6,267,493
249,500 Uponor Oyj 8,308,100
---------------
34,962,760
---------------
FRANCE -- 7.0%
23,271 Bacou Dalloz 2,168,566
52,700 Bail Investissement 1,633,720
22,800 BIC SA 985,566
161,900 Boursorama * 1,311,568
30,216 Buffalo Grill 484,310
391,900 Canal Plus 2,702,493
3,700 Casino Guichard Perrachon SA 366,861
7,320 Christian Dior SA 498,866
42,444 Clarins 2,750,217
6,450 Damartex SA * 155,875
44,100 Essilor International SA 2,528,755
39,101 Eurazeo 2,948,988
6,300 Gaumont SA * 352,170
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
FRANCE -- CONTINUED
31,108 Groupe Partouche * 469,232
9,000 Guyenne et Gascogne SA 1,043,886
11,400 Imerys SA 2,497,201
17,700 Klepierre 1,202,976
22,100 Lagardere S.C.A. 1,338,638
55,200 LISI 2,523,965
75,000 M6-Metropole Television 2,284,957
76,000 Michelin SA Class B 3,663,884
9,407 Natexis Banques Populaires 1,095,769
26,954 Pinault-Printemps-Redoute SA 2,910,311
45,000 Publicis Groupe 1,555,486
1,351 SAGA * 63,787
34,600 Schneider Electric SA 2,299,992
1,416,000 SCOR SA * 2,779,820
18,500 Seb SA 2,298,625
7,250 SOMFY International SA 1,396,259
25,000 Thales SA 951,134
34,000 Valeo SA 1,565,177
51,872 Virbac SA 1,991,535
30,001 Worms et Cie SA 775,346
99,341 Zodiac SA 3,089,483
---------------
56,685,418
---------------
GERMANY -- 8.8%
178,680 Aareal Bank AG 5,483,645
32,992 Adidas-Salomon AG 3,722,124
93,000 Celesio AG 4,890,182
59,200 Commerzbank AG 1,147,474
190,200 Continental AG 7,798,675
192,200 Deutsche Lufthansa AG 3,438,842
133,617 Fraport AG * 4,009,362
57,700 Fresenius Medical Care AG 3,867,797
102,747 Hannover Rueckversicherungs AG (Registered) 3,670,315
10,505 HeidelbergCement AG * 469,889
96,520 Heidelberger Druckmaschinen * 3,513,835
303,000 Hochtief AG 9,359,231
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
179,170 IWKA AG 4,307,672
85,673 K&S AG 2,788,956
83,340 Repower Systems AG 2,138,306
10,000 Rheinmetall AG 347,900
45,000 Singulus Technologies * 996,920
100,622 Suedzucker AG 1,944,105
405,100 ThyssenKrupp AG 7,816,820
---------------
71,712,050
---------------
GREECE -- 0.4%
175,000 Greek Organization of Football Prognostics SA 3,235,470
---------------
HONG KONG -- 2.8%
2,083,000 Hang Lung Group Co Ltd 3,278,166
1,500,000 Hang Lung Properties Ltd 2,167,950
3,600,000 HKR International Ltd * 1,387,488
1,929,000 Hopewell Highway Infrastructure Ltd 1,189,540
1,500,000 Hysan Development Co Ltd 2,823,153
700,000 Lee & Man Paper Manufacturing Ltd * 705,949
918,000 Orient Overseas International Ltd 3,160,698
3,000,000 Oriental Press Group 1,117,699
1,300,000 Shangri-LA Asia Ltd 1,219,191
1,800,000 Techtronic Industries Co 5,966,199
---------------
23,016,033
---------------
INDIA -- 0.7%
891,984 Arvind Mills Ltd * 833,123
293,262 Corporation Bank 1,629,197
200,000 Great Eastern Shipping Co 627,832
111,098 Himatsingka Seide Ltd 777,330
1,435,450 Mirc Electronics Ltd 867,902
257,806 Raymond Ltd 1,071,461
---------------
5,806,845
---------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
INDONESIA -- 0.8%
972,300 International Nickel 5,174,867
15,700,000 PT Bank Pan Indonesia Tbk 649,911
9,084,000 Surya Citra Media Tbk 832,655
---------------
6,657,433
---------------
IRELAND -- 1.7%
718,000 Grafton Group Plc (New Units) * 5,352,690
250,890 Greencore Group 1,041,181
379,440 IFG Group Plc 594,032
230,000 Irish Continental Group Plc 3,429,300
230,000 Irish Life & Permanent Plc 3,743,652
---------------
14,160,855
---------------
ITALY -- 3.4%
255,000 Arnoldo Mondadori Editore SPA 2,541,037
675,475 Banca Intesa SPA 2,509,440
187,500 Banche Popolari Unite Scrl * 3,329,123
209,800 Benetton Group SPA 2,359,122
174,200 Buzzi Unicem SPA 2,112,489
49,700 Davide Campari-Milano SPA 2,283,598
663,800 ERG SPA 3,422,802
9,585 Ericsson SPA 310,239
357,716 Grouppo Editoriale L'Espresso 2,213,421
30,000 Pagnossin SPA * 48,420
155,552 RAS SPA 2,825,657
1,759,364 Telecom Italia SPA * 3,902,027
---------------
27,857,375
---------------
JAPAN -- 19.5%
123,200 Arisawa Manufacturing 4,228,446
900,000 Bank of Yokohama 3,756,178
875,000 Brother Industries Ltd 8,248,673
96,000 Cawachi Ltd 7,020,319
875,000 Central Glass Co Ltd 5,685,978
200,000 Daikin Industries Ltd 4,393,191
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
300,000 Dainippon Screen Manufacturing Co Ltd * 2,097,748
475,000 Daito Trust Construction Co Ltd 16,389,804
120,000 Diamond Lease Co Ltd 3,789,127
80,000 Funai Electric Co Ltd 11,224,602
750,000 Gunze Ltd 3,233,114
380,000 Izumi Co Ltd 5,769,907
800,000 JACCS Co 3,697,602
470 Japan Retail Fund Investment Corp 2,950,943
321,000 Juki Corp * 957,770
1,100,000 Kobe Steel Ltd * 1,328,940
175,000 Koei Co Ltd 5,173,440
29,800 Kose Corp 998,243
1,250,000 Marubeni Corp 2,516,932
384,000 Mazda Motor Corp 1,184,404
400,000 Mitsui Trust Holding Inc * 1,793,886
900,000 NHK Spring Co Ltd 4,843,493
350,000 Nippon Electric Glass Co Ltd 7,111,477
700,000 Nippon Mining Holdings Inc 2,440,967
1,300,000 Oki Electric Industry Co Ltd * 5,782,537
300 ORIX JREIT Inc 1,534,871
3,000,000 Showa Denko 6,013,180
750,000 Showa Shell Sekiyu 6,040,637
300,000 Taisei Corp 1,043,383
265,000 TIS Inc 10,477,759
343,000 Tokai Rubber Industries 4,570,822
570,000 Toyo Suisan Kaisha 6,708,951
500,000 Yamaha Motor Co 5,848,435
---------------
158,855,759
---------------
MALAYSIA -- 0.0%
211,000 Bandar Raya Developments Berhad 128,266
---------------
MEXICO -- 0.5%
1,346,700 Grupo Imsa SA Class UBC 2,762,898
1,675,000 Sare Holding SA de CV * 1,074,834
---------------
3,837,732
---------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
NETHERLANDS -- 1.7%
110,300 Fortis NV 2,551,829
3,939 Fugro NV 227,630
528,139 Hagemeyer NV 1,253,366
49,800 Imtech NV 1,278,368
99,144 Kas Bank NV 1,916,781
54,741 Koninklijke Vendex KBB NV 938,617
27,200 Laurus NV * 43,259
37,626 Nutreco Holding NV 1,217,378
5,862 Roto Smeets de Boer NV 178,447
35,914 VNU NV 1,170,019
150,000 Wolters Kluwer NV 2,678,209
---------------
13,453,903
---------------
NEW ZEALAND -- 0.3%
230,000 Air New Zealand * 64,643
1,207,475 Evergreen Forests Ltd * 380,753
179,232 Fletcher Challenge Forests Ltd * 163,409
1,927,200 Tourism Holdings Ltd 1,981,643
---------------
2,590,448
---------------
NORWAY -- 2.0%
405,390 Ekornes ASA 7,889,598
370,550 Prosafe ASA 8,369,610
---------------
16,259,208
---------------
SINGAPORE -- 0.8%
2,159,000 Allgreen Properties Ltd 1,458,570
1,000,000 GES International Ltd 420,032
425,000 Hong Leong Finance Ltd 691,585
2,000,000 MobileOne Ltd 1,821,119
1,231,000 Singapore Post Ltd 542,370
1,400,000 United Overseas Land 1,686,004
---------------
6,619,680
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SOUTH AFRICA -- 0.8%
8,209,148 Allan Gray Property Trust 3,665,514
6,773,816 Martprop Property Fund 2,301,560
27,807 Western Areas Ltd * 133,109
---------------
6,100,183
---------------
SOUTH KOREA -- 1.9%
101,800 Asia Cement Co Ltd 2,934,541
73,773 FnC Kolon Corp 562,080
496,920 Handsome Corp 4,753,699
464,140 Hotel Shilla Co 2,182,563
113,270 Korea Electric Terminal Co 2,013,047
320,963 Kortek Corp 1,326,429
52,600 Sam Yang 899,031
240,000 Woongjin.com Co Ltd 564,286
---------------
15,235,676
---------------
SPAIN -- 2.9%
64,000 ACS Actividades Cons y Serv 3,238,054
238,992 Aguas de Barcelona SA Class A 3,928,616
84,400 Altadis SA 2,716,055
270,000 Amadeus Global Travel Distribution Class A 1,606,925
10,649 Bankinter SA 439,150
43,296 Cia de Distribucion Integral Logista SA 1,426,651
37,000 Cortefiel SA 449,611
70,000 Fomento de Construcciones y Contratas SA 2,564,023
106,800 Gas Natural SDG SA 2,660,615
70,000 Red Electrica de Espana 1,191,558
2,389 Sociedad General de Aguas de Barcelona SA * 38,291
90,000 Union Fenosa SA 1,847,349
100,000 Uralita SA * 1,087,188
---------------
23,194,086
---------------
SWEDEN -- 2.1%
197,900 Autoliv Inc SDR 8,732,993
532,400 Billerud AB 8,224,658
---------------
16,957,651
---------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SWITZERLAND -- 5.4%
24,000 AFG Arbonia-Forster Holding * 3,221,920
1,752 Bank Sarasin & Cie AG Class B (Registered) 3,172,788
2,500 Belimo Holding AG (Registered) 1,062,950
16,470 Bobst Group AG (Registered) 590,044
118,286 Charles Voegele Holding AG * 8,167,932
700 Eichhof Holding AG (Registered) 473,997
15,500 Fischer (George) AG (Registered) * 3,478,210
3,120 Forbo Holdings AG (Registered) * 877,005
6,401 Geberit AG (Registered) 3,255,814
17,510 Helvetia Patria Holding (Registered) 2,977,962
1,000 Jelmoli Holding AG (Bearer) 1,090,508
3,250 Jelmoli Holding AG (Registered) 703,712
38,970 Lonza Group AG (Registered) 1,962,231
10,000 Rieter Holding AG (Registered) 2,488,091
1,000 Schaffner Holding AG (Registered) * 174,993
7,248 Sika AG (Bearer) 3,509,720
65,000 Swisslog Holding AG (Registered) * 158,655
39,030 Unique Zurich Airport * 2,779,626
17,908 Valiant Holding (Registered) 1,438,224
10,650 Valora Holding AG 2,771,407
---------------
44,355,789
---------------
TAIWAN -- 0.2%
4,319,000 Arima Computer Corp * 1,799,853
---------------
THAILAND -- 0.2%
5,500,000 Asian Property Development Pcl (Foreign Registered) (a) 755,918
400,000 Siam Panich Leasing Ltd (Foreign Registered) (a) 402,138
600,000 Tipco Asphalt Pcl (Foreign Registered) *(a) 626,114
---------------
1,784,170
---------------
UNITED KINGDOM -- 20.7%
2,484,540 Aggregate Industries Plc 3,976,823
175,000 Alliance & Leicester Plc 2,820,584
168,033 Alliance Unichem Plc 1,674,557
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
303,207 Amersham Plc 4,473,398
343,173 Anglo Irish Bank Corp 5,850,104
682,342 Balfour Beatty Plc 3,127,737
575,000 BBA Group Plc 2,947,822
549,800 Bodycote International Plc 1,469,259
348,600 BPB Plc 2,406,587
500,000 British Airways Plc * 2,932,164
2,300,000 British Insurance Holdings Plc * 3,649,431
750,000 Brown (N) Group Plc 1,725,894
814,100 Carphone Warehouse Group Plc 2,035,812
513,842 Cattle's Plc 3,349,478
65,000 Cobham Group Plc 1,513,869
65,000 Computacenter Plc 524,426
463,424 Crest Nicholson 3,035,879
3,700,000 Dimension Data Holdings Plc * 2,815,249
696,493 FKI Plc 1,538,137
2,207,600 Fyffes Plc 4,701,152
250,000 Galen Holdings Plc 3,897,180
250,000 Gallaher Group Plc 3,062,070
233,226 Geest Plc 1,937,955
965,000 Hays Plc 2,507,186
127,400 Imperial Tobacco Group Plc 2,740,211
850,000 John Wood Group Plc 2,176,853
445,000 Kelda Group Plc 3,683,206
1,538,613 Kidde Plc 2,719,729
362,344 Kier Group Plc 4,478,437
205,000 Kingston Communications Plc * 273,916
60,376 Lonmin Plc 1,352,393
512,200 Matalan Plc 1,487,596
175,000 Next Plc 4,517,481
300,300 Northern Rock Plc 4,316,263
866,436 Novar Plc 2,178,748
400,000 Peninsular & Oriental Steam Navigation Co 1,703,624
274,031 Pennon Group Plc 3,432,690
1,284,614 Photo-Me International Plc * 3,194,542
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
2,050,000 PHS Group Plc 3,500,039
135,000 Provident Financial Plc 1,865,218
300,000 RAC Plc 3,802,534
405,000 Rank Group Plc 2,361,900
500,736 Rexam Plc 4,209,574
750,000 RM Plc 1,920,753
1,800,000 Royal & Sun Alliance Insurance Group 3,449,004
629,300 Smith (David S.) Holdings Plc 2,096,300
230,000 Smith (WH) Group Plc 1,171,659
689,300 Somerfield Plc 2,097,893
500,000 SSL International Plc 2,922,885
288,600 Tate & Lyle Plc 1,547,837
550,300 Tomkins Plc 2,742,048
110,000 Travis Perkins Plc 2,774,235
295,000 Trinity Mirror Plc 3,257,393
1,280,000 TT Electronics Plc 3,776,924
230,700 Ultra Electronics Holdings 2,555,954
315,000 Viridian Group Plc 3,387,624
488,100 Westbury Plc 4,184,870
165,100 William Hill Plc 1,522,771
167,800 Wolseley Plc 2,533,265
100,000 Xstrata Plc 1,326,897
575,000 Yell Group Plc 3,601,412
---------------
168,837,431
---------------
TOTAL COMMON STOCKS (COST $538,242,317) 782,687,293
---------------
PREFERRED STOCKS -- 1.5%
AUSTRALIA -- 0.1%
1,150,000 Village Roadshow Ltd 19.08% * 940,519
---------------
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES/
UNITS DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
BRAZIL -- 0.4%
890,000 Caemi Mineracao e Metalurgica SA * 427,811
800,000 Klabin SA 1,084,979
360,000 Suzano (Registered) 4.28% 1,678,558
---------------
3,191,348
---------------
FRANCE -- 0.1%
6,800 Casino Guichard Perrachon SA 3.74% 571,997
---------------
GERMANY -- 0.8%
10,686 Koegel Fahrzeugwerke AG * 35,849
57,826 Rheinmetall AG (Non Voting) 3.92% 2,166,242
150,000 Volkswagen AG 5.30% 4,808,475
---------------
7,010,566
---------------
ITALY -- 0.0%
10,000 IFI Istituto Finanziario Industries 4.82% * 86,230
---------------
NEW ZEALAND -- 0.1%
915,787 Fletcher Challenge Forests Ltd * 841,214
---------------
TOTAL PREFERRED STOCKS (COST $9,563,476) 12,641,874
---------------
RIGHTS AND WARRANTS -- 0.0%
SINGAPORE -- 0.0%
60,000 United Overseas Land Warrants, Expires 6/12/04 * 25,378
---------------
TOTAL RIGHTS AND WARRANTS (COST $18,235) 25,378
---------------
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.8%
CASH EQUIVALENTS -- 0.8%
6,400,000 Banc One Corp, 1.01%, due 3/01/04 6,400,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $6,400,000) 6,400,000
---------------
TOTAL INVESTMENTS -- 98.4%
(Cost $554,224,028) 801,754,545
Other Assets and Liabilities (net) -- 1.6% 12,942,580
---------------
TOTAL NET ASSETS -- 100.0% $ 814,697,125
===============
</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.
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
SDR - Swedish Depository Receipt
Foreign Registered - Shares issued to foreign investors in
markets that have foreign ownership limits.
* 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
2).
See accompanying notes to the financial statements.
13
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
FEBRUARY 29, 2004
At February 29, 2004, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
--------------------------------------------------------------
Consumer Discretionary 28.0%
Industrials 22.2
Financials 16.1
Materials 10.5
Information Technology 6.5
Consumer Staples 6.4
Health Care 3.8
Energy 3.2
Utilities 2.5
Telecommunication Services 0.8
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $554,224,028) (Note 2) $ 801,754,545
Cash 89,611
Foreign currency, at value (cost $10,086,793) (Note 2) 9,900,447
Receivable for investments sold 3,467,114
Receivable for Fund shares sold 5,000,000
Dividends and interest receivable 821,711
Foreign taxes receivable 336,164
Receivable for expenses reimbursed by Manager (Note 3) 118,493
---------------
Total assets 821,488,085
---------------
LIABILITIES:
Payable for investments purchased 914,145
Payable for Fund shares repurchased 5,000,000
Accrued capital gain and repatriation taxes payable (Note 2) 173,448
Payable to affiliate for (Note 3):
Management fee 451,073
Shareholder service fee 83,460
Trustees fee 1,456
Accrued expenses 167,378
---------------
Total liabilities 6,790,960
---------------
NET ASSETS $ 814,697,125
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 550,080,321
Distributions in excess of net investment income (1,190,012)
Accumulated net realized gain 18,610,734
Net unrealized appreciation 247,196,082
---------------
$ 814,697,125
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 480,966,088
===============
Class IV shares $ 333,731,037
===============
SHARES OUTSTANDING:
Class III 32,513,610
===============
Class IV 22,552,825
===============
NET ASSET VALUE PER SHARE:
Class III $ 14.79
===============
Class IV $ 14.80
===============
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $1,978,650) $ 16,150,475
Interest 418,478
---------------
Total income 16,568,953
---------------
EXPENSES:
Management fee (Note 3) 4,518,896
Shareholder service fee (Note 3) - Class III 570,260
Shareholder service fee (Note 3) - Class IV 265,384
Custodian fees 587,111
Transfer agent fees 42,781
Audit and tax fees 52,037
Legal fees 29,935
Trustees fees and related expenses (Note 3) 15,226
Registration fees 8,385
Miscellaneous 20,093
---------------
Total expenses 6,110,108
Fees and expenses reimbursed by Manager (Note 3) (740,342)
---------------
Net expenses 5,369,766
---------------
Net investment income 11,199,187
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments (net of foreign capital gains tax and CPMF tax of $190,187
and $5,225, respectively) (Note 2) 28,524,427
Foreign currency, forward contracts and foreign currency related transactions 2,614,315
---------------
Net realized gain 31,138,742
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (net of foreign capital gains tax accrual of $173,448) (Note 2) 281,599,665
Foreign currency, forward contracts and foreign currency related transactions (154,205)
---------------
Net unrealized gain 281,445,460
---------------
Net realized and unrealized gain 312,584,202
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 323,783,389
===============
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
2004 2003
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 11,199,187 $ 5,140,758
Net realized gain (loss) 31,138,742 (6,169,379)
Change in net unrealized appreciation (depreciation) 281,445,460 (39,077,009)
--------------- ---------------
Net increase (decrease) in net assets from operations 323,783,389 (40,105,630)
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III (9,757,175) (2,916,437)
Class IV (6,863,664) (2,632,475)
--------------- ---------------
Total distributions from net investment income (16,620,839) (5,548,912)
--------------- ---------------
(16,620,839) (5,548,912)
--------------- ---------------
Net share transactions (Note 7):
Class III 24,206,541 143,772,651
Class IV 5,270,623 230,373,020
--------------- ---------------
Increase in net assets resulting from net share transactions 29,477,164 374,145,671
--------------- ---------------
Total increase in net assets 336,639,714 328,491,129
NET ASSETS:
Beginning of period 478,057,411 149,566,282
--------------- ---------------
End of period (including distributions in excess of
net investment income of $1,190,012 and accumulated
undistributed net investment income of
$1,430,051, respectively) $ 814,697,125 $ 478,057,411
=============== ===============
</Table>
See accompanying notes to the financial statements.
17
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------------
2004 2003 2002 2001+
------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.13 $ 9.59 $ 9.68 $ 10.00
------------ ------------ ------------ ------------
Income from investment operations:
Net investment income 0.20(e) 0.16(e) 0.15 0.06
Net realized and unrealized gain (loss) 5.77 (0.51)(b) 0.00(b)(c) (0.33)(b)
------------ ------------ ------------ ------------
Total from investment operations 5.97 (0.35) 0.15 (0.27)
------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.31) (0.11) (0.24) (0.05)
------------ ------------ ------------ ------------
Total distributions (0.31) (0.11) (0.24) (0.05)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.79 $ 9.13 $ 9.59 $ 9.68
============ ============ ============ ============
TOTAL RETURN (a) 65.76% (3.64)% 1.59% (2.64)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 480,966 $ 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 1.71% 1.59% 1.48% 1.08%*
Portfolio turnover rate 31% 24% 17% 16%**
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.11% 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
0.01% of average daily net assets.
(e) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
18
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------
2004 2003+
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.13 $ 10.60
------------ ------------
Income from investment operations:
Net investment income (b) 0.21 0.08
Net realized and unrealized gain (loss) 5.77 (1.43)
------------ ------------
Total from investment operations 5.98 (1.35)
------------ ------------
Less distributions to shareholders:
From net investment income (0.31) (0.12)
------------ ------------
Total distributions (0.31) (0.12)
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.80 $ 9.13
============ ============
TOTAL RETURN (a) 65.92% (12.76)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 333,731 $ 202,319
Net expenses to average daily net assets 0.80% 0.80%*
Net investment income to average daily
net assets 1.78% 1.13%*
Portfolio turnover rate 31% 24%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.11% 0.14%*
</Table>
+ Period from June 14, 2002 (commencement of operations) to February 28,
2003.
* 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.
See accompanying notes to the financial statements.
19
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Foreign Small Companies Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees 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 S&P/Citigroup (f/k/a Salomon Smith Barney) Extended Market Index
("EMI") World ex-U.S. Index.
Throughout the year ended February 29, 2004, 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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
20
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
of information or events occurring after the close of a foreign market that
would materially affect that security's value.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by the Fund be valued
using fair value prices supplied by an independent pricing service to the
extent that such prices are available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
gains and losses on disposition of 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
February 29, 2004.
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
21
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
accordance with the initial margin requirements of the broker or exchange.
In addition, the Fund maintains cash or securities in an amount that at
least equals the net amount payable in the event the Fund must deliver the
full amount of the contracts. Futures contracts are marked to market daily
and an appropriate payable or receivable for the change in value
("variation margin") is recorded by the Fund. The payable or receivable is
liquidated on the following business day. Gains or losses are recognized
but not considered realized until the contracts expire or are closed.
Futures contracts involve, to varying degrees, risk of loss in excess of
the variation margin disclosed in the Statement of Assets and Liabilities.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, there were no open purchased option contracts.
22
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap contracts 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 February 29, 2004, 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
February 29, 2004, 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
23
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. The Fund has recorded a deferred tax
liability in respect of unrealized appreciation on foreign securities of
$173,448 for potential capital gains and repatriation taxes at February 29,
2004. The accrual for capital gains and repatriation taxes is included in
net unrealized gain in the Statement of Operations. The Fund has incurred
$220,041 related to capital gains taxes which is included in net realized
gain in the Statement of Operations.
The Fund is subject to a Contribuicao Provisoria sobre Movimentacoes
Financiera ("CPMF") tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market. The CPMF
tax has been included in the net realized gain (loss) on investments at
year end.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid were as follows: ordinary income-
$16,620,839 and $5,548,912, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $5,227,122 and $18,869,689 of undistributed ordinary
income and undistributed long-term capital gains, respectively. The
temporary differences between book and tax basis distributable earnings are
primarily due to passive foreign investment company transactions.
24
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- ------------- ---------------
$ 2,801,589 $ (2,799,899) $ (1,690)
</Table>
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. 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.
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.
3. 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
25
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 .70% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $10,010. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the aggregated $242,023,591 and $190,728,597,
respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 560,877,276 $ 250,111,043 $ (9,233,774) $ 240,877,269
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 45.1% 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. At February 29, 2004, .14% of the Fund was
held by sixteen related parties.
26
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 1,699,099 $ 16,069,884 17,915,318 $ 176,979,293
Shares issued to shareholders
in reinvestment of distributions 621,212 8,163,813 260,420 2,437,533
Shares repurchased (2,179) (27,156) (3,571,567) (35,644,175)
------------- ------------- ------------- -------------
Net increase 2,318,132 $ 24,206,541 14,604,171 $ 143,772,651
============= ============= ============= =============
<Caption>
PERIOD FROM JUNE 14, 2002
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 2004 THROUGH FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS IV: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 337,838 $ 5,000,000 21,937,294 $ 228,359,202
Shares issued to shareholders
in reinvestment of distributions 400,379 5,270,623 215,142 2,013,818
Shares repurchased (337,838) (5,000,000) -- --
------------- ------------- ------------- -------------
Net increase 400,379 $ 5,270,623 22,152,436 $ 230,373,020
============= ============= ============= =============
</Table>
27
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO FOREIGN SMALL COMPANIES FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Foreign Small Companies Fund
(the "Fund") (a series of GMO Trust) at February 29, 2004, and the results of
its operations, the changes in its net assets and the financial highlights for
the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
28
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
During the year ended February 29, 2004, the Fund paid foreign taxes of
$2,168,837 and recognized foreign source income of $18,129,125.
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 90.43% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
29
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
30
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC.
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
31
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ------------------ ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary since Otterloo & Co. LLC (June
Boston, MA 02110 March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
32
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Domestic Bond Fund returned +4.8% for the fiscal year ended February 29,
2004, as compared with the +3.0% return of the Lehman Brothers U.S. Government
Bond Index.
The Fund outperformed the benchmark during the fiscal year by 1.8%. This
outperformance was attributable to the Fund's exposure to asset-backed
securities through investments in the GMO Alpha LIBOR Fund and the GMO
Short-Duration Collateral Fund. This exposure to asset-backed securities
accounted for about 120 basis points; curve positioning and option securities
accounted for the remaining value added.
During the fiscal year, approximately 16% of the Fund was invested in U.S.
government agency issues and U.S. Treasury securities. Approximately 83% of the
Fund was invested in highly rated, floating rate, asset-backed securities. These
included issues backed by home equity, auto, truck, credit card, and health care
receivables. The remainder of the Fund was invested in corporate securities
(1%). The Fund's exposure to these assets is achieved both directly and
indirectly through its investment in the GMO Alpha LIBOR Fund and the GMO
Short-Duration Collateral Fund.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
DOMESTIC BOND FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO DOMESTIC BOND FUND LEHMAN BROTHERS U.S. GOV'T. BOND INDEX
8/18/1994 5,000,000 5,000,000
9/30/1994 4,945,000 4,963,395
12/31/1994 4,969,685 4,981,195
3/31/1995 5,188,635 5,215,585
6/30/1995 5,518,140 5,539,175
9/30/1995 5,636,170 5,637,405
12/31/1995 5,892,375 5,894,850
3/31/1996 5,752,875 5,761,670
6/30/1996 5,779,950 5,789,135
9/30/1996 5,892,305 5,886,530
12/31/1996 6,071,425 6,058,215
3/31/1997 6,017,590 6,009,005
6/30/1997 6,236,005 6,217,310
9/30/1997 6,438,130 6,425,765
12/31/1997 6,676,075 6,639,095
3/31/1998 6,754,925 6,739,165
6/30/1998 6,949,455 6,916,760
9/30/1998 7,331,140 7,299,295
12/31/1998 7,213,385 7,293,155
3/31/1999 7,095,855 7,189,110
6/30/1999 7,095,260 7,127,680
9/30/1999 7,092,570 7,175,015
12/31/1999 7,084,145 7,130,225
3/31/2000 7,350,290 7,368,940
6/30/2000 7,456,440 7,484,435
9/30/2000 7,693,215 7,690,495
12/31/2000 8,094,295 8,074,520
3/31/2001 8,318,905 8,277,430
6/30/2001 8,334,710 8,257,785
9/30/2001 8,780,995 8,709,785
12/31/2001 8,696,465 8,658,400
3/31/2002 8,659,885 8,603,635
6/30/2002 9,061,630 8,985,420
9/30/2002 9,660,275 9,584,275
12/31/2002 9,726,655 9,653,710
3/31/2003 9,834,295 9,756,925
6/30/2003 10,129,600 10,003,955
9/30/2003 10,094,985 9,924,410
12/31/2003 10,099,670 9,881,190
2/29/2004 10,335,740 10,082,305
</Table>
Average Annual Returns
Inception 8/18/1994
<Table>
<Caption>
1YR 5YR 10YR(ITD)
4.79 7.83 7.91
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 12.4%
CORPORATE DEBT -- 0.8%
2,500,000 Bank Austria Creditanstalt, AG, Series EMTN, 144A,
7.25%, due 02/15/17 3,041,750
---------------
FOREIGN GOVERNMENT OBLIGATIONS -- 2.0%
24,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24 (a) (b) 7,411,846
---------------
U.S. GOVERNMENT -- 1.1%
2,360,211 U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (c) 2,732,313
1,095,550 U.S. Treasury Inflation Indexed Note, 4.25%, due 01/15/10 (c) 1,309,182
---------------
4,041,495
---------------
U.S. GOVERNMENT AGENCY -- 8.5%
10,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 1.26%, due 02/01/27 9,887,500
4,873,719 Agency for International Development Floater (Support of
Jamaica), Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 1.77%, due
03/30/19 4,855,442
5,500,000 Agency for International Development Floater (Support of
Jamaica), Variable Rate, 6 mo. LIBOR + .30%, 1.47%, due 12/01/14 5,501,705
5,907,500 Agency for International Development Floater (Support of Sri Lanka),
Variable Rate, 6 mo. LIBOR + .20%, 1.37%, due 06/15/12 5,892,731
5,866,670 Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill X 115%, 1.04%, due 01/01/12 5,822,670
---------------
31,960,048
---------------
TOTAL DEBT OBLIGATIONS (COST $44,116,241) 46,455,139
---------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
PREFERRED STOCKS -- 1.4%
BANKING -- 1.4%
10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 5,098,220
---------------
TOTAL PREFERRED STOCKS (COST $5,874,540) 5,098,220
---------------
MUTUAL FUNDS -- 86.2%
2,797,545 Merrimac Cash Fund 2,797,545
24,511 GMO Alpha LIBOR Fund 590,956
12,636,530 GMO Short-Duration Collateral Fund 318,187,834
---------------
TOTAL MUTUAL FUNDS (COST $321,616,092) 321,576,335
---------------
TOTAL INVESTMENTS -- 100.0%
(Cost $371,606,873) 373,129,694
Other Assets and Liabilities (net) -- 0.0% 147,122
---------------
TOTAL NET ASSETS -- 100.0% $ 373,276,816
===============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
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.
EMTN - Euromarket Medium Term Note
Variable rates - The rates shown on variable rate notes are
the current interest rates at February 29, 2004, which
are subject to change based on the terms of the security.
(a) Security valued at fair value using methods determined in
good faith by or at the direction of the Trustees (Note
2).
(b) Security backed by U.S. Treasury Strips.
(c) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts and/or open swap contracts (Note 8).
See accompanying notes to the financial statements.
3
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $52,788,326) (Note 2) $ 54,350,904
Investments in affiliated issuers, at value (cost $318,818,547) (Notes 2 and 9) 318,778,790
Receivable for Fund shares sold 1,441,190
Interest receivable 114,095
Receivable for variation margin on open futures contracts (Notes 2 and 8) 420,984
Net receivable for open swap contracts (Notes 2 and 8) 849,274
Periodic payments from open swap contracts (Notes 2 and 8) 430,507
Receivable for expenses reimbursed by Manager (Note 3) 27,909
---------------
Total assets 376,413,653
---------------
LIABILITIES:
Payable for investments purchased 3,000,000
Payable to affiliate for (Note 3):
Management fee 27,747
Shareholder service fee 41,621
Trustees fee 572
Accrued expenses 66,897
---------------
Total liabilities 3,136,837
---------------
NET ASSETS $ 373,276,816
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 365,185,976
Accumulated undistributed net investment income 199,567
Accumulated net realized gain 4,637,091
Net unrealized appreciation 3,254,182
---------------
$ 373,276,816
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 373,276,816
===============
SHARES OUTSTANDING:
Class III 37,074,554
===============
NET ASSET VALUE PER SHARE:
Class III $ 10.07
===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers $ 3,517,198
Interest 1,336,018
Dividends 383,727
---------------
Total income 5,236,943
---------------
EXPENSES:
Management fee (Note 3) 205,124
Shareholder service fee (Note 3) - Class III 307,686
Custodian and transfer agent fees 34,472
Audit and tax fees 40,187
Legal fees 11,892
Trustees fees and related expenses (Note 3) 4,049
Registration fees 30,106
Miscellaneous 6,797
---------------
Total expenses 640,313
Fees and expenses reimbursed by Manager (Note 3) (121,170)
---------------
Net expenses 519,143
---------------
Net investment income 4,717,800
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments in unaffiliated issuers (2,974)
Investments in affiliated issuers 237,531
Closed futures contracts 2,961,890
Closed swap contracts 3,520,195
---------------
Net realized gain 6,716,642
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (306,962)
Open futures contracts 123,289
Open swap contracts 1,231,441
---------------
Net unrealized gain 1,047,768
---------------
Net realized and unrealized gain 7,764,410
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 12,482,210
===============
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,717,800 $ 2,601,909
Net realized gain 6,716,642 8,532,695
Change in net unrealized appreciation (depreciation) 1,047,768 1,064,216
----------------- -----------------
Net increase in net assets from operations 12,482,210 12,198,820
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (4,605,805) (3,105,892)
Net realized gains
Class III (5,411,146) (4,216,075)
----------------- -----------------
(10,016,951) (7,321,967)
----------------- -----------------
Net share transactions (Note 7):
Class III 257,588,646 (46,654,360)
----------------- -----------------
Increase (decrease) in net assets resulting from net share transactions 257,588,646 (46,654,360)
----------------- -----------------
Total increase (decrease) in net assets 260,053,905 (41,777,507)
NET ASSETS:
Beginning of period 113,222,911 155,000,418
----------------- -----------------
End of period (including accumulated undistributed net
investment income of $199,567 and $325,715,
respectively) $ 373,276,816 $ 113,222,911
================= =================
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------
2004 (d) 2003 (d) 2002 (d)
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.08 $ 9.68 $ 9.98
------------ ------------ ------------
Income from investment operations:
Net investment income (e) 0.23+ 0.22+ 0.41+
Net realized and unrealized gain (loss) 0.24 0.86 0.22
------------ ------------ ------------
Total from investment operations 0.47 1.08 0.63
------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.20) (0.27) (0.50)
From net realized gains (0.28) (0.41) (0.43)
------------ ------------ ------------
Total distributions (0.48) (0.68) (0.93)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 10.07 $ 10.08 $ 9.68
============ ============ ============
TOTAL RETURN (a) 4.79% 11.43% 6.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 373,277 $ 113,223 $ 155,000
Net operating expenses to average daily net assets 0.25% 0.25% 0.25%
Interest expense to average daily net assets -- -- --
Total net expenses to average daily net assets (f) 0.25% 0.25% 0.25%
Net investment income to average daily net assets (e) 2.30% 2.23% 4.16%
Portfolio turnover rate 15% 71% 19%
Fees and expenses reimbursed by the Manager
to average daily net assets: 0.06% 0.05% 0.05%
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------
2001 (c)(d) 2000
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.23 $ 9.65
------------ ------------
Income from investment operations:
Net investment income (e) 0.60+ 0.60
Net realized and unrealized gain (loss) 0.73 (0.42)
------------ ------------
Total from investment operations 1.33 0.18
------------ ------------
Less distributions to shareholders:
From net investment income (0.58) (0.58)
From net realized gains -- (0.02)
------------ ------------
Total distributions (0.58) (0.60)
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 9.23
============ ============
TOTAL RETURN (a) 14.91% 2.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 170,534 $ 164,457
Net operating expenses to average daily net assets 0.25% 0.25%
Interest expense to average daily net assets 0.07%(b) 0.19%(b)
Total net expenses to average daily net assets (f) 0.32% 0.44%
Net investment income to average daily net assets (e) 6.37% 5.85%
Portfolio turnover rate 65% 20%
Fees and expenses reimbursed by the Manager
to average daily net assets: 0.05% 0.05%
</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/supplemental data for
periods prior to March 1, 2000 have not been restated to reflect this
change.
(d) As a result of changes in generally accepted accounting principles, the
Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to increase the net investment income ratio for the
year ending February 29, 2004 by 0.12% and net investment income per share
by $0.01. For consistency, similar reclassifications have been made to
prior year amounts, resulting in reductions to the net investment income
ratio of 0.34%, 0.19% and 0.04% and to net investment income per share of
$0.03, $0.02 and $0.01 in the fiscal years ending February 28/29, 2003,
2002 and 2001, respectively.
(e) Net investment income is affected by timing of the declaration of dividends
by other GMO Funds in which the Fund invests.
(f) 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.
See accompanying notes to the financial statements.
7
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees 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 February 29, 2004, 85.2% of the Fund was invested in the GMO
Short-Duration Collateral Fund, a separate fund of GMO Trust managed by
GMO.
Shares of the GMO Short-Duration Collateral Fund are not publicly available
for direct purchase. The financial statements of the GMO Short-Duration
Collateral Fund should be read in conjunction with the Fund's financial
statements. These financial statements are available, without charge, upon
request, by calling (617) 330-7500 or by visiting GMO's website at
www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of a recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
Statement of Operations. For consistency, similar reclassifications have
been made to amounts appearing in the previous year's Statement of Changes
in Net Assets and the per share amounts in all prior year financial
highlights presented. Prior year net investment income ratios in the
financial highlights have also been modified accordingly. This
reclassification increased net investment income and decreased net realized
gains by $240,213 for the year ended February 29, 2004 and decreased net
investment income and increased net realized gains by $399,950 for the year
ended February 28, 2003. This change had no effect on the Fund's net asset
value, either in total or per share, or its total increase (decrease) in
net assets from operations during any period.
8
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29,
2004, the total value of these securities represented 26.4% 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 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
9
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Under certain circumstances, futures
exchanges may establish daily limits on the amount that the price of a
futures contract can vary from the previous day's settlement price, thereby
effectively preventing liquidation of unfavorable positions. Losses may
arise from the changes in the value of the underlying instrument, if the
Fund is unable to liquidate a futures position due to an illiquid secondary
market for the contracts or the imposition of price limits, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 8 for all open futures
contracts as of February 29, 2004.
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. In the event that the Fund writes uncovered call options
(i.e. options for investments that the Fund does not own), it bears the
risk of incurring substantial losses if the price of the underlying
investment increases during the term of the option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. At February 29, 2004, there were no open written option
contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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 DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 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. 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 on swap contracts 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,
11
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 for a summary of open swap agreements
as of February 29, 2004.
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. At February 29,
2004, the Fund did not have any open repurchase agreements.
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. During the year ended February
29, 2004, 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
February 29, 2004, 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
12
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
effect to any available capital loss carryovers for U.S. federal income tax
purposes. Therefore, no provision for U.S. federal income or excise tax is
necessary.
The Fund's policy is to declare and pay distributions from net investment
income 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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $7,574,249
and $7,321,967, respectively. During year ended February 29, 2004, the tax
basis of distributions paid from long-term capital gains were $2,442,702
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $3,292,493 and $1,837,033 of undistributed ordinary
income and undistributed long-term capital gains, respectively. The
temporary difference between book and tax basis distributable earnings is
primarily due to futures transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to the treatement of swap
transactions in the computation of distributable income and capital gains
under U.S. federal tax rules versus U.S. GAAP. The financial highlights
exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN
----------------- -------------
$ (238,143) $ 238,143
</Table>
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 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.
13
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
3. 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 .10% of the average daily net assets.
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund and SDCF. For the year ended February 29, 2004, 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 .002% 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 year ended February 29, 2004 was $2,511. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 2004, 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 $ 1,047,766
Investments (non-U.S. Government securities) 288,792,198 29,195,000
</Table>
14
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 371,625,768 $ 2,579,284 $(1,075,358) $1,503,926
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 74.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. One of the shareholders is another fund of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund. At February 29, 2004, 0.01% of the Fund was held by five related
parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 29,740,583 $ 296,994,016 3,707,607 $ 36,658,798
Shares issued to shareholders in
reinvestment of distributions 973,592 9,657,413 715,346 7,060,380
Shares repurchased (4,873,046) (49,062,783) (9,196,332) (90,373,538)
------------- ------------- ------------- -------------
Net increase (decrease) 25,841,129 $ 257,588,646 (4,773,379) $ (46,654,360)
============= ============= ============= =============
</Table>
15
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
NET
NUMBER OF EXPIRATION CONTRACT UNREALIZED
CONTRACTS TYPE DATE VALUE APPRECIATION
---------- ---------------------------- ---------- ------------ ------------
Buys
248 U.S. Long Bond June 2004 $ 27,884,500 $ 136,020
242 U.S. Treasury Note 10 Yr. June 2004 27,557,750 104,484
214 U.S. Treasury Note 5 Yr. June 2004 24,054,938 23,848
------------
$ 264,352
============
</Table>
At February 29, 2004, 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>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- ------------------------------------------- --------------
INTEREST RATE SWAPS
94,000,000 USD 1/27/06 Agreement with JP Morgan Chase Bank dated $ 34,080
1/23/04 to receive the notional amount
multiplied by 1.9275% and to pay the
notional amount multiplied by the 3 month
Floating Rate LIBOR.
125,000,000 USD 1/27/09 Agreement with JP Morgan Chase Bank dated (295,076)
1/23/04 to pay the notional amount
multiplied by 3.2775% and to receive the
notional amount multiplied by the 3 month
Floating Rate LIBOR.
</Table>
16
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- ------------------------------------------- --------------
8,500,000 USD 10/24/13 Agreement with JP Morgan Chase Bank dated $ (262,662)
10/22/03 to pay the notional amount
multiplied by 4.704% and to receive the
notional amount multiplied by the 3 month
Floating Rate LIBOR.
50,000,000 USD 1/27/14 Agreement with JP Morgan Chase Bank dated (269,448)
1/23/04 to receive the notional amount
multiplied by 4.29% and to pay the notional
amount multiplied by the 3 month Floating
Rate LIBOR.
7,597,735 USD 7/28/24 Agreement with JP Morgan Chase Bank dated (436,145)
8/28/02 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).
TOTAL RETURN SWAPS
10,000,000 USD 3/31/04 Agreement with UBS AG dated 12/31/03 to 106,571
receive the notional amount multiplied by
the return on the Lehman Brothers CMBS AAA
Index and to pay the notional amount
multiplied by the 1 month LIBOR adjusted by
a specified spread.
10,000,000 USD 7/31/04 Agreement with JP Morgan Chase Bank dated 120,497
1/21/04 to receive the notional amount
multiplied by the return on the Lehman
Brothers CMBS AAA Index and to pay the
notional amount multiplied by the 1 month
LIBOR adjusted by a specified spread.
</Table>
17
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- ------------------------------------------- --------------
20,000,000 USD 8/31/04 Agreement with JP Morgan Chase Bank dated $ 224,784
8/28/02 to receive 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.
50,000,000 USD 11/01/04 Agreement with Lehman Brothers Special 560,154
Financing Inc. dated 11/24/03 to receive 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 2/1/05 Agreement with Lehman Brothers Special 841,315
Financing Inc. dated 1/30/04 to receive 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 8/01/05 Agreement with Lehman Brothers Special 842,939
Financing Inc. dated 6/17/03 to receive 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.
--------------
$ 1,467,009
==============
</Table>
18
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END OF
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME PERIOD
----------------------------------------------------------------------------------------------------
GMO Alpha LIBOR Fund $ 581,397 $ -- $ -- $ -- $ 590,956
GMO Short-Duration
Collateral Fund 57,187,888 288,792,198 27,762,469 3,517,198 318,187,834
------------- ------------- ------------- ------------- -------------
Totals $ 57,769,285 $ 288,792,198 $ 27,762,469 $ 3,517,198 $ 318,778,790
============= ============= ============= ============= =============
</Table>
10. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.14% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by GMO Alpha
LIBOR Fund were then distributed to its shareholders, including the Fund.
After distribution of the SDCF shares, GMO Alpha LIBOR Fund changed its
name to GMO Special Purpose Holding Fund and elected partnership status for
Federal income tax purposes.
19
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO DOMESTIC BOND FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Domestic Bond Fund (the "Fund")
(a series of GMO Trust) at February 29, 2004, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
20
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$2,968,444 from short-term capital gains,
$2,442,702 from long-term capital gains, all of which were subject to the
20% rate gains category.
21
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of 41 *(2)
c/o GMO Trust Business
40 Rowes Wharf Administration
Boston, MA and Senior
02110 Associate Dean,
DOB: 10/03/1941 Harvard
University.
Donald W. Trustee Since December Advisory Counsel, 41 None
Glazer, Esq. 2000 Goodwin Procter
c/o GMO Trust LLP; Secretary
40 Rowes Wharf and Consultant,
Boston, MA Provant, Inc.
02110 (provider of
DOB: 07/26/1944 performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
22
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA October 2002;
02110 President
DOB: 10/06/1938 Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
23
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ------------------ ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997 - present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van
2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Secretary Grantham, Mayo, Van
40 Rowes Wharf since March 2001. Otterloo & Co. LLC (June
Boston, MA 02110 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
24
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(FORMERLY GMO SHORT-TERM INCOME FUND)
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Short-Duration Investment Fund returned +2.2% for the fiscal year ended
February 29, 2004, as compared with +1.0% for the Citigroup 3-Month Treasury
Bill Index.
The Fund outperformed the benchmark during the fiscal year by 1.2%. This
out-performance was attributable to issue selection performance as the Fund's
exposure to non-Treasury/Agency securities helped relative performance as
spreads tightened during the fiscal year. The Fund's duration at fiscal year-end
was 0.3 years.
At fiscal year-end, approximately 54% of the Fund was invested in highly-rated,
floating rate, asset-backed securities, 19% in U.S. Treasury notes and cash, 4%
in highly-rated corporate bonds, 11% in U.S. Government-backed bonds, 2% in
mortgage-backed bonds and 10% in highly-rated collateralized bonds. The Fund's
exposure to these assets is achieved directly and indirectly through an
investment in the GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral
Fund.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
SHORT-DURATION INVESTMENT FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO SHORT-DURATION INVESTMENT FUND CITIGROUP 3-MONTH T-BILL INDEX
2/28/1994 5,000,000 5,000,000
3/31/1994 5,015,320 5,014,090
6/30/1994 5,025,640 5,062,830
9/30/1994 5,067,305 5,119,185
12/31/1994 5,069,410 5,185,890
3/31/1995 5,221,385 5,258,650
6/30/1995 5,359,415 5,335,220
9/30/1995 5,454,920 5,410,485
12/31/1995 5,574,700 5,484,325
3/31/1996 5,626,475 5,554,935
6/30/1996 5,685,025 5,625,210
9/30/1996 5,780,620 5,698,685
12/31/1996 5,875,775 5,772,350
3/31/1997 5,948,615 5,845,420
6/30/1997 6,046,840 5,921,050
9/30/1997 6,145,650 5,997,540
12/31/1997 6,234,630 6,075,325
3/31/1998 6,324,520 6,153,600
6/30/1998 6,401,300 6,231,885
9/30/1998 6,504,355 6,310,630
12/31/1998 6,514,250 6,382,875
3/31/1999 6,596,105 6,453,075
6/30/1999 6,676,830 6,525,880
9/30/1999 6,760,550 6,603,090
12/31/1999 6,845,715 6,685,245
3/31/2000 6,968,090 6,774,905
6/30/2000 7,080,055 6,872,065
9/30/2000 7,207,750 6,974,095
12/31/2000 7,352,340 7,083,520
3/31/2001 7,487,935 7,182,355
6/30/2001 7,599,770 7,259,530
9/30/2001 7,692,200 7,325,425
12/31/2001 7,719,380 7,373,120
3/31/2002 7,767,725 7,405,405
6/30/2002 7,859,615 7,437,860
9/30/2002 7,861,465 7,469,815
12/31/2002 7,362,485 7,498,700
3/31/2003 7,387,960 7,521,385
6/30/2003 7,450,830 7,542,685
9/30/2003 7,458,500 7,561,210
12/31/2003 7,484,060 7,579,270
2/29/2004 7,535,735 7,590,810
</Table>
Average Annual Returns
Inception 4/18/1990
<Table>
<Caption>
1YR 5YR 10YR(ITD)
2.24 2.78 4.19
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) /
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 15.4%
U.S. GOVERNMENT -- 7.4%
2,809,775 U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 3,252,754
---------------
U.S. GOVERNMENT AGENCY -- 8.0%
210,000 Agency for International Development Floater (Support of Botswana),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 1.42%, due 10/01/12 207,112
1,350,900 Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 1.42%, due 10/01/12 1,334,014
1,335,601 Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 1.06%, due 10/01/11 1,330,593
62,986 Agency for International Development Floater (Support of Peru),
Series A, Variable Rate, 6 mo. U.S. Treasury Bill +.35%, 1.37%,
due 05/01/14 62,750
613,433 Small Business Administration Pool #502320,
Variable Rate, Prime - 2.18%, 1.81%, due 08/25/18 615,303
---------------
3,549,772
---------------
TOTAL DEBT OBLIGATIONS (COST $6,637,324) 6,802,526
---------------
MUTUAL FUNDS -- 84.5%
353,926 GMO Alpha LIBOR Fund 8,533,147
1,141,998 GMO Short-Duration Collateral Fund 28,755,502
---------------
TOTAL MUTUAL FUNDS (COST $37,618,034) 37,288,649
---------------
TOTAL INVESTMENTS -- 99.9%
(Cost $44,255,358) 44,091,175
Other Assets and Liabilities (net) -- 0.1% 64,547
---------------
TOTAL NET ASSETS -- 100.0% $ 44,155,722
===============
</Table>
Variable rates - The rates shown on Variable rate notes are
the current interest rates at February 29, 2004, which are
subject to change based on the terms of the security.
See accompanying notes to the financial statements.
1
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $6,637,324) (Note 2) $ 6,802,526
Investments in affiliated issuers, at value (cost $37,618,034) (Notes 2 and 8) 37,288,649
Cash 52,163
Receivable for investments sold 3,101
Interest receivable 37,434
Receivable for expenses reimbursed by Manager (Note 3) 5,233
---------------
Total assets 44,189,106
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 1,747
Shareholder service fee 5,241
Trustees fee 86
Accrued expenses 26,310
---------------
Total liabilities 33,384
---------------
NET ASSETS $ 44,155,722
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 45,867,571
Accumulated net realized loss (1,547,666)
Net unrealized depreciation (164,183)
---------------
$ 44,155,722
===============
NET ASSETS ATTRIBUTABLE TO:
Class III $ 44,155,722
SHARES OUTSTANDING:
Class III: 5,043,814
===============
NET ASSET VALUE PER SHARE:
Class III $ 8.75
===============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Interest $ 207,857
Dividends from affiliated issuers 523,506
---------------
Total income 731,363
---------------
EXPENSES:
Management fee (Note 3) 23,424
Shareholder service fee (Note 3) - Class III 70,271
Custodian and transfer agent fees 6,819
Audit and tax fees 28,565
Legal fees 3,080
Trustees fees and related expenses (Note 3) 2,726
Registration fees 8,244
Miscellaneous 1,370
---------------
Total expenses 144,499
Fees and expenses reimbursed by Manager (Note 3) (48,078)
---------------
Net expenses 96,421
---------------
Net investment income 634,942
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss:
Investments in unaffiliated issuers (58)
Investments in affiliated issuers (132,013)
---------------
Net realized loss (132,071)
---------------
Change in net unrealized appreciation (depreciation) on investments 553,502
---------------
Net realized and unrealized gain 421,431
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,056,373
===============
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 634,942 $ 474,944
Net realized loss (132,071) (3,505,670)
Change in net unrealized appreciation (depreciation) 553,502 (405,617)
--------------- ---------------
Net increase (decrease) in net assets from operations 1,056,373 (3,436,343)
--------------- ---------------
Distributions to shareholders from:
Net investment income (635,270) (2,325,404)
Net realized gains -- (786,056)
Return of capital (1,857) --
--------------- ---------------
(637,127) (3,111,460)
--------------- ---------------
Fund share transactions: (Note 7)
Proceeds from sale of shares 64 47,278,043
Net asset value of shares issued to shareholders in
payment of distributions declared 629,717 3,079,622
Cost of shares repurchased (12,208,902) (36,841,075)
--------------- ---------------
Increase (decrease) in net assets resulting from net share
transactions (11,579,121) 13,516,590
--------------- ---------------
Total increase (decrease) in net assets (11,159,875) 6,968,787
NET ASSETS:
Beginning of period 55,315,597 48,346,810
--------------- ---------------
End of period $ 44,155,722 $ 55,315,597
=============== ===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------
2004 2003 2002
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 9.62 $ 9.92
------------ ------------ ------------
Income from investment operations:
Net investment income (b)+ 0.12 0.08 0.30
Net realized and unrealized gain (loss) 0.07 (0.54) 0.07
------------ ------------ ------------
Total from investment operations 0.19 (0.46) 0.37
------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.12) (0.33) (0.39)
From net realized gains -- (0.15) (0.28)
Return of capital (0.00)^ -- --
------------ ------------ ------------
Total distributions (0.12) (0.48) (0.67)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 8.75 $ 8.68 $ 9.62
============ ============ ============
TOTAL RETURN (a) 2.24% (4.91)% 3.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 44,156 $ 55,316 $ 48,347
Net expenses to average daily net assets (c) 0.21% 0.21% 0.20%
Net investment income to average daily net assets (b) 1.36% 0.88% 3.04%
Portfolio turnover rate 4% 43% 91%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.10% 0.08% 0.12%
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------
2001 2000
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 9.63
------------ ------------
Income from investment operations:
Net investment income (b)+ 0.42 0.46
Net realized and unrealized gain (loss) 0.33 0.05
------------ ------------
Total from investment operations 0.75 0.51
------------ ------------
Less distributions to shareholders:
From net investment income (0.44) (0.52)
From net realized gains (0.01) --
Return of capital -- --
------------ ------------
Total distributions (0.45) (0.52)
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.92 $ 9.62
============ ============
TOTAL RETURN (a) 7.91% 5.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 40,505 $ 43,491
Net expenses to average daily net assets (c) 0.20% 0.20%
Net investment income to average daily net assets (b) 4.30% 4.82%
Portfolio turnover rate 50% 178%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.09% 0.08%
</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 years is 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 3).
+ Computed using average shares outstanding throughout the period.
^ Return of capital was less than $0.01.
See accompanying notes to the financial statements.
5
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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 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 February 29, 2004, 19.3% of the Fund was invested in the GMO Alpha LIBOR
Fund and 65.2% 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. These financial statements are available, without charge, upon
request, by calling (617) 330-7500 or by visiting GMO's website at
www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
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 .
6
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29,
2004, the total value of these securities represented 21.7% of net assets.
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.
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. At February 29,
2004 there were no open 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
7
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29, 2004, 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.
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. For the years ended February 29, 2004 and February 28, 2003, the
tax basis of distributions paid from ordinary income were $635,270 and
$2,345,585, respectively. As of February 29, 2004 and February 28, 2003 the
tax basis distributions paid from capital long term gains were $0 and
$765,875, respectively. For the years ended February 29, 2004 and February
28, 2003, the tax basis distributions paid as a return of capital were
$1,857 and $0, respectively.
At February 29, 2004, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $1,151,233 expiring in 2012. The Fund elected to defer to March 1, 2004
post-October losses of $236,504.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ------------- ---------------
$ 2,185 $ (1,109,871) $ 1,107,686
</Table>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
8
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 3.)
3. 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
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 .05% of the average daily net assets.
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund and SDCF. For the year ended February 29, 2004, indirect
operating expenses (excluding investment-related expenses) were .006% 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 .025% 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 year ended February 29, 2004 was $2,321. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
9
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$1,823,506 and $12,940,612, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 44,415,287 $ 392,486 $ (716,598) $ (324,112)
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 67.8% 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. At February 29, 2004, .96% of the Fund was
held by nine related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
10
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
YEAR ENDED YEAR ENDED
CLASS III: FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
Shares sold 7 4,944,849
Shares issued to shareholders
in reinvestment of distributions 72,379 344,459
Shares repurchased (1,402,139) (3,940,125)
----------------- -----------------
Net increase (decrease) (1,329,753) 1,349,183
================= =================
Fund shares:
Beginning of period 6,373,567 5,024,384
----------------- -----------------
End of period 5,043,814 6,373,567
================= =================
</Table>
8. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING
OF SALES DIVIDEND VALUE, END
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
------------------------------------------------------------------------------------------------------------------
GMO Alpha LIBOR Fund $ 10,684,880 $ -- $ 2,298,428 $ -- $ 8,533,147
GMO Short-Duration Collateral Fund 36,904,449 1,823,506 10,200,000 523,506 28,755,502
------------- ------------- ------------- ------------- -------------
Totals $ 47,589,329 $ 1,823,506 $ 12,498,428 $ 523,506 $ 37,288,649
============= ============= ============= ============= =============
</Table>
9. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.14% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by GMO Alpha
LIBOR Fund were then distributed to its shareholders, including the Fund.
After distribution of the SDCF shares, GMO Alpha LIBOR Fund changed its
name to GMO Special Purpose Holding Fund and elected partnership status for
Federal income tax purposes.
11
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO SHORT-DURATION INVESTMENT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Short-Duration Investment Fund
(the "Fund") (formerly GMO Short-Term Income Fund) (a series of GMO Trust) at
February 29, 2004, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
12
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of 41 *(2)
c/o GMO Trust Business
40 Rowes Wharf Administration
Boston, MA and Senior
02110 Associate Dean,
DOB: 10/03/1941 Harvard
University.
Donald W. Trustee Since Advisory Counsel, 41 None
Glazer, Esq. December 2000 Goodwin Procter
c/o GMO Trust LLP; Secretary
40 Rowes Wharf and Consultant,
Boston, MA Provant, Inc.
02110 (provider of
DOB: 07/26/1944 performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
13
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman, 41 None
Grantham(3) the Board of 1985. Grantham, Mayo,
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA October 2002;
02110 President
DOB: 10/06/1938 Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
14
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ------------------ ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van
2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Secretary Grantham, Mayo, Van
40 Rowes Wharf since March 2001. Otterloo & Co. LLC (June
Boston, MA 02110 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
15
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
Shares of the GMO Short-Duration Collateral Fund returned +2.5% for the fiscal
year ended February 29, 2004, as compared to +1.3% for the J.P. Morgan U.S.
3-Month Cash Index.
The Fund outperformed the benchmark during the fiscal year by 1.2%. The Fund's
outperformance was primarily attributable to issue selection. The Fund benefited
from its exposure to non-Treasury/Agency securities due to the tightening of
spreads during the fiscal year. At fiscal year-end, approximately 96% of the
portfolio was AAA-rated, 2% AA-rated, 1% A-rated and the remaining 1% BBB-rated.
Approximately 65% of the Fund was invested in highly rated, asset-backed
securities. These included issues backed by home equity, auto, truck, credit
card, and health care receivables. Approximately 6% of the Fund was invested in
US government agency issues that offer higher yields than U.S. Treasury
securities with similar maturities. The remainder of the Fund was split between
U.S. Treasuries (13%) collateralized bond obligations (11%) and corporate bonds
(5%).
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
SHORT-DURATION COLLATERAL FUND
As Of: 2/29/2004
<Table>
<Caption>
GMO SHORT-DURATION COLLATERAL FUND J.P.MORGAN U.S. 3 MONTH CASH INDEX
11/26/2002 5,000,000 5,000,000
12/31/2002 4,996,210 5,007,395
3/31/2003 5,024,265 5,025,320
6/30/2003 5,064,345 5,042,720
9/30/2003 5,078,060 5,057,105
12/31/2003 5,112,290 5,072,775
2/29/2004 5,136,770 5,082,675
</Table>
Average Annual Returns
Inception 11/26/2002
<Table>
<Caption>
1YR 5YR 10YR(ITD)
2.48 N/A 2.16
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 89.1%
ASSET-BACKED SECURITIES -- 65.5%
AIRLINES -- 1.0%
24,600,000 Aircraft Finance Trust Series 99-1A Class A1,
Variable Rate, 1 mo. LIBOR + .48%, 1.57%, due 05/15/24 18,019,500
---------------
AUTO FINANCING -- 2.9%
15,000,000 Capital Auto Receivables Asset Trust (GMAC) Series
03-1 Class A3A, 2.75%, due 04/16/07 15,206,250
14,500,000 Ford Credit Auto Owner Trust Series 03-A Class A4A,
2.70%, due 06/15/07 14,638,765
20,000,000 Volkswagen Credit Auto Master Trust Series 00-1 Class A,
Variable Rate, 1 mo. LIBOR +.16%, 1.25%, due 08/20/07 20,030,000
---------------
49,875,015
---------------
BUSINESS LOAN -- 0.3%
6,000,000 Archimedes Funding IV (Cayman) Ltd 4A A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 1.60%, due 02/25/13 6,002,820
---------------
COMMERCIAL MORTGAGE-BACKED SECURITY -- 0.9%
15,779,980 Morgan Stanley Dean Witter Capital I Series 03-TOP9
Class A1, 3.98%, due 11/13/36 16,031,474
---------------
CREDIT CARDS -- 11.9%
15,000,000 American Express Credit Account Master Trust Series 01-6 Class A,
Variable Rate, 1 mo. LIBOR + .12%, 1.21%, due 12/15/08 15,029,883
15,000,000 American Express Credit Account Master Trust Series 02-6 Class A,
Variable Rate, 1 mo. LIBOR + .14%, 1.23%, due 03/15/10 15,046,289
16,000,000 Bank One Issuance Trust Series 02-A5 Class A5,
Variable Rate, 1 mo. LIBOR + .12%, 1.21%, due 06/15/10 16,030,000
20,000,000 Capital One Master Trust Series 00-4 Class A,
Variable Rate, 1 mo. LIBOR + .14%, 1.23%, due 08/15/08 20,022,000
20,000,000 Chase Credit Card Master Trust Series 01-6 Class A,
Variable Rate, 1 mo. LIBOR + .13%, 1.22%, due 03/16/09 20,043,200
15,650,000 Chase Credit Card Master Trust Series 02-1 Class A,
Variable Rate, 1 mo. LIBOR +.10%, 1.19%, due 06/15/09 15,682,400
18,400,000 Discover Card Master Trust I Series 00-5 Class A,
Variable Rate, 1 mo. LIBOR + .18%, 1.27%, due 11/15/07 18,433,062
10,000,000 Discover Card Master Trust I Series 02-3 Class A,
Variable Rate, 1 mo. LIBOR + .11%, 1.20%, due 11/17/09 10,017,578
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
CREDIT CARDS -- CONTINUED
10,000,000 Discover Card Master Trust I Series 03-4 A1,
Variable Rate, 1 mo. LIBOR + .11%, 1.20%, due 05/15/11 10,004,688
10,000,000 Earls Five Ltd Series EMTN, 3 mo. GBP LIBOR + .14%, 4.34%,
due 02/27/08 18,437,373
20,000,000 Gracechurch Card Funding Plc Series 2 Class A, 1 mo. LIBOR +
.12%, 1.21%, due 10/15/09 20,035,938
22,000,000 MBNA Master Credit Card Trust Series 03 Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 1.21%, due 08/16/10 22,034,375
8,000,000 Neiman Marcus Group Credit Card Master Trust Series 00-1 Class A, 144A,
Variable Rate, 1 mo. LIBOR + .27%, 1.36%, due 04/15/08 8,009,600
---------------
208,826,386
---------------
HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 1.4%
7,729,452 Nomura CBO Ltd Series 97-2 Class A2, 144A, Step up, 6.26%, due 10/30/09 7,784,640
2,624,530 Pacific Life CBO Series 98-1A Class A2A, 144A, Step Up, 6.56%,
due 02/15/10 2,624,478
13,364,746 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Step Up,
6.33%, due 09/15/09 13,832,512
---------------
24,241,630
---------------
INSURED AUTO FINANCING -- 2.4%
25,000,000 Aesop Funding II LLC Series 03-2A Class A1, 144A, MBIA, 2.74%,
due 06/20/07 25,148,438
9,000,000 Aesop Funding II LLC Series 04-2A Class A2, 144A, FGIC,
Variable Rate, 1 mo. LIBOR + .12%, 1.21%, due 04/20/08 9,002,813
7,345,824 Americredit Automobile Receivables Trust Series 00-B Class A4, FSA,
Variable Rate, 1 mo. LIBOR + .20%, 1.30%, due 04/05/07 7,318,277
---------------
41,469,528
---------------
INSURED BUSINESS LOANS -- 1.1%
9,955,800 CNL Commercial Mortgage Loan Trust Series 03-2A Class A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .44%, 1.53%, due 10/25/30 9,968,245
10,000,000 Golden Securities Corp 03-A A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 1.40%, due 12/02/13 10,014,300
---------------
19,982,545
---------------
INSURED EMERGING MARKETS COLLATERALIZED DEBT OBLIGATIONS -- 1.3%
13,886,068 Anfield Road I Ltd Series 1 Class A, CapMAC, PTE,
Variable Rate, 6 mo. LIBOR + .25%, 1.42%, due 11/06/06 13,699,439
8,667,891 Starvest Emerging Markets CBO-I Series 1A, Class A, CapMAC,
Variable Rate, 6 mo. LIBOR + .19%, 1.36%, due 07/30/11 8,515,076
---------------
22,214,515
---------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
INSURED HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 5.5%
1,000,704 Augusta Funding Ltd Series 10A Class A-1 144A, CapMAC, 6.65%,
due 06/30/04 1,010,711
3,046,076 Cigna CBO Ltd Series 96-1 Class A2, 144A, Step Up, 6.46%, due 11/15/08 3,126,035
6,439,456 Clydesdale CBO I Ltd Series 1A Class A2, FSA, 6.83%, due 03/25/11 6,584,344
5,331,449 DLJ CBO Ltd Series 1A Class A2, 144A, FSA, 6.68%, due 04/15/11 5,384,763
6,395,057 FC CBO Series 03-1AW Class A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .38%, 1.65%, due 06/03/09 6,367,750
10,000,000 GSC Partners CDO Fund Ltd Series 03-4A A3, 144A, AMBAC,
Variable Rate, 3 mo. LIBOR + .46%, 1.71%, due 12/16/15 10,000,000
9,047,629 GSC Partners CDO Fund Ltd Series 1A Class A, 144A,
Variable Rate, 6 mo. LIBOR + .40%, 1.65%, due 05/09/12 8,985,834
21,419,686 GSC Partners CDO Fund Ltd Series 2A Class A, 144A, FSA,
Variable Rate, 6 mo. LIBOR + .52%, 1.75%, due 05/22/13 21,201,205
14,476,806 Northstar CBO Ltd Series 97-2I Class A2, 144A,
Variable Rate, Step Up, 4.12%, due 07/15/09 14,471,594
18,263,694 Spirit CBO Series 03-4AW,
Variable Rate, 6 mo. LIBOR + .55%, 1.77%, due 05/23/11 18,224,975
---------------
95,357,211
---------------
INSURED INSURANCE PREMIUMS -- 1.6%
6,683,245 PAM Capital Funding Corp Series 98-1W A, 144A,
Variable Rate, 3 mo. LIBOR + 17%, 1.30%, due 05/01/10 6,657,314
22,000,000 PFS Financing Corp Series 01-FA Class A, MBIA, 144A,
Variable Rate, 1 mo. LIBOR + .33%, 1.42%, due 06/15/08 22,006,875
---------------
28,664,189
---------------
INSURED PERPETUAL LOAN COLLATERALIZED DEBT OBLIGATION -- 1.6%
28,000,000 Augusta Funding Ltd Series 10A Class F-1, 144A, CapMAC,
Variable Rate, 3 mo. LIBOR + .25%, 2.05%, due 06/30/17 27,300,000
---------------
INSURED RESIDENTIAL HOME EQUITY (EUROPEAN) -- 2.8%
13,500,000 RMAC Series 03-NS1X Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .45%, 4.46%, due 06/12/35 25,170,737
13,000,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.41%, due 09/12/35 24,137,463
---------------
49,308,200
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
INSURED RESIDENTIAL HOME EQUITY (UNITED STATES) -- 3.6%
20,000,000 Accredited Mortgage Loan Trust Series 04-1 Class A2, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 1.39%, due 04/25/34 20,000,000
14,363,073 Quest Series 03-X4A Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .43%, 1.52%, due 12/25/33 14,363,073
19,801,379 Residential Asset Securities Corp Series 02-KS3 Class A1B, AMBAC,
Variable Rate, 1 mo. LIBOR + .25%, 1.34%, due 05/25/32 19,812,270
9,395,897 Residential Asset Securities Corp Series 02-KS5 Class A1B3, AMBAC,
Variable Rate, 1 mo. LIBOR + .27%, 1.36%, due 08/25/32 9,407,642
---------------
63,582,985
---------------
INSURED RESIDENTIAL PRIME MORTGAGES (UNITED STATES) -- 2.9%
9,791,074 Chevy Chase Mortgage Funding Corp Series 03-4, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .34%, 1.43%, due 10/13/34 9,792,054
6,270,311 Residential Funding Mortgage Securities Series 03-HS1 Class AII, FGIC,
Variable Rate, 1 mo. LIBOR + .29%, 1.38%, due 12/25/32 6,266,549
17,250,818 Wachovia Asset Securization Inc Series 02-HE1 Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .37%, 1.46%, due 09/27/32 17,301,363
17,616,968 Wachovia Asset Securization Inc Series 03-HE1 Class A1, FGIC,
Variable Rate, 1 mo. LIBOR + .29%, 1.38%, due 03/25/33 17,625,953
---------------
50,985,919
---------------
RATE REDUCTION BOND -- 1.4%
23,631,757 California Infrastructure PG&E Series 97-1 Class A7, 6.42%, due
09/25/08 24,954,581
---------------
RESIDENTIAL HOME EQUITY (EUROPEAN) -- 0.8%
14,000,000 Paragon Mortgages Plc Series 6A A2A, 144A,
Variable Rate, 3 mo. LIBOR + .35%, 1.52%, due 03/15/30 14,030,625
---------------
RESIDENTIAL HOME EQUITY (UNITED STATES) -- 10.9%
24,808,621 Aegis Asset Backed Securities Trust Series 04-1 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 1.44%, due 04/25/34 24,808,621
17,270,000 Centex Home Equity Series 04-B Class AV3,
Variable Rate, 1 mo. LIBOR + 0%, 1.29%, due 03/25/34 17,270,000
7,000,000 Chase Funding Mortgage Loan Asset-Backed Series 03-3 Class 2A2,
Variable Rate, 1 mo. LIBOR + .27%, 1.36%, due 04/25/33 7,015,820
15,000,000 CIT Group Home Equity Loan Trust Series 03-1 Class A3, 2.79%,
due 03/20/29 15,106,050
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
RESIDENTIAL HOME EQUITY (UNITED STATES) -- CONTINUED
15,743,824 Citigroup Mortgage Loan Trust Inc Series 03-HE3 A, AMBAC,
Variable Rate, 1 mo. LIBOR + .38%, 1.47%, due 12/25/33 15,759,253
17,038,787 Equity One ABS Inc Series 04-1 AV2,
Variable Rate, 1 mo. LIBOR + .30%, 1.39%, due 04/25/34 17,044,112
20,000,000 Master Asset Backed Securities Trust Series 04-Opt1 A3,
Variable Rate, 1 mo. LIBOR, 1.09%, due 01/25/34 20,000,000
24,305,875 Morgan Stanley ABS Capital I Series 04-SD1 Class A,
Variable Rate, 1 mo. LIBOR + .40%, 1.49%, due 08/25/34 24,305,875
14,824,715 Renaissance Home Equity Loan Trust Series 03-4 A2,
Variable Rate, 1 mo. LIBOR + .20%, 1.29%, due 03/25/34 14,828,768
20,178,100 Residential Asset Mortgage Products Inc, Series 03-RS11, Class AI1,
Variable Rate, 1 mo. LIBOR + .19%, 1.28%, due 03/25/23 20,163,572
15,000,000 Saxon Asset Securities Trust Series 04-1 A,
Variable Rate, 1 mo. LIBOR + .27%, 1.36%, due 03/25/35 15,000,000
---------------
191,302,071
---------------
RESIDENTIAL PRIME MORTGAGES (AUSTRALIAN) -- 3.6%
8,000,000 Australian Mortgage Securities II G3 A1A,
Variable Rate, 3 mo. LIBOR + .21%, 1.32%, due 01/10/35 8,000,000
19,929,025 Interstar Millennium Trust Series 03-3G Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 1.42%, due 09/27/35 19,958,918
20,875,427 Interstar Millennium Trust Series 03-5G Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 1.37%, due 01/20/36 20,875,427
14,743,566 Medallion Trust Series 03-1G Class A,
Variable Rate, 3 mo. LIBOR + .19%, 1.36%, due 12/21/33 14,743,566
---------------
63,577,911
---------------
RESIDENTIAL PRIME MORTGAGES (UNITED STATES) -- 3.4%
20,000,000 CC Mortgage Funding Corp Series 04-1A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .33%, 1.42%, due 01/25/38 20,000,000
13,574,485 GreenPoint Home Equity Loan Trust Series 04-1 Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .23%, 1.32%, due 07/25/29 13,581,951
25,000,000 Impac Secured Assets CMN Owner Trust Series 04-1 Class A1,
Variable Rate, 1 mo. LIBOR + .15%, 1.24%, due 03/25/34 24,985,000
---------------
58,566,951
---------------
SMALL BUSINESS LOANS -- 0.4%
7,463,303 The Money Store Business Loan Backed Trust Series 99-1 Class AN,
Variable Rate, 1 mo. LIBOR +.50%, 1.59%, due 09/15/17 7,463,303
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
STUDENT LOANS -- 2.7%
1,607,398 Bank One Student Loan Trust Series 94-A Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 1.39%, due 10/25/16 1,608,090
9,600,000 Keycorp Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 1.82%, due 11/25/21 9,605,760
8,000,000 Keycorp Student Loan Trust Series 95-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 1.84%, due 10/27/21 8,004,800
4,772,800 SMS Student Loan Trust Series 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 1.80%, due 07/26/21 4,774,232
4,205,600 SMS Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 1.84%, due 10/25/23 4,209,806
1,074,778 SMS Student Loan Trust Series 94-B Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 1.39%, due 04/25/16 1,075,745
3,945,600 SMS Student Loan Trust Series 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 1.74%, due 04/25/25 3,955,464
11,261,371 SMS Student Loan Trust Series 97-A Class A,
Variable Rate, 3 mo. T-Bill + .60%, 1.53%, due 10/27/25 11,252,362
2,129,570 Student Loan Marketing Association Series 96-4 Class A2,
Variable Rate, 3 mo. U.S. Treasury Bill + .64%, 1.57%, due 07/25/09 2,118,922
---------------
46,605,181
---------------
TRADE RECEIVABLE -- 1.1%
20,000,000 Huntsman International Asset-Backed Securities Ltd 1 A1,
Variable Rate, 1 mo. LIBOR + .39%, 1.48%, due 03/15/07 19,873,600
---------------
Total Asset-Backed Securities 1,148,236,140
---------------
CORPORATE DEBT -- 5.0%
10,130,316 Continental Airlines Series 99-1A, 6.55%, due 02/02/19 10,130,316
8,000,000 General Motors Acceptance Corp, 7.50%, due 07/15/05 8,528,800
11,750,000 Banco Santander Series MBIA, 6.50%, due 11/01/05 12,421,054
1,466,667 Polaris Funding Company Series EMTN,
Variable Rate, 1 mo. LIBOR + .45%, 1.55%, due 01/07/05 1,465,347
28,650,000 Pemex Finance Ltd, Series 1A1 Class A2, AMBAC, 144A, 6.30%, due 05/15/10 31,434,422
20,500,000 Westralia Airports Corp, 144A, MBIA, 6.48%, due 04/01/10 23,271,600
---------------
87,251,539
---------------
U.S. GOVERNMENT -- 12.8%
2,281,840 U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 2,575,627
120,000,000 U.S. Treasury Note, 2.00%, due 11/30/04 (a) 120,787,500
100,000,000 U.S. Treasury Note, 2.00%, due 08/31/05 100,906,250
---------------
224,269,377
---------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY -- 5.8%
1,000,000 Agency for International Development Floater (Support of Belize),
Variable Rate, 6 mo. U.S. Treasury Bill + .50%, 1.52%, due 01/01/14 988,750
3,752,500 Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 1.42%, due 10/01/12 3,705,594
1,602,814 Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 1.05%, due 10/01/11 1,596,804
15,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 1.26%, due 02/01/27 14,831,250
4,873,719 Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 1.77%, due 03/30/19 4,855,442
20,000,000 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR - .015%, 1.16%, due 02/01/25 19,650,000
15,000,000 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR + .15%, 1.32%, due 10/29/26 14,989,500
1,232,880 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. U.S. Treasury Bill + .45%, 1.47%, due 11/15/14 1,215,928
597,446 Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill +.35%, 1.37%, due 05/01/14 595,205
1,695,970 Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill +.35%, 1.37%, due 05/01/14 1,689,610
21,250,000 Agency for International Development Floater (Support of Portugal),
Variable Rate, 6 mo. LIBOR, 1.17%, due 01/01/21 21,223,438
13,747,500 Agency for International Development Floater (Support of Tunisia),
Variable Rate, 6 mo. LIBOR, 1.19%, due 07/01/23 13,575,656
1,333,334 Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 1.04%, due 01/01/12 1,323,334
1,350,305 Small Business Administration Series 95-10C Class 1, 6.88%, due 09/01/05 1,429,161
---------------
101,669,672
---------------
TOTAL DEBT OBLIGATIONS (COST $1,548,887,290) 1,561,426,728
---------------
MUTUAL FUNDS -- 5.8%
4,968,240 Dreyfus Money Market Fund (b) 4,968,240
96,251,484 Merrimac Cash Fund (b) 96,251,484
---------------
TOTAL MUTUAL FUNDS (COST $101,219,724) 101,219,724
---------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.1%
CASH EQUIVALENTS -- 1.4%
24,459,370 Harris Trust & Savings Bank Eurodollar Time Deposit, 1.01%,
due 3/30/04 (b) 24,459,370
---------------
COMMERCIAL PAPER -- 5.7%
50,000,000 Bellsouth Corp., 0.98%, due 03/3/04 49,994,500
50,000,000 Koch Ind., 0.98%, due 03/2/04 49,995,917
---------------
99,990,417
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $124,449,787) 124,449,787
---------------
TOTAL INVESTMENTS -- 102.0%
(Cost $1,774,556,801) 1,787,096,239
Other Assets and Liabilities (net) -- (2.0%) (35,561,055)
---------------
TOTAL NET ASSETS -- 100.0% $ 1,751,535,184
===============
</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.
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
FSA - Insured as to the payment of principal and interest
by Financial Security Assurance
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 is held as collateral
for open swap contracts (Note 8).
(b) All or a portion of this security represents investment
of security lending collateral (Note 2).
See accompanying notes to the financial statements.
8
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value, including securities on loan of $37,907,721 (cost $1,774,556,801) (Note 2) $ 1,787,096,239
Cash 54,338,154
Foreign currency, at value (cost $190,442) (Note 2) 190,442
Receivable for investments sold 611,162
Receivable for Fund shares sold 16,000,000
Interest receivable 5,700,233
Receivable for expenses reimbursed by Manager (Note 3) 19,963
---------------
Total assets 1,863,956,193
---------------
LIABILITIES:
Payable for investments purchased 57,270,718
Payable upon return of securities loaned (Note 2) 38,923,600
Payable to affiliate for (Note 3):
Trustees fee 2,768
Payable for open forward foreign currency contracts (Notes 2 and 8) 1,141,015
Periodic payments from open swap contracts (Notes 2 and 8) 1,239,625
Net payable for open swap contracts (Notes 2 and 8) 13,736,983
Accrued expenses 106,300
---------------
Total liabilities 112,421,009
---------------
NET ASSETS $ 1,751,535,184
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 1,741,649,663
Distributions in excess of net investment income (5,013,798)
Accumulated net realized gain 3,918,241
Net unrealized appreciation 10,981,078
---------------
$ 1,751,535,184
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 1,751,535,184
===============
SHARES OUTSTANDING:
Class III 69,553,129
===============
NET ASSET VALUE PER SHARE:
Class III $ 25.18
===============
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Interest (including securities lending income of $31,920) $ 31,580,952
---------------
Total income 31,580,952
---------------
EXPENSES:
Custodian and transfer agent fees 145,448
Audit and tax fees 55,096
Legal fees 59,652
Trustees fees and related expenses (Note 3) 27,570
Interest expense (Notes 2 and 8) 22,357
Miscellaneous 12,754
---------------
Total expenses 322,877
Fees and expenses reimbursed by Manager (Note 3) (263,682)
---------------
Net expenses 59,195
---------------
Net investment income 31,521,757
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (9,241,947)
Closed swap contracts 4,066,534
Foreign currency, forward contracts and foreign currency related transactions (8,719,046)
---------------
Net realized loss (13,894,459)
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 12,432,699
Open swap contracts 2,941,320
Foreign currency, forward contracts and foreign currency related transactions (1,998,824)
---------------
Net unrealized gain 13,375,195
---------------
Net realized and unrealized loss (519,264)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 31,002,493
===============
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
PERIOD FROM NOVEMBER 26, 2002
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 2004 THROUGH FEBRUARY 28, 2003
----------------- -----------------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 31,521,757 $ 8,205,930
Net realized loss (13,894,459) (2,896,244)
Change in net unrealized appreciation (depreciation) 13,375,195 (2,394,117)
--------------- ---------------
Net increase in net assets from operations 31,002,493 2,915,569
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III (21,843,050) (2,209,747)
Net share transactions (Note 7):
Class III 595,422,052 1,146,247,867
--------------- ---------------
Increase in net assets resulting from net share transactions 595,422,052 1,146,247,867
--------------- ---------------
Total increase in net assets 604,581,495 1,146,953,689
NET ASSETS:
Beginning of period 1,146,953,689 --
--------------- ---------------
End of period (including distributions in excess of
net investment income of $5,013,798 and accumulated
undistributed net investment income of $3,103,842,
respectively) $ 1,751,535,184 $ 1,146,953,689
=============== ===============
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
----------------------------------
2004 2003 (b)(c)
------------- -------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.01 $ 25.00
------------- -------------
Income from investment operations:
Net investment income 0.56 0.18
Net realized and unrealized gain (loss) 0.06+ (0.12)
------------- -------------
Total from investment operations 0.62 0.06
------------- -------------
Less distributions to shareholders:
From net investment income (0.45) (0.05)
------------- -------------
Total distributions (0.45) (0.05)
------------- -------------
NET ASSET VALUE, END OF PERIOD $ 25.18 $ 25.01
============= =============
TOTAL RETURN (a) 2.48% 0.24%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,751,535 $ 1,146,954
Net operating expenses to average daily net assets 0.00%(d) 0.00%*
Interest expense to average daily net assets 0.00%(e) --
Total net expenses to average daily net assets 0.00%(f) 0.00%*
Net investment income to average daily net assets 2.51% 2.94%*
Portfolio turnover rate 33% 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) Period from November 26, 2002 (commencement of operations) through February
28, 2003.
(c) As a result of recent changes in generally accepted accounting principles,
the Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to increase the net investment income ratio for the
year ending February 29, 2004 by 0.71% and net investment income per share
by $0.06. For consistency, similar reclassifications have been made to prior
year amounts, resulting in an increase to the net investments income ratio
of 0.60% and to the net investment income per share of $0.03 in the period
ended February 28, 2003.
(d) Net operating expenses were less than 0.01% to average daily net assets.
(e) Interest expense was less that 0.01% to average daily net assets.
(f) Total net expenses were less than 0.01% to average daily net assets.
* Annualized.
** Not 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.
See accompanying notes to the financial statements.
12
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Short-Duration Collateral Fund (the "Fund"), is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, non-diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
statement of operations. For consistency, similar reclassifications have
been made to amounts appearing in the previous year's statement of changes
in net assets and the per share amounts in all prior year financial
highlights presented. Prior year net investment income ratios in the
financial highlights have also been modified accordingly. This
reclassification increased net investment income and decreased net realized
gains by $9,007,309 for the year ended February 29, 2004 and increased net
investment income and decreased net realized gains by $1,675,565 for the
year ended February 28, 2003. This change had no effect on the Fund's net
asset value, either in total or per share, or its total increase (decrease)
in net assets from operations during any period.
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
13
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 or exchange rate 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 the 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 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 February 29,
2004, the total value of these securities represented 20.1% 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
14
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 and represents the currency exposure
the Fund has acquired or hedged through forward currency contracts as of
February 29, 2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. At February 29,
2004, 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
15
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
(put) and as a result bears the market risk of an unfavorable change in the
price of the future, security or currency underlying the written option. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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.
16
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
financial markets. A swap is an agreement to exchange the return generated
by one instrument for the return generated by another instrument. The Fund
may enter into interest rate, total return, forward swap spread lock and
credit default swap agreements to manage its exposure to interest rates and
credit risk. Interest rate swap agreements involve the exchange by the Fund
with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. Total return swap
agreements involve commitments to pay interest in exchange for a market
linked return, both based on notional amounts. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Forward
swap spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of the
swap rate. The swap spread is the difference between the benchmark swap
rate (market rate) and the specific treasury rate. In a credit default
swap, one party makes a stream of payments to another party in exchange for
the right to receive a specified return in the event of a default by a
third party on its obligation. The Fund may use credit default swaps to
provide a measure of protection against defaults of sovereign or corporate
issuers (i.e., to reduce risk where the Fund owns or has exposure to the
issuer) or to take an active long or short position with respect to the
likelihood of a particular issuer's default. In connection with these
agreements, cash or securities may be set aside as collateral by the Fund's
custodian in accordance with the terms of the swap agreement. The Fund
earns interest on cash set aside as collateral. Swaps are marked to market
daily based upon quotations from market makers and the change in value, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made on swap contracts 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 realized gain loss.
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 8 for a summary of open swap agreements as of February 29, 2004.
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
17
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. At February 29, 2004, the Fund held no open repurchase agreements.
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 February 29, 2004, the Fund
held no open reverse repurchase agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of loss with respect to
the 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
February 29, 2004, the Fund loaned securities having a market value of
$37,907,721 collateralized by cash in the amount of $38,923,600, 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. 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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions from ordinary income were $21,843,050 and
$2,209,747, respectively.
18
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $$2,633,895 and $1,287,871 of undistributed ordinary
income and undistributed long-term capital gains, respectively.
The Fund elected to defer to March 1, 2004 post-October losses of
$2,353,728.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency and
swap transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
DISTRIBUTIONS ACCUMULATED
IN EXCESS OF NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
--------------------- ------------------ ---------------
$ (17,796,347) $ 17,816,603 $ (20,256)
</Table>
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.
3. 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
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).
19
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $19,400. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 2004, 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 $ 151,410,156 $ 37,064,582
Investments (non-U.S. Government securities) 740,764,540 359,717,374
</Table>
At February 29, 2004, 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
----------------- ----------------- ----------------- ----------------
$ 1,774,418,680 $ 17,442,629 $ (4,765,070) $ 12,677,559
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 66.1% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Four of the shareholders are other funds of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
20
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
PERIOD FROM NOVEMBER 26, 2002
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 2004 THROUGH FEBRUARY 28, 2003 (a)
---------------------------------- ----------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 55,814,806 $ 1,405,255,000 52,023,171 $ 1,300,562,382
Shares issued to shareholders
in reinvestment of distributions 871,388 21,843,050 88,709 2,209,747
Shares repurchased (32,984,732) (831,675,998) (6,260,224) (156,524,262)
--------------- --------------- --------------- ---------------
Net increase 23,701,462 $ 595,422,052 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.
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
SETTLEMENT NET UNREALIZED
DATE DELIVER UNITS OF CURRENCY VALUE DEPRECIATION
----------- ------- ----------------- ------------- --------------
Sales
4/13/04 GBP 36,500,000 $ 67,498,015 $ (1,141,015)
=============
</Table>
21
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 $ 1,252,617*
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.
50,000,000 USD 1/09/08 Agreement with JP Morgan Chase Bank dated 1/07/03 (949,518)
to pay the notional amount multiplied by 3.43375%
and to receive the notional amount multiplied by
the 3 month Floating Rate LIBOR.
35,000,000 USD 3/04/08 Agreement with JP Morgan Chase Bank dated 2/28/03 (185,595)
to pay the notional amount multiplied by 3.096%
and to receive the notional amount multiplied by
the 3 month Floating Rate LIBOR.
40,000,000 USD 1/24/11 Agreement with Goldman Sachs International dated (591,757)*
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.
26,700,000 USD 2/24/13 Agreement with JP Morgan Chase Bank dated 12/9/03 (635,897)
to pay the notional amount multiplied by 4.54% and
to receive the notional amount multiplied by the 3
month Floating Rate LIBOR.
</Table>
22
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
---------------- ----------- ---------------------------------------------------- ---------------
TOTAL RETURN SWAPS
35,000,000 USD 3/31/04 Agreement with UBS AG dated 12/31/03 to receive $ 372,999
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.
35,000,000 USD 7/31/04 Agreement with JP Morgan Chase Bank dated 1/21/04 421,740
to receive the notional amount multiplied by the
return on the CMBS Lehman Brothers AAA 8.5yr Index
and to pay initial market value multiplied by the
1 month LIBOR adjusted by a specified spread.
----------
$ (315,411)
==========
</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.
9. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund contributed $214,143,316 in net
assets to the Fund in exchange for 8,491,012 shares of the Fund. The
transaction, which was structured as a tax-free reorganization, was
consummated after the close of business on March 31, 2004 and the shares
received by GMO Alpha LIBOR Fund were then distributed to its shareholders.
23
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO SHORT-DURATION COLLATERAL FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Short-Duration Collateral Fund
(the "Fund") (a series of the GMO Trust) at February 29, 2004, and the results
of its operations, the changes in its net assets and the financial highlights
for the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit, which included confirmation of securities at February
29, 2004 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
24
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------------- ----------------- ----------------- ---------------------- -------------- ---------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and 41 *(2)
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Glazer, Esq. Trustee Since December Advisory Counsel,
c/o GMO Trust 2000 Goodwin Procter LLP; 41 None
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant, Provant,
DOB: 07/26/1944 Inc. (provider of
performance
improvement training
services and
products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
25
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ----------------------- ----------------- ----------------- ---------------------- ------------------ ---------------
R. Jeremy Grantham(3) Chairman of the Since September Chairman, Grantham,
c/o GMO Trust Board of Trustees 1985. Mayo, Van Otterloo & 41 None
40 Rowes Wharf President from Co. LLC
Boston, MA 02110 February 2002 -
DOB: 10/06/1938 October 2002;
President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
26
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ------------------- ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997 - present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary since Otterloo & Co. LLC (June
Boston, MA 02110 March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 - 1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
27
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the
International Quantitative Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Global Hedged Equity Fund returned +3.7% for the fiscal year ended
February 29, 2004, as compared to +1.0% for the Citigroup 3-Month Treasury Bill
Index. Consistent with the Fund's investment objectives and policies, during the
fiscal year the Fund was fully exposed to global equity securities through its
investment in underlying GMO mutual funds.
Implementation was negative, as the underlying GMO mutual funds underperformed
their respective benchmarks by approximately 0.7%.
Asset allocation added approximately 3.4%. The portfolio's allocation to the GMO
International Small Companies Fund and GMO Emerging Markets Fund added value as
these funds outperformed the MSCI EAFE Index by 33.0% and 28.5%, respectively.
During the period, the position in emerging equities was hedged 50% with S&P 500
futures and 50% with MSCI EAFE futures. Against this blended benchmark, the GMO
Emerging Markets Fund added 36.1%.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE
<Page>
GLOBAL HEDGED EQUITY FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO GLOBAL HEDGED EQUITY FUND CITIGROUP 3 MONTH T-BILL INDEX
7/29/1994 4,994,000 5,000,000
9/30/1994 5,003,990 5,037,415
12/31/1994 5,014,550 5,103,055
3/31/1995 5,064,845 5,174,650
6/30/1995 5,230,825 5,250,000
9/30/1995 5,319,075 5,324,060
12/31/1995 5,417,295 5,396,720
3/31/1996 5,443,020 5,466,200
6/30/1996 5,473,890 5,535,355
9/30/1996 5,526,945 5,607,655
12/31/1996 5,638,925 5,680,140
3/31/1997 5,555,075 5,752,045
6/30/1997 5,539,355 5,826,470
9/30/1997 5,695,615 5,901,735
12/31/1997 5,548,795 5,978,280
3/31/1998 5,555,115 6,055,305
6/30/1998 5,327,600 6,132,340
9/30/1998 5,264,400 6,209,825
12/31/1998 5,155,975 6,280,920
3/31/1999 5,082,605 6,349,995
6/30/1999 5,489,480 6,421,640
9/30/1999 5,414,200 6,497,615
12/31/1999 5,240,865 6,578,460
3/31/2000 5,316,420 6,666,685
6/30/2000 5,529,350 6,762,295
9/30/2000 5,798,595 6,862,695
12/31/2000 6,255,880 6,970,375
3/31/2001 6,718,435 7,067,635
6/30/2001 6,910,335 7,143,580
9/30/2001 7,170,235 7,208,425
12/31/2001 7,200,730 7,255,360
3/31/2002 7,558,330 7,287,130
6/30/2002 7,954,650 7,319,065
9/30/2002 8,088,765 7,350,510
12/31/2002 8,038,470 7,378,935
3/31/2003 8,030,090 7,401,255
6/30/2003 8,155,820 7,422,215
9/30/2003 8,214,495 7,440,445
12/31/2003 8,256,405 7,458,220
2/29/2004 8,363,705 7,469,575
</Table>
Average Annual Returns
Inception 7/29/1994
<Table>
<Caption>
1YR 5YR 10YR(ITD)
3.49 10.54 5.51
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 12 bp on the purchase and 12 bp on the redemption. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 89.5%
UNITED STATES -- 89.5%
419,423 GMO Emerging Markets Fund, Class III 6,618,501
456,196 GMO International Growth Fund, Class III 10,798,156
548,750 GMO International Intrinsic Value Fund, Class III 13,345,605
196,330 GMO International Small Companies Fund, Class III 3,355,286
180,145 GMO Real Estate Fund, Class III 2,639,124
102,746 GMO Small Cap Value Fund, Class III 1,593,583
2,111,739 GMO U.S. Core Fund, Class III 28,592,950
-------------
66,943,205
-------------
TOTAL MUTUAL FUNDS (COST $52,945,874) 66,943,205
-------------
COMMON STOCKS -- 0.0%
ITALY -- 0.0%
12,500 Grassetto SPA *(a) (b) 155
-------------
TOTAL COMMON STOCKS (COST $7,040) 155
-------------
SHORT-TERM INVESTMENTS -- 12.4%
CASH EQUIVALENTS -- 7.3%
1,800,000 Banc One Corp, 1.01%, due 3/01/04 1,800,000
3,700,000 Dresdner GC Time Deposit, 1.03%, due 03/01/04 3,700,000
-------------
5,500,000
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
U.S. GOVERNMENT -- 5.1%
3,800,000 U.S. Treasury Bill, 0.88%, due 3/25/04 (c) 3,797,627
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $9,297,627) 9,297,627
-------------
TOTAL INVESTMENTS -- 101.9%
(Cost $62,250,541) 76,240,987
Other Assets and Liabilities (net) -- (1.9%) (1,400,439)
-------------
TOTAL NET ASSETS -- 100.0% $ 74,840,548
=============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
* 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 2).
(b) Bankrupt issuer.
(c) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts (Note 8).
See accompanying notes to the financial statements.
2
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $9,304,667) (Note 2) $ 9,297,782
Investments in affiliated issuers, at value (cost $52,945,874) (Notes 2 and 9) 66,943,205
Cash 97,428
Foreign currency, at value (cost $551) (Note 2) 616
Receivable for Fund shares sold 298,441
Interest receivable 469
Receivable for open forward foreign currency contracts (Notes 2 and 8) 78,259
Receivable for expenses reimbursed by Manager (Note 3) 40,436
---------------
Total assets 76,756,636
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 28,193
Shareholder service fee 8,458
Trustees fee 108
Payable for open forward foreign currency contracts (Notes 2 and 8) 1,585,918
Payable for variation margin on open futures contracts (Notes 2 and 8) 243,869
Accrued expenses 49,542
---------------
Total liabilities 1,916,088
---------------
NET ASSETS $ 74,840,548
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 76,927,260
Distributions in excess of net investment income (738,822)
Accumulated net realized loss (10,552,970)
Net unrealized appreciation 9,205,080
---------------
$ 74,840,548
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 74,840,548
===============
SHARES OUTSTANDING:
Class III 7,494,273
===============
NET ASSET VALUE PER SHARE:
Class III $ 9.99
===============
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers (Note 9) $ 873,566
Interest 61,432
---------------
Total income 934,998
---------------
EXPENSES:
Management fee (Note 3) 235,403
Shareholder service fee (Note 3) - Class III 70,621
Custodian fees 77,293
Transfer agent fees 31,648
Audit and tax fees 32,733
Legal fees 1,878
Trustees fees and related expenses (Note 3) 1,023
Registration fees 12,011
Miscellaneous 276
---------------
Total expenses 462,886
Fees and expenses reimbursed by Manager (Note 3) (78,546)
Indirectly incurred fees waived or borne by Manager (Note 3) (197,563)
Shareholder service fee waived (Note 3) - Class III (63,260)
---------------
Net expenses 123,517
---------------
Net investment income 811,481
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments of affiliated issuers 485,844
Closed futures contracts (7,234,001)
Foreign currency, forward contracts and foreign currency related transactions (1,704,779)
---------------
Net realized loss (8,452,936)
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 15,127,229
Open futures contracts (4,544,405)
Foreign currency, forward contracts and foreign currency related transactions (1,016,089)
---------------
Net unrealized gain 9,566,735
---------------
Net realized and unrealized gain 1,113,799
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,925,280
===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 811,481 $ 335,151
Net realized gain (loss) (8,452,936) 1,139,754
Change in net unrealized appreciation (depreciation) 9,566,735 (449,151)
--------------- ---------------
Net increase in net assets from operations 1,925,280 1,025,754
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III -- (525,883)
--------------- ---------------
Net share transactions (Note 7):
Class III 46,586,103 9,201,261
--------------- ---------------
Increase in net assets resulting from net share
transactions 46,586,103 9,201,261
--------------- ---------------
Total increase in net assets 48,511,383 9,701,132
NET ASSETS:
Beginning of period 26,329,165 16,628,033
--------------- ---------------
End of period (including distributions in
excess of net investment income of $738,822
and accumulated undistributed net investment
income of $196,741, respectively) $ 74,840,548 $ 26,329,165
=============== ===============
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.63 $ 9.23 $ 8.73 $ 7.72 $ 7.59
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (d) 0.17(b) 0.20(b) 0.17(b) 0.15 0.16
Net realized and unrealized gain 0.19 0.49 0.96 1.68 0.20
-------- -------- -------- -------- --------
Total from investment operations 0.36 0.69 1.13 1.83 0.36
-------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income -- (0.29) (0.63) (0.82) (0.23)
-------- -------- -------- -------- --------
Total distributions -- (0.29) (0.63) (0.82) (0.23)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.63 $ 9.23 $ 8.73 $ 7.72
======== ======== ======== ======== ========
TOTAL RETURN (a) 3.74% 7.61% 13.32% 24.84% 4.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 74,841 $ 26,329 $ 16,628 $ 56,499 $ 46,718
Net expenses to average daily net assets (c) 0.26% 0.64% 0.37% 0.25% 0.21%
Net investment income to average daily net assets (d) 1.72% 2.06% 1.88% 1.80% 1.89%
Portfolio turnover rate 11% 111% 22% 15% 13%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.72% 0.94% 0.78% 0.64% 0.54%
Purchase and redemption fees consisted of
the following per share amounts: $ 0.01 -- -- -- --
</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 which are borne by the shareholder.
(b) Computed using average shares outstanding throughout the period.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 3.
(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.
See accompanying notes to the financial statements.
6
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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. These financial
statements are available, without charge, upon request by calling (617)
330-7500 or by visiting GMO's website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
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.
7
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by certain underlying
funds in which the Fund invests be valued using fair value prices supplied
by an independent pricing service to the extent that such prices are
available.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
gains and losses on disposition of 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 8 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of February 29, 2004.
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
8
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
must deliver the full amount of the contracts. Futures contracts are marked
to market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or
receivable is liquidated on the following business day. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a futures contract can vary
from the previous day's settlement price, thereby effectively preventing
liquidation of unfavorable positions. Losses may arise from the changes in
the value of the underlying instrument, if the Fund is unable to liquidate
a futures position due to an illiquid secondary market for the contracts or
the imposition of price limits, or if counterparties do not perform under
the contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 8 for all open futures contracts as of February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004, 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.
9
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. 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 on swap contracts 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 February 29, 2004, 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.
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. During the years ended February 29, 2004 and
10
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
February 28, 2003, the tax basis of distributions paid were as follows:
ordinary income - $0 and $525,883, respectively.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains if any, to the extent permitted by the Code of
$1,571,235, $523,745 and $6,598,186 expiring in 2006, 2007 and 2012,
respectively. The Fund has elected to defer to March 1, 2004 post-October
capital and currency losses of $3,253,391 and $2,236,670, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net value of
the Fund and is primarily attributable to foreign currency transactions and
limitations of capital loss carryovers. The financial highlights exclude
these adjustments.
<Table>
<Caption>
DISTRIBUTIONS IN ACCUMULATED
EXCESS OF NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------------- ---------------------- ---------------------
$ (1,747,044) $ 1,747,045 $ (1)
</Table>
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.
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 February 29, 2004. The level of purchase premium and
redemption fee for the Fund will be adjusted
11
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 year ended February 29, 2004, the Fund received $50,819 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.
3. 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 service fees paid in connection with the Fund's
investment in shares of the underlying funds. For the year ended February
29, 2004, shareholder service fees incurred indirectly by the Fund were
.134% 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, 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 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
12
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
indirectly by the Fund through investment in the underlying funds, exceed
.50% of the Fund's average daily net assets. Because GMO will not reimburse
expenses incurred indirectly by the Fund to the extent they exceed .50% 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 (as defined above))
and investment-related expenses 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 year ended February 29, 2004, indirect operating expenses
(excluding shareholder service fees) 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
.438% and less than .001% 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 year ended February 29, 2004 was $684. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the February 29, 2004 aggregated $32,323,566
and $4,600,000, respectively.
At February 29, 2004, 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
----------------- ----------------- ----------------- --------------
$ 62,949,935 $ 13,297,937 $ (6,885) $ 13,291,052
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
13
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 80.9% 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. One of the shareholders is another Fund of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund. At February 29, 2004, 2.12% of the Fund was held by five related
parties.
7. 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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------- ----------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Shares sold 6,051,869 $ 59,137,977 2,164,937 $ 20,773,802
Shares issued to shareholders in
reinvestment of distributions -- -- 54,717 509,414
Shares repurchased (1,291,067) (12,551,874) (1,287,322) (12,081,955)
------------ ------------ ------------ ------------
Net increase 4,760,802 $ 46,586,103 932,332 $ 9,201,261
============ ============ ============ ============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF APPRECIATION
CONTRACTS TYPE EXPIRATION DATE CONTRACT VALUE (DEPRECIATION)
------------ ------------------ ----------------- ---------------- --------------
Sales
81 CAC40 March 2004 $ 3,755,475 $ (8,566)
21 DAX March 2004 2,626,536 (92,530)
118 FTSE 100 March 2004 9,806,121 (309,517)
7 HANG SENG March 2004 624,562 (10,306)
13 IBEX 35 March 2004 1,333,470 (7,031)
9 MIB30 March 2004 1,567,116 (36,578)
86 OMX March 2004 807,389 (7,847)
29 SPI 200 March 2004 1,880,615 (68,367)
126 S&P 500 March 2004 36,054,900 (2,092,980)
83 TSE TOPIX March 2004 8,238,468 (644,050)
------------
$ (3,277,772)
============
</Table>
14
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER UNITS OF CURRENCY VALUE (DEPRECIATION)
------------ ----------- ------------------- ------------ ----------------
Sales
5/28/04 AUD 1,946,705 $ 1,485,769 $ 2,517
3/26/04 CHF 2,611,558 2,057,462 (92,025)
5/28/04 CHF 208,403 164,429 4,353
3/26/04 DKK 1,210,748 201,718 (8,103)
3/26/04 EUR 7,912,694 9,824,778 (637,121)
5/28/04 EUR 233,191 289,054 8,188
3/26/04 GBP 4,013,391 7,432,721 (800,786)
5/28/04 GBP 63,294 116,583 1,745
5/28/04 HKD 3,641,093 468,837 521
4/28/04 JPY 34,600,000 317,275 (14,444)
5/28/04 JPY 692,824,513 6,358,596 60,524
3/26/04 NOK 790,000 112,164 (1,095)
3/26/04 SEK 5,145,568 690,506 (29,703)
4/28/04 SGD 175,000 102,870 (2,641)
5/28/04 SGD 172,505 101,440 411
-------------
$ (1,507,659)
=============
</Table>
CURRENCY ABBREVIATIONS:
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
15
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
----------------------------- ------------ ------------ ------------ ------------ ------------
GMO EMERGING MARKETS FUND,
CLASS III $ 2,539,110 $ 1,491,416 $ -- $ 91,416 $ 6,618,501
GMO INTERNATIONAL GROWTH
FUND, CLASS III 2,902,728 5,842,290 -- 92,290 10,798,156
GMO INTERNATIONAL INTRINSIC
VALUE FUND, CLASS IV 5,245,878 6,065,216 1,500,000 290,216 13,345,605
GMO INTERNATIONAL SMALL
COMPANIES FUND, CLASS III 1,342,847 798,786 -- 98,786 3,355,286
GMO REAL ESTATE FUND, CLASS
III 1,239,399 1,675,268 1,000,000 75,268 2,639,124
GMO SMALL CAP VALUE FUND,
CLASS III 623,679 520,377 -- 20,377 1,593,583
GMO U.S. CORE FUND, CLASS III 9,712,943 15,930,213 2,100,000 205,213 28,592,950
------------ ------------ ------------ ------------ ------------
TOTALS $ 23,606,584 $ 32,323,566 $ 4,600,000 $ 873,566 $ 66,943,205
============ ============ ============ ============ ============
</Table>
16
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO GLOBAL HEDGED EQUITY FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Global Hedged Equity Fund (the
"Fund") (a series of GMO Trust) at February 29, 2004, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
17
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ------------------------ ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and 41 *(2)
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Trustee Since
Glazer, Esq. December 2000 Advisory Counsel, 41 None
c/o GMO Trust Goodwin Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant, Provant,
DOB: 07/26/1944 Inc. (provider of
performance improvement
training services and
products) (1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
18
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ------------------------ ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
19
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ------------------- ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President Vice President since Associate General Counsel,
c/o GMO Trust and Secretary August 1999; Grantham, Mayo, Van
40 Rowes Wharf Secretary since Otterloo & Co. LLC (June
Boston, MA 02110 March 2001. 1999 - present);
DOB: 02/18/1945 Associate/Junior Partner,
Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
20
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Inflation Indexed Bond Fund returned +7.5% for the fiscal year ended
February 29, 2004, as compared to +7.3% for the Lehman Brothers U.S. Treasury
Inflation Notes Index.
The Fund outperformed the benchmark by 0.2% during the fiscal year. All of the
value added is attributed to curve positioning and issue selection.
Real (inflation-adjusted) yields on Treasury Inflation-Protected Securities
(TIPS) currently are 1.53%. In addition to inflation-indexed bonds issued by the
U.S. Treasury Department, the Fund holds inflation-indexed bonds issued by
various U.S. Government agencies. While the Fund is permitted to own securities
of foreign countries that are not in the benchmark, currently the portfolio is
entirely invested in the United States. In addition, the Fund maintains an
interest rate exposure quite similar to that of its benchmark. At fiscal year
end, approximately 97% of the portfolio was AAA-rated and the remaining 3%
A-rated.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
INFLATION INDEXED BOND FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO INFLATION INDEXED BOND FUND LEHMAN BROTHERS U.S. TREASURY INFLATION NOTES INDEX
3/31/1997 5,000,000 5,000,000
6/30/1997 5,045,000 5,041,480
9/30/1997 5,125,000 5,114,850
12/31/1997 5,167,995 5,174,620
3/31/1998 5,183,500 5,192,695
6/30/1998 5,250,685 5,262,005
9/30/1998 5,374,715 5,405,165
12/31/1998 5,383,300 5,378,845
3/31/1999 5,427,110 5,402,675
6/30/1999 5,503,780 5,479,410
9/30/1999 5,518,595 5,507,840
12/31/1999 5,528,755 5,507,725
3/31/2000 5,753,595 5,745,360
6/30/2000 5,874,665 5,880,075
9/30/2000 6,016,760 6,005,825
12/31/2000 6,265,450 6,233,340
3/31/2001 6,585,495 6,532,675
6/30/2001 6,714,745 6,639,055
9/30/2001 6,861,405 6,798,730
12/31/2001 6,803,810 6,725,555
3/31/2002 6,880,615 6,825,470
6/30/2002 7,271,050 7,223,895
9/30/2002 7,834,300 7,798,220
12/31/2002 7,769,590 7,839,785
3/31/2003 7,941,790 8,061,810
6/30/2003 8,244,860 8,336,550
9/30/2003 8,267,600 8,361,895
12/31/2003 8,392,790 8,498,250
2/29/2004 8,681,700 8,794,280
</Table>
Average Annual Returns
Inception 3/31/1997
<Table>
<Caption>
1YR 5YR 10YR(ITD)
7.54 9.92 8.3
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 85.1%
UNITED STATES -- 85.1%
CORPORATE DEBT -- 3.8%
6,850,000 JP Morgan & Co. Series MTNA,
Variable Rate, CPI + 4.00%, 4.44%, due 02/15/12 7,754,200
8,000,000 Merrill Lynch & Co., Series CPI, Indexed Interest, 3.04%, due 03/02/09 8,065,256
--------------
15,819,456
--------------
U.S. GOVERNMENT -- 76.8%
40,195,737 U.S. Treasury Inflation Indexed Bond, 3.88%, due 04/15/29 54,735,291
59,202,740 U.S. Treasury Inflation Indexed Bond, 3.63%, due 04/15/28 77,028,317
19,062,720 U.S. Treasury Inflation Indexed Bond, 3.50%, due 01/15/11 22,109,778
57,407,840 U.S. Treasury Inflation Indexed Bond, 3.00%, due 07/15/12 64,754,252
18,064,260 U.S. Treasury Inflation Indexed Bond, 1.88%, due 07/15/13 (a) 18,625,947
651,868 U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 754,639
56,019,172 U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (b) 63,231,640
15,570,750 U.S. Treasury Inflation Indexed Note, 3.38%, due 01/15/12 18,013,411
--------------
319,253,275
--------------
U.S. GOVERNMENT AGENCY -- 4.5%
16,869,010 Tennessee Valley Authority (Indexed Principal), 3.38%, due 01/15/07 18,419,060
--------------
Total United States 353,491,791
--------------
TOTAL DEBT OBLIGATIONS (COST $325,076,053) 353,491,791
--------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 17.3%
478,077 GMO Alpha LIBOR Fund 11,526,447
1,918,079 GMO Short-Duration Collateral Fund 48,297,232
12,095,422 Merrimac Cash Fund 12,095,422
--------------
TOTAL MUTUAL FUNDS (COST $72,373,231) 71,919,101
--------------
TOTAL INVESTMENTS -- 102.4%
(Cost $397,449,284) 425,410,892
Other Assets and Liabilities (net) -- (2.4%) (9,797,079)
--------------
TOTAL NET ASSETS -- 100.0% $ 415,613,813
==============
</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 February 29, 2004, which
are subject to change based on the terms of the
security.
(a) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts (Note 8).
(b) All or a portion of this security has been segregated
to cover collateral requirements on reverse repurchase
agreements (Note 8).
See accompanying notes to the financial statements.
2
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $337,171,475) (Note 2) $ 365,587,213
Investments in affiliated issuers, at value (cost $60,277,809) (Notes 2 and 9) 59,823,679
Receivable for investments sold 8,434,005
Receivable for Fund shares sold 373,222
Interest receivable 2,177,630
Receivable for expenses reimbursed by Manager (Note 3) 48,713
---------------
Total assets 436,444,462
---------------
LIABILITIES:
Payable for investments purchased 9,000,000
Payable for Fund shares repurchased 10,354,650
Payable to affiliate for (Note 3):
Management fee 32,811
Shareholder service fee 49,217
Trustees fee 712
Payable for variation margin on open futures contracts (Notes 2 and 8) 38,497
Payable for reverse repurchase agreements (Notes 2 and 8) 1,261,029
Accrued expenses and other liabilities 93,733
---------------
Total liabilities 20,830,649
---------------
NET ASSETS $ 415,613,813
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 374,990,209
Distributions in excess of net investment income (5,198)
Accumulated net realized gain 12,671,663
Net unrealized appreciation 27,957,139
---------------
$ 415,613,813
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 415,613,813
===============
SHARES OUTSTANDING:
Class III 34,578,843
===============
NET ASSET VALUE PER SHARE:
Class III $ 12.02
===============
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Interest $ 13,020,659
Dividends from affiliated issuers (Note 9) 688,951
---------------
Total income 13,709,610
---------------
EXPENSES:
Management fee (Note 3) 354,147
Shareholder service fee (Note 3) - Class III 531,220
Custodian and transfer agent fees 130,846
Audit and tax fees 39,602
Legal fees 21,059
Trustees fees and related expenses (Note 3) 7,024
Registration fees 35,025
Interest expense (Notes 2 and 8) 459,116
Miscellaneous 2,392
---------------
Total expenses 1,580,431
Fees and expenses reimbursed by Manager (Note 3) (225,747)
---------------
Net expenses 1,354,684
---------------
Net investment income 12,354,926
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments in affiliated issuers 22,807
Investments in unaffiliated issuers 15,622,829
Closed futures contracts 66,889
---------------
Net realized gain 15,712,525
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 3,041,923
Open futures contracts (4,469)
---------------
Net unrealized gain 3,037,454
---------------
Net realized and unrealized gain 18,749,979
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 31,104,905
===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 12,354,926 $ 10,982,560
Net realized gain 15,712,525 6,332,369
Change in net unrealized appreciation (depreciation) 3,037,454 21,696,687
----------------- -----------------
Net increase in net assets from operations 31,104,905 39,011,616
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (13,030,089) (12,116,397)
----------------- -----------------
Net realized gains
Class III (6,880,959) (6,220,182)
----------------- -----------------
(19,911,048) (18,336,579)
----------------- -----------------
Net share transactions (Note 7):
Class III 126,332,193 108,138,941
----------------- -----------------
Increase in net assets resulting from net share transactions 126,332,193 108,138,941
----------------- -----------------
Total increase in net assets 137,526,050 128,813,978
NET ASSETS:
Beginning of period 278,087,763 149,273,785
----------------- -----------------
End of period (including distributions in excess of net investment
income of $5,198 and accumulated undistributed net investment income
of $670,597, respectively) $ 415,613,813 $ 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 YEAR ENDED FEBRUARY 29, 2004
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 12,354,926
Net accretion (1,933,440)
---------------
10,421,486
---------------
Investments purchased (283,933,301)
Investments sold 221,733,625
Short Term investments, net (12,095,422)
---------------
(74,295,098)
---------------
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in interest receivable (351,255)
(Increase) decrease in receivable for fund shares sold (273,222)
(Increase) decrease in receivable for securities sold (8,434,005)
(Increase) decrease in receivable for expenses reimbursed by Manager (30,653)
Increase (decrease) in payable for Fund shares repurchased (3,119,056)
Increase (decrease) in payable for securities purchased 2,629,800
Increase (decrease) in payable to affiliate for:
Management fee 11,714
Shareholder service fee 17,571
Trustees fee 176
Increase (decrease) in payable for variation margin on open futures contracts 38,497
Increase (decrease) in accrued expenses and other liabilities 34,950
Net realized and unrealized gain on futures contracts 62,420
---------------
NET CASH USED FOR OPERATING ACTIVITIES (73,286,675)
---------------
CASH FLOWS FROM FINANCING ACTIVITES*
Proceeds from shares sold 297,845,772
Shares redeemed (189,355,368)
Cash Distributions paid (2,069,259)
Increase (decrease) in payable for reverse repurchase agreements (33,358,099)
---------------
NET CASH PROVIDED (USED IN) FINANCING ACTIVITIES 73,063,046
---------------
NET DECREASE IN CASH (223,629)
Cash and cash equivalents, beginning of period 223,629
---------------
Cash and cash equivalents, end of period --
---------------
*SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Reinvestment of dividends and distributions $ 17,841,789
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------
2004 2003 2002 2001(c) 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.72 $ 10.81 $ 10.64 $ 9.72 $ 9.88
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.30 0.51 0.30 0.71+ 0.65+
Net realized and unrealized gain (loss) 0.56 1.25 0.29 0.90 (0.30)
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.86 1.76 0.59 1.61 0.35
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.33) (0.56) (0.37) (0.69) (0.51)
From net realized gains (0.23) (0.29) (0.05) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (0.56) (0.85) (0.42) (0.69) (0.51)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 12.02 $ 11.72 $ 10.81 $ 10.64 $ 9.72
========== ========== ========== ========== ==========
TOTAL RETURN (a) 7.54% 16.67% 5.66% 16.86% 3.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 415,614 $ 278,088 $ 149,274 $ 65,887 $ 51,951
Net operating expenses to average daily net assets 0.25% 0.25% 0.25% 0.25% 0.25%
Interest expense to average daily net assets(b) 0.13% 0.15% 0.17% 0.37% 0.45%
Total net expenses to average daily net assets(d) 0.38% 0.40% 0.42% 0.62% 0.70%
Net investment income to average daily net assets 3.49% 4.55% 4.15% 6.87% 6.49%
Portfolio turnover rate 57% 75% 40% 32% 112%
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.06% 0.06% 0.09% 0.11% 0.13%
</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.
See accompanying notes to the financial statements.
7
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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 February 29, 2004, 2.8% of the Fund was invested in the GMO Alpha LIBOR
Fund and 11.6% 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. These financial
statements are available, without charge, upon request, by calling (617)
330-7500 or by visiting GMO's website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
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
8
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29,
2004, the total value of these securities represented 2.6% 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
9
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29, 2004, the Fund held no open
forward currency contracts.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 8 for
all open futures contracts as of February 29, 2004.
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 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
10
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
involve commitments to pay or receive a settlement amount calculated as the
difference between the swap spread and a fixed spread, multiplied by the
notional amount times the duration of the swap rate. The swap spread is the
difference between the benchmark swap rate (market rate) and the specific
treasury rate. In connection with these agreements, cash or securities may
be set aside as collateral by the Fund's custodian in accordance with the
terms of the swap agreement. The Fund earns interest on cash set aside as
collateral. Swaps are marked to market daily 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 on
swap contracts 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 interest rates. At February 29, 2004, 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. At February 29,
2004, the Fund held no open repurchase agreements.
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 February 29, 2004, the Fund
had entered into reverse repurchase agreements having a market value plus
accrued interest of
11
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
$1,261,029, collateralized by securities with a market value of $1,286,250.
See Note 8 for a summary of open reverse repurchase agreements as of
February 29, 2004.
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
February 29, 2004, 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 at February 29, 2004.
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.
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. For the years ended February 29, 2004 and February 28, 2003, the
tax basis of distributions paid was as follows: ordinary
income -- $14,694,499 and $14,060,204, respectively and long-term capital
gains -- $5,216,549 and $4,276,375, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $2,426,116 and $10,289,812 of undistributed ordinary
income and undistributed long-term capital gains, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
12
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
DISTRIBUTIONS ACCUMULATED
IN EXCESS OF NET NET
INVESTMENT INCOME REALIZED GAIN
------------------- ---------------
$ (632) $ 632
</Table>
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.
3. 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 .10% of average daily net assets.
The Fund incurs fees and expenses indirectly as a shareholder in GMO Alpha
LIBOR Fund and GMO Short-Duration Collateral Fund. For the year ended
February 29, 2004, indirect operating expenses (excluding
investment-related expenses) were .001% 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% of the Fund's average daily net assets.
13
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the year ended February 29, 2004 was $4,428. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 2004, 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 $ 261,544,350 $ 216,733,625
Investments (non-U.S. Government securities) 22,388,951 5,000,000
</Table>
At February 29, 2004, 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
--------------- ------------------ ------------------ ---------------
$ 397,470,733 $ 28,657,161 $ (717,002) $ 27,940,159
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDER
At February 29, 2004, 43.3% 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. At February 29, 2004, 3.05% of the Fund was held by twenty-four
related parties.
14
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------------------- ----------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- -------------
Shares sold 25,469,289 $ 297,845,772 15,785,072 $ 177,127,387
Shares issued to shareholders
in reinvestment of distributions 1,536,240 17,841,789 1,440,111 16,057,246
Shares repurchased (16,146,233) (189,355,368) (7,316,454) (85,045,692)
----------- ------------- ---------- -------------
Net increase 10,859,296 $ 126,332,193 9,908,729 $ 108,138,941
=========== ============= ========== =============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF CONTRACT APPRECIATION
CONTRACTS TYPE EXPIRATION DATE VALUE (DEPRECIATION)
---------- ------------------------- --------------- ------------ --------------
Buys
156 U.S. Treasury Note 10 Yr. June 2004 $ 17,764,500 $ 67,353
263 U.S. Treasury Note 5 Yr. June 2004 29,562,844 29,308
--------------
$ 96,661
==============
Sales
183 U.S. Long Bond June 2004 $ 20,576,062 $ (101,130)
==============
</Table>
15
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
REVERSE REPURCHASE AGREEMENT
<Table>
<Caption>
FACE VALUE DESCRIPTION MARKET VALUE
------------ ----------------------------------------------------------- ------------
$ 1,261,029 Barclays Bank, 1.02%, dated 2/25/04, due 3/5/04, to be
repurchased on demand by Barclays Bank, at face value,
plus accrued interest. $ 1,261,029
============
Average balance outstanding $ 41,733,526
Average interest rate 1.08%
Maximum balance outstanding $ 58,009,719
Average shares outstanding 30,204,647
Average balance per share outstanding $ 1.38
</Table>
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
-------------------------------------------------------------------------------------------------------
GMO Alpha LIBOR Fund $ 11,339,997 $ -- $ -- $ -- $ 11,526,447
GMO Short-Duration
Collateral Fund 38,641,966 14,388,951 5,000,000 688,951 48,297,232
------------- ------------ ------------ ----------- -------------
Totals $ 49,981,963 $ 14,388,951 $ 5,000,000 $ 688,951 $ 59,823,679
============= ============ ============ =========== =============
</Table>
10. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.14% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by GMO Alpha
LIBOR Fund were then distributed to its shareholders, including the Fund.
After distribution of the SDCF shares, GMO Alpha LIBOR Fund changed its
name to GMO Special Purpose Holding Fund and elected partnership status
for Federal income tax purposes.
16
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INFLATION INDEXED BOND FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of GMO Inflation
Indexed Bond Fund (the "Fund") (a series of GMO Trust) at February 29, 2004, and
the results of its operations, the changes in its net assets, its cash flows and
the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
17
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$1,664,410 from short-term capital gains,
$5,216,549 from long-term capital gains, of which $2,269,659 was subject to
the 15% rate gains category, and $2,946,890 to the 20% rate gains category.
18
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
INTERESTED TRUSTEES:
19
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ----------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
20
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ -------------------- ---------------------- -----------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 -August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van Otterloo
40 Rowes Wharf Secretary since March & Co. LLC (June 1999 -
Boston, MA 02110 2001. present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
21
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Core Plus Bond Fund returned +12.0% for the fiscal year ended February
29, 2004, as compared to +4.5% for the Lehman Brothers U.S. Aggregate Bond
Index. The Fund's exposure to various issues is achieved directly and indirectly
through its investment in the GMO Emerging Country Debt Fund, the GMO Alpha
LIBOR Fund (ALF), and the GMO Short-Duration Collateral Fund.
The Fund outperformed the benchmark during the fiscal year by 7.5%. Bond market,
currency selection, emerging debt exposure, and issue selection each added value
during the fiscal year.
Overweight positions in Canadian and Swedish bond markets, as well as
underweight positions in British and U.S. bond markets, added value to the Fund
during the period. In addition, overweight positions in British pounds,
Australian dollars, New Zealand dollars, and Swedish krona, and an underweight
position in Canadian dollars generated significant gains, offsetting underweight
positions in Swiss francs, Japanese yen, and the euro. Issue selection added
value, while the Fund's exposure to non-Treasury/Agency securities benefited
relative performance as spreads tightened during the period. Emerging country
debt exposure also added value to the Fund during the fiscal year.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
CORE PLUS BOND FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO CORE PLUS BOND FUND LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
4/30/1997 5,000,000 5,000,000
6/30/1997 5,125,000 5,107,200
9/30/1997 5,385,000 5,276,880
12/31/1997 5,597,370 5,432,235
3/31/1998 5,666,145 5,516,725
6/30/1998 5,734,920 5,645,600
9/30/1998 5,821,750 5,884,320
12/31/1998 5,814,240 5,904,125
3/31/1999 5,676,590 5,874,840
6/30/1999 5,643,555 5,823,220
9/30/1999 5,638,050 5,862,760
12/31/1999 5,675,965 5,855,595
3/31/2000 5,837,280 5,984,820
6/30/2000 5,903,000 6,089,045
9/30/2000 6,087,780 6,272,560
12/31/2000 6,394,730 6,536,350
3/31/2001 6,628,210 6,734,755
6/30/2001 6,660,640 6,772,680
9/30/2001 6,985,455 7,085,265
12/31/2001 7,027,410 7,088,175
3/31/2002 7,027,410 7,094,900
6/30/2002 7,358,110 7,357,005
9/30/2002 7,660,940 7,694,120
12/31/2002 7,436,000 7,815,200
3/31/2003 7,612,135 7,923,990
6/30/2003 8,063,960 8,122,185
9/30/2003 8,141,080 8,110,385
12/31/2003 8,271,020 8,135,950
2/29/2004 8,533,590 8,290,180
</Table>
Average Annual Returns
Inception 4/30/1997
<Table>
<Caption>
1YR 5YR 10YR(ITD)
11.99 8.66 8.14
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 24.5%
ALBANIA -- 0.8%
USD 15,681,227 Republic of Albania Par Bond, Zero Coupon, due 08/31/25 (a) (b) 4,550,716
-------------
AUSTRIA -- 1.0%
GBP 500,000 Bank Austria Creditanstalt AG, 8.38%, due 11/04/11 1,086,385
USD 4,175,000 Bank Austria Creditanstalt, AG, Series EMTN, 144A, 7.25%, due 02/15/17 5,079,723
-------------
6,166,108
-------------
BRAZIL -- 0.5%
USD 10,000,000 Brazil Discount Bond, Principal Strip, Series D1A, Zero Coupon, due
04/15/24 (a) 3,135,253
-------------
CANADA -- 0.6%
CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 06/01/08 3,391,094
-------------
CHILE -- 0.1%
USD 750,000 Banco Santander Series MBIA, 6.50%, due 11/01/05 792,833
-------------
LUXEMBOURG -- 1.4%
USD 8,000,000 Tyco International Group SA, 5.80%, due 08/01/06 8,546,880
-------------
MEXICO -- 0.6%
USD 3,000,000 Pemex Finance Ltd, Series 1A1 Class A2, AMBAC, 144A, 6.30%, due 05/15/10 3,291,563
-------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE/
PRINCIPAL AMOUNT DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------
UNITED STATES -- 19.5%
CORPORATE DEBT -- 4.2%
USD 10,000,000 General Electric Capital Corp, Series MTNA, 5.88%, due 02/15/12 10,953,000
USD 5,000,000 Target Corp, 4.00%, due 06/15/13 4,786,500
USD 5,000,000 Verizon Global Funding Corp, 4.38%, due 06/01/13 4,806,400
USD 5,000,000 Wells Fargo & Co, 5.00%, due 11/15/14 5,088,000
-------------
25,633,900
-------------
U.S. GOVERNMENT -- 6.8%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 02/15/10 (a) 7,919,345
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 02/15/12 (a) 7,007,704
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 08/15/12 (a) 6,779,444
USD 17,113,800 U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (c) 19,317,202
-------------
41,023,695
-------------
U.S. GOVERNMENT AGENCY -- 8.5%
USD 50,000,000 Fannie Mae, TBA, 5.50%, due 04/01/33 50,968,750
-------------
Total United States 117,626,345
-------------
TOTAL DEBT OBLIGATIONS (COST $139,278,543) 147,500,792
-------------
CALL OPTIONS PURCHASED -- 2.6%
CROSS CURRENCY OPTIONS -- 2.6%
GBP 120,000,000 GBP Call/JPY Put, Expires 06/07/2004, Strike JPY 188.00 15,715,657
-------------
TOTAL CALL OPTIONS PURCHASED (COST $3,006,372) 15,715,657
-------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.8%
UNITED STATES -- 0.8%
10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 5,098,220
--------------
TOTAL PREFERRED STOCKS (COST $5,437,180) 5,098,220
--------------
MUTUAL FUNDS -- 80.7%
3,015,458 Merrimac Cash Fund 3,015,458
1,551,663 GMO Alpha LIBOR Fund (d)* 37,410,592
1,578,682 GMO Emerging Country Debt Fund, Class III 16,591,948
17,051,798 GMO Short-Duration Collateral Fund 429,364,263
--------------
TOTAL MUTUAL FUNDS (COST $486,921,249) 486,382,261
--------------
TOTAL INVESTMENTS -- 108.6%
(Cost $634,643,344) 654,696,930
Other Assets and Liabilities (net) -- (8.6%) (51,872,793)
--------------
TOTAL NET ASSETS -- 100.0% $ 602,824,137
==============
</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
EMTN - Euromarket Medium Term Note
MBIA - Insured as to the payment of principal and interest
by MBIA Insurance Corp
TBA - To Be Announced (Note 2)
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)
FEBRUARY 29, 2004
CURRENCY ABBREVIATIONS:
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar
(a) Security valued at fair value using methods determined in
good faith by or at the direction of the Trustees (Note 2).
(b) Security is backed by U.S. Government guaranteed.
(c) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts and open swap contracts (Note 8).
(d) All or a portion of this security has been segregated to
cover collateral requirements on TBA obligations (Note 2).
* Non-income producing security
See accompanying notes to the financial statements.
4
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $150,737,553) (Note 2) $ 171,330,127
Investments in affiliated issuers, at value (cost $483,905,791) (Notes 2 and 9) 483,366,803
Receivable for investments sold 40,896,484
Receivable for Fund shares sold 1,458,453
Interest receivable 535,389
Receivable for open forward foreign currency contracts (Notes 2 and 8) 11,449,520
Receivable for variation margin on open futures contracts (Notes 2 and 8) 723,061
Net receivable for open swap contracts (Notes 2 and 8) 533,924
Periodic payments from open swap contracts (Notes 2 and 8) 66,951
Receivable for expenses reimbursed by Manager (Note 3) 59,837
---------------
Total assets 710,420,549
---------------
LIABILITIES:
Payable for investments purchased 3,000,000
Payable for forward commitment (Note 2) 91,593,164
Payable to affiliate for (Note 3):
Management fee 112,103
Shareholder service fee 67,262
Trustees fee 927
Payable for open forward foreign currency contracts (Notes 2 and 8) 12,719,491
Accrued expenses 103,465
---------------
Total liabilities 107,596,412
---------------
NET ASSETS $ 602,824,137
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 580,049,570
Distributions in excess of net investment income (834,314)
Accumulated net realized gain 2,580,154
Net unrealized appreciation 21,028,727
---------------
$ 602,824,137
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 602,824,137
===============
SHARES OUTSTANDING:
Class III 57,981,714
===============
NET ASSET VALUE PER SHARE:
Class III $ 10.40
===============
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 383,726
Interest (including securities lending income of $37) 4,146,361
Dividends from affiliated issuers 6,131,651
---------------
Total income 10,661,738
---------------
EXPENSES:
Management fee (Note 3) 946,606
Shareholder service fee (Note 3) - Class III 567,964
Custodian and transfer agent fees 157,705
Audit and tax fees 51,309
Legal fees 23,602
Trustees fees and related expenses (Note 3) 7,703
Registration fees 32,687
Miscellaneous 13,184
---------------
Total expenses 1,800,760
Fees and expenses reimbursed by Manager (Note 3) (274,866)
Indirectly incurred fees waived or borne by Manager (Note 3) (48,511)
Shareholder service fee waived (Note 3) - Class III (16,966)
---------------
Net expenses 1,460,417
---------------
Net investment income 9,201,321
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments in unaffiliated issuers (2,751,756)
Investments in affiliated issuers 559,014
Realized gains distributions from affiliated issuers 774,663
Closed futures contracts 4,407,658
Closed swap contracts 5,640,241
Written options 232,650
Foreign currency, forward contracts and foreign currency related transactions 10,876,885
---------------
Net realized gain 19,739,355
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 17,222,704
Open futures contracts (303,996)
Open swap contracts 2,169,381
Foreign currency, forward contracts and foreign currency related transactions (2,701,569)
---------------
Net unrealized gain 16,386,520
---------------
Net realized and unrealized gain 36,125,875
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 45,327,196
===============
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
2004 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 9,201,321 $ 5,786,275
Net realized gain 19,739,355 2,289,081
Change in net unrealized appreciation (depreciation) 16,386,520 10,920,970
----------------- -----------------
Net increase in net assets from operations 45,327,196 18,996,326
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (12,402,034) (12,462,812)
Net realized gains
Class III (15,951,420) (16,722,852)
----------------- -----------------
(28,353,454) (29,185,664)
----------------- -----------------
Net share transactions (Note 7):
Class III 299,820,381 (43,819,811)
----------------- -----------------
Increase (decrease) in net assets resulting from net share transactions 299,820,381 (43,819,811)
----------------- -----------------
Total increase (decrease) in net assets 316,794,123 (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 $834,314 and $3,041,202, respectively) $ 602,824,137 $ 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>
YEAR ENDED FEBRUARY 28/29,(g)
---------------------------------------------------------------------------
2004 2003 2002 2001(d) 2000
---------- ---------- ---------- ---------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 10.39 $ 10.17 $ 9.64 $ 10.23
---------- ---------- ---------- ---------- -----------
Income from investment operations:
Net investment income + 0.25(a) 0.20(a) 0.77(a) 0.62(a) 0.66
Net realized and unrealized gain (loss) 0.91 0.44 0.07 0.73 (0.44)
---------- ---------- ---------- ---------- -----------
Total from investment operations 1.16 0.64 0.84 1.35 0.22
---------- ---------- ---------- ---------- -----------
Less distributions to shareholders:
From net investment income (0.28) (0.47) (0.62) (0.82) (0.70)
From net realized gains (0.43) (0.61) --(f) -- (0.11)
---------- ---------- ---------- ---------- -----------
Total distributions (0.71) (1.08) (0.62) (0.82) (0.81)
---------- ---------- ---------- ---------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 9.95 $ 10.39 $ 10.17 $ 9.64
========== ========== ========== ========== ===========
TOTAL RETURN (b) 11.99% 6.45% 8.53% 14.52% 2.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 602,824 $ 286,030 $ 340,039 $ 156,412 $ 120,276
Net operating expenses to average daily net assets 0.39%(e) 0.38%(e) 0.38%(e) 0.39%(e) 0.40%
Interest expense to average daily net assets -- -- -- -- 0.01%(c)
Total net expenses to average daily net assets 0.39% 0.38% 0.38% 0.39% 0.41%
Net investment income to average daily net assets 2.43%(e) 1.91%(a) 7.38%(a) 6.29%(a) 6.59%
Portfolio turnover rate 114% 108% 113% 181% 40%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.09% 0.09% 0.09% 0.12% 0.10%
</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.
(g) As a result of recent changes in generally accepted accounting principles,
the Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to increase the net investment income ratio for the
year ending February 29, 2004 by 0.51% and net investment income per share
by $0.05. For consistency, similar reclassifications have been made to
prior year amounts, resulting in increases (reductions) to the net
investment income ratio of 0.06%, (0.01%), (0.05%) and 0.40% and to net
investment income per share of $0.01, less than $(0.01), less than $(0.01)
and $0.04 in the fiscal years ending February 28/29, 2003, 2002, 2001 and
2000, respectively.
+ Calculated using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
8
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Core Plus Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees 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. The Fund's benchmark is the Lehman Brothers U.S.
Aggregate Bond Index.
At February 29, 2004, 71.2% of the Fund was invested in the GMO
Short-Duration Collateral Fund and 6.2% 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 February 29, 2004, 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. These financial statements are available,
without charge, upon request by calling (617) 330-7500 or by visiting GMO's
website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of a recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
Statement of Operations. For consistency, similar reclassifications have
been made to amounts appearing in the
9
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
previous year's Statement of Changes in Net Assets and the per share
amounts in prior year financial highlights. Prior year net investment
income ratios in the financial highlights have also been modified
accordingly. This reclassification increased net investment income and
decreased net realized gains by $1,949,248 for the year ended February 29,
2004 and increased net investment income and decreased net realized gains
by $177,203 for the year ended February 28, 2003. This change had no effect
on the Fund's net asset value, either in total or per share, or its total
increase (decrease) in net assets from operations during any period.
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 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 February 29,
2004, the total value of these securities represented 15.6% of net assets.
10
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 and represents the currency exposure the Fund has
acquired or hedged through forward currency contracts as of February 29,
2004.
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.
11
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 8 for all open futures contracts as of February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004 there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004.
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.
12
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
financial markets. A swap is an agreement to exchange the return generated
by one instrument for the return generated by another instrument. The Fund
may enter into interest rate, total return, forward swap spread lock and
credit default swap agreements to manage its exposure to interest rates and
credit risk. Interest rate swap agreements involve the exchange by the Fund
with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. Total return swap
agreements involve commitments to pay interest in exchange for a market
linked return, both based on notional amounts. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Forward
swap spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of the
swap rate. The swap spread is the difference between the benchmark swap
rate (market rate) and the specific treasury rate. In a credit default
swap, one party makes a stream of payments to another party in exchange for
the right to receive a specified return in the event of a default by a
third party on its obligation. The Fund may use credit default swaps to
provide a measure of protection against defaults of sovereign or corporate
issuers (i.e., to reduce risk where the Fund owns or has exposure to the
issuer) or to take an active long or short position with respect to the
likelihood of a particular issuer's default. In connection with these
agreements, cash or securities may be set aside as collateral by the Fund's
custodian in accordance with the terms of the swap agreement. The Fund
earns interest on cash set aside as collateral. Swaps are marked to market
daily based upon quotations from market makers and the change in value, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made on swap contracts 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 interest rates. See Note 8 for a
summary of open swap agreements as of February 29, 2004.
13
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. At February 29,
2004, there were no open repurchase agreements.
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 year ended February 29,
2004, the Fund had not entered into any reverse repurchase agreements.
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 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
February 29, 2004, the Fund had no securities on loan.
14
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid was as follows: ordinary income --
$27,161,944 and $28,462,809, respectively and long-term capital gains --
$1,191,510 and $722,855, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $3,276,192 and $775,250 of undistributed ordinary income
and undistributed long-term gains, respectively. The temporary differences
between book and tax basis distributable earnings are primarily due to
foreign currency transactions, losses on wash sales transactions and
differing treatments for amortization of premiums and discounts on debt
securities and swap transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
DISTRIBUTIONS IN ACCUMULATED
EXCESS OF NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ------------- ---------------
$ 5,407,601 $ (6,817,948) $ 1,410,347
</Table>
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.
15
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
3. 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.
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 .25% of
the average daily net assets. 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.
16
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund, SDCF, and ECDF. For the year ended February 29, 2004, 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 (including Alpha LIBOR Fund,
SDCF and ECDF) were .017% and .016% of the Fund's average daily net assets,
respectively. For the year ended February 29, 2004, shareholder service
fees incurred indirectly by the Fund were .004% 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 year ended February 29, 2004 was $4,703. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 2004, 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 $ 436,266,992 $ 417,200,000
Investments (non-U.S. Government securities) 347,995,763 49,486,785
</Table>
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 637,706,040 $ 19,956,664 $ (2,965,774) $ 16,990,890
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
17
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 70.4% 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. At February 29, 2004, 0.01% of the Fund was
held by five related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
--------------------------------- ---------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 30,208,958 $ 310,054,758 2,799,171 $ 29,003,553
Shares issued to shareholders
in reinvestment of distributions 2,784,885 28,056,898 2,938,072 28,757,501
Shares repurchased (3,748,190) (38,291,275) (9,732,495) (101,580,865)
--------------- --------------- --------------- ---------------
Net increase (decrease) 29,245,653 $ 299,820,381 (3,995,252) $ (43,819,811)
=============== =============== =============== ===============
</Table>
18
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/RECEIVE UNITS OF CURRENCY VALUE (DEPRECIATION)
------------ ----------------- ------------------- -------------- ----------------
Buys
3/23/04 AUD 109,200,000 $ 84,040,956 $ 2,285,134
3/30/04 CAD 15,000,000 11,168,295 (215,577)
4/27/04 CHF 20,700,000 16,319,821 (507,352)
4/20/04 EUR 22,700,000 28,167,110 (106,814)
4/13/04 GBP 18,300,000 33,841,470 468,126
3/09/04 JPY 39,020,000,000 357,206,005 (8,290,943)
3/02/04 NZD 37,200,000 25,500,600 1,599,611
5/04/04 NZD 28,800,000 19,593,139 (57,389)
-------------
$ (4,825,204)
=============
Sales
3/23/04 AUD 91,200,000 $ 70,188,051 $ (210,312)
3/30/04 CAD 53,700,000 39,982,495 1,821,377
4/27/04 CHF 23,700,000 18,685,012 350,467
4/20/04 EUR 15,100,000 18,736,712 20,145
4/13/04 GBP 98,400,000 181,967,250 (1,350,468)
3/09/04 JPY 27,940,000,000 255,774,879 4,815,022
3/02/04 NZD 37,200,000 25,500,600 (89,465)
-------------
$ 5,356,766
=============
</Table>
FORWARD CROSS CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/UNITS OF CURRENCY RECEIVE/IN EXCHANGE FOR (DEPRECIATION)
------------ --------------------------- --------------------------- ----------------
3/11/04 CHF 4,311,104 EUR 2,800,000 $ 82,988
3/11/04 EUR 7,700,000 CHF 12,045,803 (78,374)
3/16/04 EUR 18,000,000 NOK 147,477,600 (1,412,540)
4/06/04 EUR 46,900,000 SEK 431,025,603 (400,257)
4/06/04 SEK 48,070,880 EUR 5,200,000 6,650
-------------
$ (1,801,533)
=============
</Table>
19
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF CONTRACT APPRECIATION
CONTRACTS TYPE EXPIRATION DATE VALUE (DEPRECIATION)
----------- -------------------------------------- ----------------- ------------ -----------------
Buys
208 Australian Government Bond 10 Yr. March 2004 $ 16,590,570 $ 337,579
478 Australian Government Bond 3 Yr. March 2004 37,434,546 314,750
431 U.S. Long Bond June 2004 48,460,563 236,390
355 U.S. Treasury Note 10 Yr. June 2004 40,425,625 153,271
161 U.S. Treasury Note 5 Yr. June 2004 18,097,406 17,941
-----------------
$ 1,059,931
=================
Sales
1 Canadian Government Bond 10 Yr. June 2004 $ 82,817 $ (290)
66 Euro BOBL March 2004 9,247,704 (112,776)
107 Euro Bund March 2004 15,395,321 (216,530)
72 Japanese Government Bond 10 Yr. March 2004 92,263,591 (1,028,751)
97 UK Gilt Long Bond June 2004 19,536,768 (15,032)
-----------------
$ (1,373,379)
=================
</Table>
At February 29, 2004, 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 23,500 232,650 23,500 232,650
Options exercised (23,500) (232,650) -- --
Options expired -- -- (23,500) (232,650)
---------------- ------------ ---------------- ------------
Outstanding, end of period -- $ -- -- $ --
================ ============ ================ ============
</Table>
20
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 $ 38,616
Financing 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 26,580
to 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 10,622
to 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 98,381
4/12/02 to 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 638,663
12/13/02 to 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>
21
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 $ 613
Financing 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 37,161
6/04/03 to 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 67,478
6/04/03 to 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 30,397
6/04/03 to 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 9,838
6/04/03 to 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.
10,000,000 USD 9/20/08 Agreement with Deutsche Bank AG dated 44,798
10/03/03 to receive .32% per year times
the notional amount. The Fund makes
payment only upon a default event of
American International Group, 0.00% due
11/09/31.
</Table>
22
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
10,000,000 USD 12/20/08 Agreement with Lehman Brothers Special $ 27,668
Financing Inc. dated 10/03/03 to receive
.27% per year times the notional amount.
The Fund makes payment only upon a
default event of Freddie Mac, 7.625% due
5/14/10.
INTEREST RATE SWAPS
18,000,000 SEK 11/07/05 Agreement with Citibank N.A. dated 55,797
11/03/03 to receive the notional amount
multiplied by 3.8% and to pay the
notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
25,000,000 GBP 11/28/05 Agreement with Deutsche Bank AG dated 192,243
11/28/03 to receive the notional amount
multiplied by 4.8825% and to pay the
notional amount multiplied by the 6
month Floating Rate British LIBOR.
35,900,000 EUR 12/02/05 Agreement with Citibank N.A. dated (456,470)
11/28/03 to pay the notional amount
multiplied by 2.976% and to receive the
notional amount multiplied by the 6
month Floating Rate EURIBOR.
360,000,000 SEK 1/09/06 Agreement with Deutsche Bank AG dated 40,010
1/07/04 to pay the notional amount
multiplied by 3.435% and to receive the
notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
49,600,000 USD 1/09/06 Agreement with Deutsche Bank AG dated 271,474
1/07/04 to receive the notional amount
multiplied by 2.183% and to pay the
notional amount multiplied by the 3
month LIBOR.
</Table>
23
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
70,000,000 CAD 1/30/06 Agreement with Citibank N.A. dated $ (246,010)
1/30/04 to pay the notional amount
multiplied by 2.7651% and to receive the
notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
52,600,000 USD 2/03/06 Agreement with Citibank N.A. dated 246,725
1/30/04 to receive the notional amount
multiplied by 2.17% and to pay the
notional amount multiplied by the 3
month LIBOR.
3,900,000 CHF 10/13/08 Agreement with Deutsche Bank AG dated (35,162)
10/09/03 to pay the notional amount
multiplied by 2.18% and to receive the
notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
42,300,000 SEK 10/13/08 Agreement with Citibank N.A. dated 121,420
10/09/03 to receive the notional amount
multiplied by 4.475% and to pay the
notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
5,000,000 CHF 10/23/08 Agreement with Citibank N.A. dated (80,234)
10/21/03 to pay the notional amount
multiplied by 2.205% and to receive the
notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
10,100,000 USD 2/15/10 Agreement with JP Morgan Chase Bank (788,770)
dated 9/03/02 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).
</Table>
24
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
47,000,000 SEK 11/05/10 Agreement with Citibank N.A. dated $ 163,440
11/03/03 to receive the notional amount
multiplied by 4.985% and to pay the
notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
13,100,000 CHF 11/07/10 Agreement with Deutsche Bank AG dated (297,578)
11/05/03 to pay the notional amount
multiplied by 2.72% and to receive the
notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
10,100,000 USD 2/15/12 Agreement with JP Morgan Chase Bank (701,297)
dated 9/03/02 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).
10,100,000 USD 8/15/12 Agreement with JP Morgan Chase Bank (678,402)
dated 9/04/02 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).
500,000 CHF 10/13/13 Agreement with Deutsche Bank AG dated (18,239)
10/09/03 to pay the notional amount
multiplied by 3.025% and to receive the
notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
5,600,000 CHF 10/23/13 Agreement with JP Morgan Chase Bank (113,916)
dated 10/21/03 to pay the notional
amount multiplied by 3.0275% and to
receive the notional amount multiplied
by the 6 month Floating Rate Swiss LIBOR.
</Table>
25
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
8,500,000 USD 10/24/13 Agreement with JP Morgan Chase Bank $ (262,662)
dated 10/22/03 to pay the notional
amount multiplied by 4.704% and to
receive the notional amount multiplied
by the 3 month LIBOR.
11,400,000 CAD 12/16/13 Agreement with Deutsche Bank AG dated (247,560)
12/16/03 to pay the notional amount
multiplied by 5% and to receive the
notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
5,100,000 GBP 12/16/13 Agreement with Citibank N.A. dated (12,692)
12/16/03 to pay the notional amount
multiplied by 5.0275% and to receive the
notional amount multiplied by the 6
month Floating Rate British LIBOR.
7,000,000 EUR 12/18/13 Agreement with Citibank N.A. dated 157,854
12/16/03 to receive the notional amount
multiplied by 4.3825% and to pay the
notional amount multiplied by the 6
month Floating Rate EURIBOR.
8,800,000 USD 12/18/13 Agreement with Deutsche Bank AG dated 180,281
12/16/03 to receive the notional amount
multiplied by 4.5925% and to pay the
notional amount multiplied by the 3
month LIBOR.
38,300,000 SEK 1/09/14 Agreement with Deutsche Bank AG dated 106,062
1/07/04 to receive the notional amount
multiplied by 4.9975% and to pay the
notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
</Table>
26
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
12,800,000 CAD 1/16/14 Agreement with Deutsche Bank AG dated $ (118,734)
1/16/04 to pay the notional amount
multiplied by 4.8025% and to receive the
notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
5,500,000 GBP 1/16/14 Agreement with Deutsche Bank AG dated 28,683
1/16/04 to pay the notional amount
multiplied by 4.925% and to receive the
notional amount multiplied by the 6
month Floating Rate British LIBOR.
12,800,000 AUD 1/20/14 Agreement with Citibank N.A. dated (11,426)
1/16/04 to receive the notional amount
multiplied by 5.995% and to pay the
notional amount multiplied by the 6
month Floating Rate Australian BBSW.
12,300,000 CHF 1/20/14 Agreement with Citibank N.A. dated 61,970
1/16/04 to receive the notional amount
multiplied by 2.825% and to pay the
notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
14,600,000 CAD 2/18/14 Agreement with Deutsche Bank AG dated (27,486)
2/18/04 to pay the notional amount
multiplied by 4.6875% and to receive the
notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
14,000,000 AUD 2/19/14 Agreement with Deutsche Bank AG dated 21,513
2/18/04 to receive the notional amount
multiplied by 6.04% and to pay the
notional amount multiplied by the 3
month Floating Rate Australian BBSW.
</Table>
27
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
79,600,000 SEK 2/20/14 Agreement with Citibank N.A. dated $ 18,687
2/18/04 to pay the notional amount
multiplied by 4.72% and to receive the
notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
11,200,000 USD 2/20/14 Agreement with Deutsche Bank AG dated 9,541
2/18/04 to receive the notional amount
multiplied by 4.375% and to pay the
notional amount multiplied by the 3
month LIBOR.
18,000,000 CHF 2/26/14 Agreement with Deutsche Bank AG dated (1,036)
2/24/04 to pay the notional amount
multiplied by 2.77% and to receive the
notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
10,000,000 USD 4/15/24 Agreement with JP Morgan Chase Bank (271,161)
dated 9/17/02 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).
15,680,000 USD 8/31/25 Agreement with JP Morgan Chase Bank (422,600)
dated 9/05/02 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).
</Table>
28
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
TOTAL RETURN SWAPS
10,000,000 USD 8/01/04 Agreement with JP Morgan Chase Bank $ 120,497
dated 1/21/04 to receive the notional
amount multiplied by the change in
market value (including accrued
interest) of the CMBS Lehman Brothers
AAA 8.5yr 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 373,660
receive 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 1/21/04 to 373,660
receive 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 9/1/04 Agreement with Lehman Brothers Special 208,643
Financing Inc. dated 8/26/03 to receive
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>
29
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
-------------------- ---------- ------------------------------------------- --------------
75,000,000 USD 11/01/04 Agreement with Lehman Brothers Special $ 840,231
Financing Inc. dated 11/24/03 to receive
the notional amount multiplied by the
change in market value (including
accrued interest) of the Lehman Brothers
US Government Rate Index and to pay
initial market value multiplied by the 1
month LIBOR adjusted by a specified
spread.
55,000,000 USD 12/01/04 Agreement with UBS AG dated 11/20/03 to 410,232
receive 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.
25,000,000 USD 2/01/05 Agreement with Lehman Brothers Special 291,921
Financing Inc. dated 1/30/04 to receive
the notional amount multiplied by the
change in market value (including
accrued interest) of the Lehman Brothers
US Credit Index and to pay initial
market value multiplied by the 1 month
LIBOR adjusted by a specified spread.
-----------
$ 533,924
===========
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
30
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING OF SALES DIVIDEND VALUE, END OF
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME PERIOD
-------------------------- ------------- ------------ ------------ ------------ -------------
GMO Alpha LIBOR Fund $ 39,037,123 $ -- $ 2,235,444 $ -- $ 37,410,592
GMO Emerging Country Debt
Fund, Class III 11,217,670 8,063,426 3,650,000 1,188,764 16,591,948
GMO Short-Duration
Collateral Fund 157,088,760 314,342,887 43,000,000 4,942,887 429,364,263
------------- ------------- ------------ ------------ -------------
Totals $ 207,343,553 $ 322,406,313 $ 48,885,444 $ 6,131,651 $ 483,366,803
============= ============= ============ ============ =============
</Table>
10. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.14% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by ALF were
then distributed to its shareholders, including the Fund. After
distribution of the SDCF shares, ALF changed its name to GMO Special
Purpose Holding Fund and elected partnership status for Federal income tax
purposes.
31
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO CORE PLUS BOND FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Core Plus Bond Fund (the "Fund") (a series of GMO Trust) at February 29,
2004, and the results of its operations, the changes in its net assets and
the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
32
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$14,759,910 from short-term capital gains,
$2,442,702 from long-term capital gains, all of which were subject to the
20% rate gains category.
33
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ --------------- ----------------- ------------------ ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory Counsel,
Glazer, Esq. December 2000 Goodwin Procter 41 None
c/o GMO Trust LLP; Secretary
40 Rowes Wharf and Consultant,
Boston, MA Provant, Inc.
02110 (provider of
DOB: 07/26/1944 performance
improvement
training services
and products)(1998
- present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
34
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ --------------- --------------- ------------------ ------------- --------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
35
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ---------------------- ----------------------------- -------------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer since (1997-present), Chief Operating
40 Rowes Wharf October 2002; Vice Officer (2000 - present) and Member,
Boston, MA 02110 President from August 1998 Grantham, Mayo, Van Otterloo & Co.
DOB: 01/20/1956 - October 2002. LLC.
Susan Randall Harbert Chief Financial Chief Financial Officer Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust Officer and Treasurer since February 2000; & Co. LLC.
40 Rowes Wharf Treasurer since February
Boston, MA 02110 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator, Grantham,
c/o GMO Trust Mayo, Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk since Laundering Reporting Officer (July
40 Rowes Wharf March 2001 - present and 2002 - February 2003) and Member,
Boston, MA 02110 May 1999 - August 1999. Grantham, Mayo, Van Otterloo & Co.
DOB: 07/20/1965 LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since August Associate General Counsel, Grantham,
c/o GMO Trust Secretary 1999; Secretary since March Mayo, Van Otterloo & Co. LLC (June
40 Rowes Wharf 2001. 1999 - present); Associate/Junior
Boston, MA 02110 Partner, Hale and Dorr LLP (1991 -
DOB: 02/18/1945 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Laundering Officer (February 2003 - present) and
40 Rowes Wharf Compliance Officer Compliance Officer, Grantham, Mayo,
Boston, MA 02110 Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust February 2004. & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
36
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Emerging Country Debt Share Fund returned +29.9% for the fiscal year
ended February 29, 2004, as compared with +20.8% for the J.P. Morgan Emerging
Markets Bond Index Global (EMBIG).
The Fund outperformed the benchmark during the fiscal year by 9.1%. EMBIG
spreads over U.S. Treasuries tightened from 659 to 431 basis points during the
period. The EMBIG return of +20.8% was driven by carry (the yield on the index
averaged almost 9%) and capital gains from spread tightening, despite the 28
basis point increase in U.S. interest rates.
The biggest gainers of the fiscal year were Ecuador (+78.9%), Uruguay (+73.5%),
and Brazil (+44.6%). Latin American countries outperformed those outside the
region, +26.6% to +14.4%. The worst performing countries for the year were the
Dominican Republic (-22.6%), Croatia (+1.7%), and Hungary (+3.5%).
Market selection added value, primarily from the South Korea and Malaysia
underweights and the overweight in Ivory Coast. Overweighting Dominican Republic
and Bulgaria detracted from value added. Security selection added 820 basis
points of positive alpha in total. Positions in Russia were the largest
contributor, where 2030 Eurobonds outperformed and options trades added value.
Bond selection was also highly positive in Argentina and Brazil.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
EMERGING COUNTRY DEBT SHARE FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO EMERGING COUNTRY J.P. MORGAN EMERGING J.P. MORGAN EMERGING
DEBT SHARE FUND MARKETS BOND INDEX GLOBAL MARKETS BOND INDEX GLOBAL +*
7/20/1998 5,000,000 5,000,000 5,000,000
9/30/1998 3,080,000 3,841,525 3,792,925
12/31/1998 3,484,100 4,282,670 4,169,145
3/31/1999 3,634,710 4,506,505 4,380,025
6/30/1999 3,850,585 4,710,910 4,609,915
9/30/1999 3,900,790 4,781,155 4,665,150
12/31/1999 4,603,705 5,318,150 5,252,035
3/31/2000 5,269,650 5,667,665 5,597,210
6/30/2000 5,275,440 5,687,770 5,617,060
9/30/2000 5,698,170 5,971,675 5,897,440
12/31/2000 5,718,790 6,084,255 6,008,620
3/31/2001 5,900,230 6,222,325 6,144,970
6/30/2001 6,229,515 6,438,330 6,358,290
9/30/2001 6,007,750 6,169,705 6,093,005
12/31/2001 6,533,795 6,166,795 6,090,130
3/31/2002 7,123,600 6,523,575 6,442,475
6/30/2002 6,855,510 6,223,105 6,145,735
9/30/2002 6,887,685 6,199,395 6,122,325
12/31/2002 7,776,575 6,975,570 6,888,850
3/31/2003 8,386,000 7,435,870 7,343,425
6/30/2003 9,639,180 8,185,175 8,083,415
9/30/2003 9,912,745 8,371,190 8,267,115
12/31/2003 10,565,020 8,765,540 8,656,560
2/29/2004 10,660,485 8,841,350 8,731,425
</Table>
Average Annual Returns
Inception 7/20/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
29.91 25.43 14.43
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
* J.P. Morgan EMBI Global + represents the J.P. Morgan EMBI prior to 8/95, J.P.
Morgan EMBI+ through 12/31/99 and the J.P. Morgan EMBI Global thereafter. The
manager changed the benchmark due to the belief that the EMBIG is more
diversified and representative of the universe of emerging country debt.
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------
MUTUAL FUND -- 99.3%
9,534,748 GMO Emerging Country Debt Fund, Class III (Cost $92,054,837) 100,210,111
---------------
TOTAL INVESTMENTS -- 99.3%
(Cost $92,054,837) 100,210,111
Other Assets and Liabilities (net) -- 0.7% 732,565
---------------
TOTAL NET ASSETS -- 100.0% $ 100,942,676
===============
</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 -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in affiliated issuers, at value (cost $92,054,837) (Notes 2 and 8) $ 100,210,111
Cash 532,552
Receivable for Fund shares sold 212,215
Interest receivable 98
Receivable for expenses reimbursed by Manager (Note 3) 12,232
---------------
Total assets 100,967,208
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Trustees fee 196
Accrued expenses 24,336
---------------
Total liabilities 24,532
---------------
NET ASSETS $ 100,942,676
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 92,728,970
Accumulated undistributed net investment income 2,273
Accumulated net realized gain 56,159
Net unrealized appreciation 8,155,274
---------------
$ 100,942,676
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 100,942,676
===============
SHARES OUTSTANDING:
Class III 10,046,829
===============
NET ASSET VALUE PER SHARE:
Class III $ 10.05
===============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers $ 8,758,341
Interest 2,130
---------------
Total income 8,760,471
---------------
EXPENSES:
Custodian and transfer agent fees 13,920
Audit and tax fees 13,170
Legal fees 4,670
Trustees fees and related expenses (Note 3) 1,817
Registration fees 28,557
Miscellaneous 9,198
---------------
Total expenses 71,332
Fees and expenses reimbursed by Manager (Note 3) (69,515)
---------------
Net expenses 1,817
---------------
Net investment income 8,758,654
---------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments in affiliated issuers 4,542,244
Realized gains distributions from affiliated issuers 6,173,095
---------------
Net realized gain on investments 10,715,339
---------------
Change in net unrealized appreciation (depreciation) on investments 1,900,796
---------------
Net realized and unrealized gain 12,616,135
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,374,789
===============
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 8,758,654 $ 5,865,818
Net realized gain 10,715,339 2,449,079
Change in net unrealized appreciation (depreciation) 1,900,796 360,455
------------------ ------------------
Net increase in net assets from operations 21,374,789 8,675,352
------------------ ------------------
Distributions to shareholders from:
Net investment income
Class III (14,886,042) (6,495,001)
Net realized gains
Class III (3,919,639) --
------------------ ------------------
(18,805,681) (6,495,001)
------------------ ------------------
Net share transactions (Note 7):
Class III 32,233,513 (25,991,923)
------------------ ------------------
Increase (decrease) in net assets resulting from
net share transactions 32,233,513 (25,991,923)
------------------ ------------------
Total increase (decrease) in net assets 34,802,621 (23,811,572)
NET ASSETS:
Beginning of period 66,140,055 89,951,627
------------------ ------------------
End of period (including accumulated
undistributed net investment income of
$2,273 and $3,705, respectively) $ 100,942,676 $ 66,140,055
================== ==================
</Table>
See accompanying notes to the financial statements.
4
<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>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.56 $ 9.25 $ 8.90 $ 8.70 $ 6.84
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (a) 1.10+ 0.83+ 1.03+ 1.33+ 1.10
Net realized and unrealized gain 1.73 0.57 0.51 0.23 1.97
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.83 1.40 1.54 1.56 3.07
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (1.85) (1.09) (1.19) (1.36) (1.20)
From net realized gains (0.49) -- -- -- (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions (2.34) (1.09) (1.19) (1.36) (1.21)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.05 $ 9.56 $ 9.25 $ 8.90 $ 8.70
========== ========== ========== ========== ==========
TOTAL RETURN (b) 29.91% 15.81% 18.47% 18.71% 46.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 100,943 $ 66,140 $ 89,952 $ 102,481 $ 86,280
Net expenses to average daily net assets (c) 0.00%(d) 0.00%(d) 0.00%(d) 0.00% 0.00%
Net investment income to average daily net
assets (a) 10.06% 8.88% 11.43% 14.39% 14.22%
Portfolio turnover rate 20% 30% 14% 0% 0%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.08% 0.08% 0.06% 0.03% 0.04%
</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 2)
(d) The ratio of net expenses to average daily net assets was less than 0.01%.
+ 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
FEBRUARY 29, 2004
1. ORGANIZATION
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. These financial statements are available, without charge, upon
request, by calling (617) 330-7500 or by visiting GMO's website at
www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Shares of 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)
FEBRUARY 29, 2004
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 of the underlying funds. At February
29, 2004, the total value of these securities represented 23.3% of net
assets.
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.
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. During the years ending February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $14,886,042
and $6,495,001, respectively. For the years ended February 29, 2004 and
February 28, 2003, the distributions paid from long-term capital gains were
$3,919,639 and $0, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $2,273 and $798,216 of undistributed ordinary income and
undistributed long-tern capital gains, respectively. The temporary
difference between book and tax basis distributable earnings are primarily
due to losses on wash sale transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET UNDISTRIBUTED NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
---------------------- ---------------------- ----------------------
$ 6,125,956 $ (6,125,955) $ (1)
</Table>
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)
FEBRUARY 29, 2004
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 3).
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. ECDF's redemption fee is
reduced by 50% for in-kind redemptions. 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 the Fund as of
February 29, 2004 has sold more of such default protection than it has
purchased. 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
8
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
be realized, even if the Fund incurs substantial losses due to weakening of
the credit or virtual default by the countries.
3. 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 Class III shares' 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 year ended February 29, 2004, 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 .422% 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 .077% 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 year ended February 29, 2004 was $1,178. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$45,296,436 and $16,950,000, respectively.
At February 29, 2004, 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
----------------- ----------------- ----------------- -----------------
$ 92,796,894 $ 7,413,217 $ -- $ 7,413,217
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
9
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 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.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
Shares sold 3,088,019 $ 33,734,749 1,532,346 $ 14,338,722
Shares issued to shareholders in
reinvestment of distributions 1,896,128 18,805,681 717,691 6,495,001
Shares repurchased (1,852,245) (20,306,917) (5,057,362) (46,825,646)
------------- --------------- ------------- --------------
Net increase (decrease) 3,131,902 $ 32,233,513 (2,807,325) $ (25,991,923)
============= =============== ============= ==============
</Table>
8. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END OF
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME PERIOD
--------------------------------------------------------------------------------------------------------
GMO Emerging Country Debt
Fund, Class III $ 65,420,635 $ 45,296,436 $ 16,950,000 $ 8,758,341 $ 100,210,111
============ ============ ============ =========== =============
</Table>
10
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO EMERGING COUNTRY DEBT SHARE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Emerging Country Debt Share
Fund (the "Fund") (a series of GMO Trust) at February 29, 2004, and the results
of its operations, the changes in its net assets and the financial highlights
for the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
11
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$3,919,639 from long-term capital gains, all of which were subject to the
20% rate gains category.
12
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF PRINCIPAL FUND OTHER
OFFICE(1) AND OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) LENGTH OF TIME DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- --------------- ---------------- ----------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration and
Boston, MA Senior Associate
02110 Dean, Harvard
DOB: 10/03/1941 University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA Consultant,
02110 Provant, Inc.
DOB: 07/26/1944 (provider of
performance
improvement
training
services and
products)(1998 -
present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
13
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF PRINCIPAL FUND OTHER
OFFICE(1) AND OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) LENGTH OF TIME DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST SERVED YEARS TRUSTEE TRUSTEE
- ---------------- --------------- --------------- ---------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA October 2002;
02110 President
DOB: 10/06/1938 Quantitative
from September
1985 - February
2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
14
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ -------------------- ----------------------- -----------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President and Vice President since Associate General Counsel,
Esq. Secretary August 1999; Grantham, Mayo, Van Otterloo
c/o GMO Trust Secretary since March & Co. LLC (June 1999 -
40 Rowes Wharf 2001. present); Associate/Junior
Boston, MA 02110 Partner, Hale and Dorr LLP
DOB: 02/18/1945 (1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
15
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Global Bond Fund returned +20.2% for the fiscal year ended February 29,
2004, as compared to +12.0% for the J.P. Morgan Global Government Bond Index.
The Fund's exposure to various issues is achieved directly and indirectly
through its investment in the GMO Emerging Country Debt Fund, the GMO Alpha
LIBOR Fund (ALF), and the GMO Short-Duration Collateral Fund.
The Fund outperformed the benchmark during the fiscal year by 8.2%. Bond market,
currency selection, emerging debt exposure, and issue selection each added value
during the period.
Overweight positions in Canadian and Swedish bond markets, as well as
underweight positions in British and U.S. bond markets, added value to the Fund
during the period. In addition, overweight positions in British pounds,
Australian dollars, New Zealand dollars, and Swedish krona, and an underweight
position in Canadian dollars generated significant gains, offsetting underweight
positions in Swiss francs, Japanese yen, and the euro. Issue selection added
value while the Fund's exposure to non-Treasury/Agency securities benefited
relative performance as spreads tightened during the period. Emerging country
debt exposure also added value to the Fund during the fiscal year.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GLOBAL BOND FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO GLOBAL BOND FUND J.P. MORGAN GLOBAL GOV'T. BOND INDEX
12/28/1995 5,000,000 5,000,000
12/31/1995 5,000,000 5,001,125
3/31/1996 4,915,000 4,913,370
6/30/1996 5,135,000 4,943,045
9/30/1996 5,383,110 5,082,810
12/31/1996 5,653,595 5,221,060
3/31/1997 5,468,230 5,016,815
6/30/1997 5,675,400 5,164,350
9/30/1997 5,943,445 5,253,135
12/31/1997 6,013,400 5,294,285
3/31/1998 6,109,615 5,346,645
6/30/1998 6,169,750 5,467,290
9/30/1998 6,489,115 5,927,860
12/31/1998 6,629,860 6,105,080
3/31/1999 6,299,635 5,867,045
6/30/1999 6,096,420 5,665,905
9/30/1999 6,293,285 5,888,855
12/31/1999 6,262,340 5,794,980
3/31/2000 6,314,525 5,816,730
6/30/2000 6,288,430 5,819,000
9/30/2000 6,184,060 5,675,440
12/31/2000 6,536,315 5,930,595
3/31/2001 6,340,615 5,763,135
6/30/2001 6,203,625 5,672,070
9/30/2001 6,640,685 6,076,730
12/31/2001 6,495,920 5,882,995
3/31/2002 6,412,815 5,794,250
6/30/2002 7,264,625 6,450,825
9/30/2002 7,465,460 6,719,645
12/31/2002 7,360,405 7,022,985
3/31/2003 7,625,050 7,235,115
6/30/2003 8,181,340 7,519,365
9/30/2003 8,434,045 7,657,440
12/31/2003 8,989,330 8,042,060
2/29/2004 9,146,485 8,086,715
</Table>
Average Annual Returns
Inception 12/28/1995
<Table>
<Caption>
1YR 5YR 10YR(ITD)
20.21 7.85 7.66
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE/
PRINCIPAL AMOUNT DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 20.4%
AUSTRIA -- 2.2%
USD 2,500,000 Bank Austria Creditanstalt, AG, Series EMTN, 144A, 7.25%, due 02/15/17 3,041,750
---------------
CANADA -- 1.6%
GBP 1,000,000 Province of Quebec, 8.63%, due 11/04/11 2,236,981
---------------
UNITED STATES -- 16.6%
ASSET-BACKED SECURITIES -- 12.9%
USD 2,948,713 Medallion Trust Series 03-1G Class A,
Variable Rate, 3 mo. LIBOR + .19%, 1.36%, due 12/21/33 2,948,713
GBP 4,000,000 RMAC Series 03-NS1X Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .45%, 4.46%, due 06/12/35 7,457,996
GBP 4,000,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.41%, due 09/12/35 7,426,912
---------------
17,833,621
---------------
U.S. GOVERNMENT -- 3.7%
USD 1,095,550 U.S. Treasury Inflation Indexed Note, 4.25%, due 01/15/10 1,309,182
USD 3,371,730 U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (a) 3,903,305
---------------
5,212,487
---------------
Total United States 23,046,108
---------------
TOTAL DEBT OBLIGATIONS (COST $25,393,742) 28,324,839
---------------
CALL OPTIONS PURCHASED -- 3.2%
CROSS CURRENCY OPTIONS -- 3.2%
GBP 34,000,000 GBP Call/JPY Put, Expires 06/07/2004, Strike JPY 188.00 4,452,770
---------------
TOTAL CALL OPTIONS PURCHASED (COST $851,805) 4,452,770
---------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 76.4%
2,081,576 Merrimac Cash Fund 2,081,576
757,799 GMO Alpha LIBOR Fund 18,270,533
394,054 GMO Emerging Country Debt Fund, Class III 4,141,507
3,232,007 GMO Short-Duration Collateral Fund 81,381,945
---------------
TOTAL MUTUAL FUNDS (COST $106,144,151) 105,875,561
---------------
TOTAL INVESTMENTS -- 100.0%
(Cost $132,389,698) 138,653,170
Other Assets and Liabilities (net) -- 0.0% 31,170
---------------
TOTAL NET ASSETS-- 100.0% $ 138,684,340
===============
</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
EMTN - Euromarket Medium Term Note
Variable rates - The rates shown on Variable rate notes are
the current interest rates at February 29, 2004, 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
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar
(a) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts (Note 8).
See accompanying notes to the financial statements.
2
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $28,327,123)(Note 2) $ 34,859,185
Investments in affiliated issuers, at value (cost $104,062,575) (Notes 2 and 9) 103,793,985
Interest receivable 227,301
Receivable for open forward foreign currency contracts (Notes 2 and 8) 3,659,505
Receivable for variation margin on open futures contracts (Notes 2 and 8) 101,275
Net receivable for open swap contracts (Notes 2 and 8) 954,812
Periodic payments from open swap contracts (Notes 2 and 8) 168,138
Receivable for expenses reimbursed by Manager (Note 3) 10,511
----------------
Total assets 143,774,712
----------------
LIABILITIES:
Due to custodian 131,232
Payable to affiliate for (Note 3):
Management fee 20,942
Shareholder service fee 16,533
Trustees fee 250
Payable for open forward foreign currency contracts (Notes 2 and 8) 4,871,750
Accrued expenses 49,665
----------------
Total liabilities 5,090,372
----------------
NET ASSETS $ 138,684,340
================
NET ASSETS CONSIST OF:
Paid-in capital $ 144,444,755
Accumulated undistributed net investment income 1,216,167
Accumulated net realized loss (12,183,288)
Net unrealized appreciation 5,206,706
----------------
$ 138,684,340
================
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 138,684,340
================
SHARES OUTSTANDING:
Class III 15,894,686
================
NET ASSET VALUE PER SHARE:
Class III $ 8.73
================
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Interest $ 1,008,381
Dividends from affiliated issuers (Note 10) 1,624,952
----------------
Total income 2,633,333
----------------
EXPENSES:
Management fee (Note 3) 282,993
Shareholder service fee (Note 3) - Class III 223,416
Custodian and transfer agent fees 72,899
Audit and tax fees 54,286
Legal fees 11,520
Trustees fees and related expenses (Note 3) 3,123
Registration fees 9,988
Miscellaneous 8,598
----------------
Total expenses 666,823
Fees and expenses reimbursed by Manager (Note 3) (156,095)
Indirectly incurred fees waived or borne by Manager (Note 3) (20,908)
Shareholder service fee waived (Note 3) - Class III (7,285)
----------------
Net expenses 482,535
----------------
Net investment income 2,150,798
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments in unaffiliated issuers (2,274,965)
Investments in affiliated issuers 167,331
Realized gains distributions from affiliated issuers 279,844
Closed futures contracts 1,250,037
Closed swap contracts 1,435,049
Written options 124,740
Foreign currency, forward contracts and foreign currency related transactions 17,195,729
----------------
Net realized gain 18,177,765
----------------
Change in net unrealized appreciation (depreciation) on:
Investments 9,007,772
Open futures contracts (1,127,374)
Open swap contracts (52,371)
Foreign currency, forward contracts and foreign currency related transactions (2,169,036)
----------------
Net unrealized gain 5,658,991
----------------
Net realized and unrealized gain 23,836,756
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 25,987,554
================
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,150,798 $ 3,032,237
Net realized gain 18,177,765 37,728,716
Change in net unrealized appreciation (depreciation) 5,658,991 6,438,357
--------------- ---------------
Net increase in net assets from operations 25,987,554 47,199,310
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III -- (37,454,172)
Net realized gains
Class III (35,881,030) (4,977,299)
Return of capital
Class III (2,133,668) --
--------------- ---------------
(38,014,698) (42,431,471)
--------------- ---------------
Net share transactions (Note 7):
Class III (85,130,892) (41,999,305)
--------------- ---------------
Decrease in net assets resulting from net share transactions (85,130,892) (41,999,305)
--------------- ---------------
Total decrease in net assets (97,158,036) (37,231,466)
NET ASSETS:
Beginning of period 235,842,376 273,073,842
--------------- ---------------
End of period (including accumulated undistributed net
investment income of $1,216,167 and distributions in
excess of net investment income of $899,487,
respectively) $ 138,684,340 $ 235,842,376
=============== ===============
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,(e)
----------------------------------------------------------------------
2004 2003 2002 2001(d) 2000
--------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.20 $ 9.33 $ 10.04 $ 9.41 $ 9.87
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.12(a)+ 0.09(a)+ 0.52(a)+ 0.50(a)+ 0.51
Net realized and unrealized gain (loss) 1.42 1.49 (0.65) 0.13 (0.71)
--------- --------- --------- --------- ---------
Total from investment operations 1.54 1.58 (0.13) 0.63 (0.20)
--------- --------- --------- --------- ---------
Less distributions to shareholders:
From net investment income -- (1.51) (0.39) -- (0.26)
From net realized gains (1.90) (0.20) (0.19) -- --
Return of capital (0.11) -- -- -- --
--------- --------- --------- --------- ---------
Total distributions (2.01) (1.71) (0.58) -- (0.26)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.73 $ 9.20 $ 9.33 $ 10.04 $ 9.41
========= ========= ========= ========= =========
TOTAL RETURN (b) 20.21% 17.76% (1.34)% 6.70% (2.07)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 138,684 $ 235,842 $ 273,074 $ 291,112 $ 182,730
Net operating expenses to average daily net assets 0.32%(f) 0.33%(f) 0.32%(f) 0.33%(f) 0.34%
Interest expense to average daily net assets -- -- -- -- 0.16%(c)
Total net expenses to average daily net assets 0.32% 0.33% 0.32% 0.33% 0.50%
Net investment income to average daily net assets 1.44%(a) 1.10%(a) 5.36%(a) 5.34%(a) 5.09%
Portfolio turnover rate 45% 50% 28% 35% 116%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.12% 0.08% 0.08% 0.08% 0.08%
</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) As a result of recent changes in generally accepted accounting principles,
the Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to decrease the net investment income ratio for the
year ending February 29, 2004 by 0.17% and net investment income per share
by $0.02. For consistency, similar reclassifications have been made to
prior year amounts, resulting in increases (reductions) to the net
investment income ratio of (0.16%), (0.05%), (0.11%) and 0.07% and to net
investment income per share of $(0.02), $(0.01), $(0.01) and less than
$0.00 in the fiscal years ending February 28/29, 2003, 2002, 2001 and 2000,
respectively.
(f) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
See accompanying notes to the financial statements.
6
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Global Bond Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees 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 February 29, 2004, 58.7% of the Fund was invested in the GMO
Short-Duration Collateral Fund and 13.2% 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 February 29, 2004, 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. These financial statements are available
without charge, upon request by calling (617)330-7500 or by visiting GMO's
website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of a recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
statement of operations. For consistency, similar reclassifications have
been made to amounts appearing in the previous year's statement of changes
in net assets and the per share amounts in all prior year financial
highlights presented. Prior year net investment income ratios in the
financial highlights have also been modified accordingly. This
reclassification decreased net investment income and increased net realized
7
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
gains by $259,581 for the year ended February 29, 2004 and decreased net
investment income and increased net realized gains by $438,757 for the year
ended February 28, 2003. This change had no effect on the Fund's net asset
value, either in total or per share, or its total increase (decrease) in
net assets from operations during any period.
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 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 February 29,
2004, the total value of these securities represented 13.8% 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
8
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 and represents the currency exposure the Fund has
acquired or hedged through forward currency contracts as of February 29,
2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
9
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 for
all open futures contracts as of February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004.
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.
10
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
financial markets. A swap is an agreement to exchange the return generated
by one instrument for the return generated by another instrument. The Fund
may enter into interest rate, total return, forward swap spread lock and
credit default swap agreements to manage its exposure to interest rates and
credit risk. Interest rate swap agreements involve the exchange by the Fund
with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. Total return swap
agreements involve commitments to pay interest in exchange for a market
linked return, both based on notional amounts. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Forward
swap spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of the
swap rate. The swap spread is the difference between the benchmark swap
rate (market rate) and the specific treasury rate. In a credit default
swap, one party makes a stream of payments to another party in exchange for
the right to receive a specified return in the event of a default by a
third party on its obligation. The Fund may use credit default swaps to
provide a measure of protection against defaults of sovereign or corporate
issuers (i.e., to reduce risk where the Fund owns or has exposure to the
issuer) or to take an active long or short position with respect to the
likelihood of a particular issuer's default. In connection with these
agreements, cash or securities may be set aside as collateral by the Fund's
custodian in accordance with the terms of the swap agreement. The Fund
earns interest on cash set aside as collateral. Swaps are marked to market
daily based upon quotations from market makers and the change in value, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made on swap contracts 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 interest rates. See Note 8 for a
summary of open swap agreements as of February 29, 2004.
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
11
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. At February 29, 2004, there were no
open repurchase agreements.
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 year ended February 29,
2004, 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
February 29, 2004, 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003
the tax basis of distributions paid was as follows: ordinary income --
$35,881,030 and $37,467,269, respectively, long-term capital gains -- $0
and $4,964,202, respectively, and return of capital -- $2,133,668 and $0,
respectively.
12
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to foreign currency
transactions. The financial highlights exclude these adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
------------------- ------------------- -------------------
$ (35,144) $ (7,828,653) $ 7,863,797
</Table>
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 29, 2004, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the code,
of $12,091,181 expiring in 2012. The Fund elected to defer to March 1, 2004
post-October losses of $55,732.
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 and 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.
13
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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 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 GMO Alpha LIBOR Fund
and GMO Short-Duration Collateral Fund ("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 .19% of
the average daily net assets. 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 GMO Alpha
LIBOR Fund, SDCF and ECDF. For the year ended February 29, 2004, 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 (including GMO Alpha LIBOR Fund,
SCDF and ECDF) were .019% and .021% of the Fund's average daily net assets,
respectively. For the year ended February 29, 2004, shareholder service
fees incurred indirectly by the Fund were .005% 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 year ended February 29, 2004 was $1,946. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$64,659,796 and $168,150,385, respectively.
14
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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
---------------- ----------------- ----------------- -----------------
$ 132,428,112 $ 7,390,097 $ (1,165,039) $ 6,225,058
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 74.9% 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. At February 29, 2004, 0.02% of the Fund was
held by one related party.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------------- ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- --------------- ------------ --------------
Shares sold 1,369,413 $ 12,108,168 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 (15,828,993) (135,253,758) (15,099,456) (144,151,515)
----------- --------------- ----------- --------------
Net decrease (9,735,686) $ (85,130,892) (3,653,077) $ (41,999,305)
=========== =============== =========== ==============
</Table>
15
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT UNITS OF APPRECIATION
DATE DELIVER/RECEIVE CURRENCY VALUE (DEPRECIATION)
---------- ------------------------ -------------- ------------- -----------------
Buys
3/23/04 AUD 30,100,000 $ 23,165,136 $ 672,015
3/30/04 CAD 4,000,000 2,978,212 (65,282)
4/27/04 CHF 23,000,000 18,133,135 (459,561)
4/20/04 EUR 36,300,000 45,042,560 (7,062)
4/13/04 GBP 15,300,000 28,293,688 391,384
3/09/04 JPY 13,910,000,000 127,338,173 (2,835,696)
3/02/04 NZD 9,600,000 6,580,800 457,317
5/04/04 NZD 7,200,000 4,898,285 (14,347)
-------------
$ (1,861,232)
=============
Sales
3/23/04 AUD 25,000,000 $ 19,240,146 $ (40,235)
3/30/04 CAD 9,400,000 6,998,798 318,826
4/27/04 CHF 1,300,000 1,024,916 3,663
4/20/04 EUR 4,500,000 5,583,788 5,943
4/13/04 GBP 44,800,000 82,846,878 (905,368)
3/09/04 JPY 5,880,000,000 53,828,071 1,419,082
3/02/04 NZD 9,600,000 6,580,800 (11,108)
-------------
$ 790,803
=============
FORWARD CROSS CURRENCY CONTRACTS
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/UNITS OF CURRENCY RECEIVE/IN EXCHANGE FOR (DEPRECIATION)
------------ --------------------------- ---------------------------- --------------
3/11/04 CHF 23,171,808 EUR 15,000,000 $ 384,246
3/11/04 EUR 2,000,000 CHF 3,128,780 (20,357)
3/16/04 EUR 5,200,000 NOK 42,604,640 (408,067)
4/06/04 EUR 13,100,000 SEK 120,446,247 (104,667)
4/06/04 SEK 16,604,680 EUR 1,800,000 7,029
--------------
$ (141,816)
==============
</Table>
16
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF CONTRACT APPRECIATION
CONTRACTS TYPE EXPIRATION DATE VALUE (DEPRECIATION)
---------- --------------------------------- --------------- ------------ --------------
Buys
50 Australian Government Bond 10 Yr. March 2004 $ 3,988,118 $ 88,620
116 Australian Government Bond 3 Yr. March 2004 9,084,534 86,134
1 Canadian Government Bond 10 Yr June 2004 82,817 276
5 Swiss Federal Bond March 2004 511,397 9,180
12 U.S. Long Bond June 2004 1,349,250 6,582
-------------
$ 190,792
=============
Sales
32 Euro BOBL March 2004 $ 4,483,735 $ (105,535)
115 Euro Bund March 2004 16,546,373 (536,964)
55 Federal Fund 30 Day April 2004 22,689,315 (316)
20 Japanese Government Bond 10 Yr. March 2004 25,628,775 (322,186)
3 U.S. Treasury Note 10 Yr. June 2004 341,625 (1,297)
57 U.S. Treasury Note 5 Yr. June 2004 6,407,156 (7,007)
35 UK Gilt Long Bond June 2004 7,049,349 (5,424)
-------------
$ (978,729)
=============
</Table>
At February 29, 2004, 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>
17
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
--------------------- ---------- ------------------------------------------------ --------------
INTEREST RATE SWAPS
7,700,000 SEK 11/07/05 Agreement with Citibank N.A. dated 11/03/03 $ 23,869
to receive the notional amount multiplied
by 3.8% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
7,300,000 GBP 11/28/05 Agreement with Deutsche Bank AG dated 56,134
11/28/03 to receive the notional amount
multiplied by 4.883% and to pay the notional
amount multiplied by the 6 month Floating
Rate British LIBOR.
10,400,000 EUR 12/2/05 Agreement with Citibank N.A. dated 12/02/03 (132,237)
to pay the notional amount multiplied by
2.976% and to receive the notional amount
multiplied by the 6 month Floating Rate
EURIBOR.
100,000,000 SEK 1/09/06 Agreement with Deutsche Bank AG dated 1/07/04 11,114
to pay the notional amount multiplied by
3.435% and to receive the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
13,500,000 USD 1/09/06 Agreement with Deutsche Bank AG dated 1/07/04 73,889
to receive the notional amount multiplied by
2.183% and to pay the notional amount
multiplied by the 3 month LIBOR.
18,400,000 CAD 1/30/06 Agreement with Citibank N.A. dated 1/30/04 to (67,607)
pay the notional amount multiplied by 2.765%
and to receive the notional amount multiplied
by the 3 month Floating Rate Canadian CDOR.
13,900,000 USD 2/03/06 Agreement with Citibank N.A. dated 1/30/04 to 65,199
receive the notional amount multiplied by
2.17% and to pay the notional amount
multiplied by the 3 month LIBOR.
</Table>
18
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
--------------------- ---------- ------------------------------------------------ --------------
400,000 CHF 10/13/08 Agreement with Deutsche Bank AG dated $ (6,115)
10/09/03 to pay the notional amount
multiplied by 2.18% and to receive the
notional amount multiplied by the 6 month
Floating Rate Swiss LIBOR.
13,300,000 SEK 10/13/08 Agreement with Citibank N.A. dated 10/09/03 38,177
to receive the notional amount multiplied
by 4.475% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
1,600,000 CHF 10/23/08 Agreement with Citibank N.A. dated 10/21/03 (25,675)
to pay the notional amount multiplied by
2.205% and to receive the notional amount
multiplied by the 6 month Floating Rate
Swiss LIBOR.
7,300,000 SEK 11/05/10 Agreement with Citibank N.A. dated 11/03/03 47,708
to receive the notional amount multiplied
by 4.985% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
3,400,000 CHF 11/08/10 Agreement with Deutsche Bank AG dated (77,234)
11/05/03 to pay the notional amount
multiplied by 2.72% and to receive the
notional amount multiplied by the 6 month
Floating Rate Swiss LIBOR.
5,100,000 SEK 10/13/13 Agreement with Citibank N.A. dated 10/09/03 17,190
to receive the notional amount multiplied
by 5.045% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
200,000 CHF 10/14/13 Agreement with Deutsche Bank AG dated (4,040)
10/09/03 to pay the notional amount
multiplied by 3.025% and to receive the
notional amount multiplied by the 6 month
Floating Rate Swiss LIBOR.
</Table>
19
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
--------------------- ---------- ------------------------------------------------ --------------
1,800,000 CHF 10/23/13 Agreement with JP Morgan Chase Bank dated $ (36,616)
10/21/03 to pay the notional amount
multiplied by 3.0275% and to receive the
notional amount multiplied by the 6 month
Floating Rate Swiss LIBOR.
3,200,000 CAD 12/16/13 Agreement with Deutsche Bank AG dated (69,491)
12/16/03 to pay the notional amount
multiplied by 5% and to receive the notional
amount multiplied by the 3 month Floating
Rate Canadian CDOR.
1,400,000 GBP 12/16/13 Agreement with Citibank N.A. dated 12/16/03 (3,484)
to pay the notional amount multiplied by
5.0275% and to receive the notional
amount multiplied by the 6 month Floating
Rate British LIBOR.
2,000,000 EUR 12/18/13 Agreement with Citibank N.A. dated 12/16/03 45,101
to receive the notional amount multiplied
by 4.3825% and to pay the notional amount
multiplied by the 6 month Floating Rate
EURIBOR.
2,500,000 USD 12/18/13 Agreement with Deutsche Bank AG dated 51,216
12/16/03 to receive the notional amount
multiplied by 4.5925% and to pay the notional
amount multiplied by the 3 month LIBOR.
1,700,000 SEK 1/09/14 Agreement with Deutsche Bank AG dated 1/07/04 4,708
to receive the notional amount multiplied by
4.9975% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish LIBOR.
3,400,000 CAD 1/16/14 Agreement with Deutsche Bank AG dated 1/16/04 (31,539)
to pay the notional amount multiplied by
4.8025% and to receive the notional amount
multiplied by the 3 month Floating Rate
Canadian CDOR.
</Table>
20
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
--------------------- ---------- ------------------------------------------------ --------------
1,400,000 GBP 1/16/14 Agreement with Deutsche Bank AG dated 1/16/04 $ 7,301
to pay the notional amount multiplied by
4.925% and to receive the notional amount
multiplied by the 6 month Floating Rate
British LIBOR.
3,400,000 AUD 1/20/14 Agreement with Citibank N.A. dated 1/16/04 to (3,035)
receive the notional amount multiplied by
5.995% and to pay the notional amount
multiplied by the 6 month Floating Rate
Australian BBSW.
3,300,000 CHF 1/20/14 Agreement with Citibank N.A. dated 1/16/04 to 16,626
receive the notional amount multiplied by
2.825% and to pay the notional amount
multiplied by the 6 month Floating Rate
Swiss LIBOR.
3,500,000 CAD 2/18/14 Agreement with Deutsche Bank AG dated 2/18/04 (6,589)
to pay the notional amount multiplied by
4.6875% and to receive the notional amount
multiplied by the 3 month Floating Rate
Canadian CDOR.
3,400,000 AUD 2/19/14 Agreement with Deutsche Bank AG dated 2/18/04 5,225
to receive the notional amount multiplied by
6.04% and to pay the notional amount
multiplied by the 3 month Floating Rate
Australian BBSW.
19,200,000 SEK 2/20/14 Agreement with Citibank N.A. dated 2/18/04 to 4,507
pay the notional amount multiplied by 4.72%
and to receive the notional amount multiplied
by the 3 month Floating Rate Swedish LIBOR.
2,700,000 USD 2/20/14 Agreement with Deutsche Bank AG dated 2/18/04 2,300
to receive the notional amount multiplied by
4.375% and to pay the notional amount
multiplied by the 3 month LIBOR.
3,700,000 CHF 2/26/14 Agreement with Deutsche Bank AG dated 2/24/04 (213)
to pay the notional amount multiplied by
2.77% and to receive the notional amount
multiplied by the 6
</Table>
21
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- (CONTINUED)
<Table>
month Floating Rate Swiss LIBOR.
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
--------------------- ---------- ------------------------------------------------ --------------
3,000,000 EUR 3/21/30 Agreement with UBS AG dated 3/17/00 to $ 496,995
receive the notional amount multiplied by
5.895% and to pay the notional amount
multiplied by the 3 month Floating Rate
EURIBOR.
TOTAL RETURN SWAPS
31,000,000 USD 7/21/04 Agreement with JP Morgan Chase Bank dated 130,963
7/01/03 to receive the notional amount
multiplied by the return on the JP Morgan
Non-U.S. Traded Total Return Government Bond
Index 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 130,997
7/01/03 to receive the notional amount
multiplied by the return on the JP Morgan
Non-U.S. Traded Total Return Government Bond
Index and to pay the notional amount
multiplied by the 1 month LIBOR adjusted by a
specified spread.
75,000,000 USD 9/24/05 Agreement with JP Morgan Chase Bank dated 189,468
9/02/03 to receive the notional amount
multiplied by the return on the JP Morgan
Non-U.S. Traded Total Return Government Bond
Index Hedged in USD and to pay the notional
amount multiplied by the 1 month LIBOR
adjusted by a specified spread.
--------------
$ 954,812
==============
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
22
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING OF SALES DIVIDEND VALUE, END OF
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME PERIOD
----------------------------------- --------------- --------------- --------------- --------------- ---------------
GMO Alpha LIBOR Fund $ 35,484,340 $ -- $ 17,599,019 $ -- $ 18,270,533
GMO Emerging
Country Debt Fund,
Class III 8,262,701 655,128 5,580,000 375,284 4,141,507
GMO Short-Duration
Collateral Fund 176,852,053 46,999,668 143,500,000 1,249,668 81,381,945
--------------- --------------- --------------- --------------- ---------------
Totals $ 220,599,094 $ 47,654,796 $ 166,679,019 $ 1,624,952 $ 103,793,985
=============== =============== =============== =============== ===============
</Table>
10. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.15% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by ALF were
then distributed to its shareholders, including the Fund. After
distribution of the SDCF shares, ALF changed its name to GMO Special
Purpose Holding Fund and elected partnership status for Federal income tax
purposes.
23
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO GLOBAL BOND FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Global Bond Fund (the "Fund") (a series of GMO Trust) at February 29, 2004,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
24
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The fund's distributions to shareholders included:
$19,001,248 from short-term capital gains.
25
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ---------------- ------------ --------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)(1998 -
present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
26
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------- -------------- ----------------- ---------------- ------------ --------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
27
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ---------------------- ----------------- ---------------------- ----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since Otterloo & Co. LLC (June
40 Rowes Wharf March 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
28
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Bond Fund returned +23.2% for the fiscal year ended
February 29, 2004, as compared to +15.0% for the J.P. Morgan Non-U.S. Government
Bond Index. The Fund's exposure to various issues is achieved directly and
indirectly through its investment in the GMO Emerging Country Debt Fund, the GMO
Alpha LIBOR Fund (ALF), and the GMO Short-Duration Collateral Fund.
The Fund outperformed the benchmark during the fiscal year by 8.2%. Bond market,
currency selection, emerging debt exposure, and issue selection each added value
during the fiscal year.
Overweight positions in Canadian and Swedish bond markets, as well as
underweight positions in British and U.S. bond markets, added value to the Fund
during the period. In addition, overweight positions in British pounds,
Australian dollars, New Zealand dollars, and Swedish krona, and an underweight
position in Canadian dollars generated significant gains, offsetting underweight
positions in Swiss francs, Japanese yen, and the euro. Issue selection added
value, while the Fund's exposure to non-Treasury/Agency securities benefited
relative performance as spreads tightened during the period. Emerging country
debt exposure also added value to the Fund during the fiscal year.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
INTERNATIONAL BOND FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO INTERNATIONAL BOND FUND J.P. MORGAN NON-U.S. GOV'T. BOND INDEX
2/28/1994 5,000,000 5,000,000
3/31/1994 5,000,000 5,041,440
6/30/1994 5,060,240 5,107,315
9/30/1994 5,309,135 5,194,365
12/31/1994 5,226,385 5,227,935
3/31/1995 5,776,530 5,962,785
6/30/1995 6,248,085 6,237,970
9/30/1995 6,324,120 6,160,875
12/31/1995 6,653,760 6,332,050
3/31/1996 6,659,840 6,225,710
6/30/1996 6,976,105 6,268,520
9/30/1996 7,366,695 6,490,425
12/31/1996 7,762,560 6,665,800
3/31/1997 7,367,855 6,278,485
6/30/1997 7,610,220 6,439,055
9/30/1997 7,886,855 6,475,480
12/31/1997 7,830,605 6,414,185
3/31/1998 7,906,555 6,456,480
6/30/1998 7,936,935 6,584,870
9/30/1998 8,383,405 7,240,860
12/31/1998 8,675,425 7,586,870
3/31/1999 8,174,140 7,211,005
6/30/1999 7,842,645 6,878,910
9/30/1999 8,204,400 7,260,720
12/31/1999 8,200,210 7,118,670
3/31/2000 8,165,865 7,030,910
6/30/2000 8,097,170 6,984,375
9/30/2000 7,790,155 6,665,100
12/31/2000 8,178,370 6,942,620
3/31/2001 7,798,785 6,606,880
6/30/2001 7,608,990 6,475,425
9/30/2001 8,186,995 6,974,490
12/31/2001 7,964,510 6,692,965
3/31/2002 7,860,625 6,575,070
6/30/2002 9,098,585 7,489,330
9/30/2002 9,237,100 7,706,525
12/31/2002 9,431,835 8,172,305
3/31/2003 9,856,070 8,476,260
6/30/2003 10,566,415 8,837,450
9/30/2003 11,007,615 9,081,820
12/31/2003 11,903,970 9,694,445
2/29/2004 12,078,515 9,701,395
</Table>
Average Annual Returns
INCEPTION 12/22/1993
<Table>
<Caption>
1YR 5YR 10YR(ITD)
23.17 8.23 9.22
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 11.8%
BULGARIA -- 1.1%
USD 10,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24 (a) (b) 3,088,269
-------------
CANADA -- 2.6%
CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 06/01/08 1,695,547
CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,926,588
GBP 1,500,000 Province of Quebec, 8.63%, due 11/04/11 3,355,472
-------------
6,977,607
-------------
CAYMAN ISLANDS -- 2.3%
EUR 5,000,000 MBNA America Euro Structured Offering,
Variable Rate, 3 mo. EURIBOR + .14%, 2.21%, due
05/19/04 6,212,500
-------------
JAPAN -- 0.4%
USD 1,030,000 Japan Highway Public Corp, 7.63%, due 09/22/04 1,067,080
-------------
SUPRA NATIONAL -- 0.2%
CAD 700,000 European Investment Bank, 8.50%, due 08/30/05 567,617
-------------
UNITED STATES -- 5.2%
ASSET-BACKED SECURITIES -- 3.3%
USD 1,587,769 Medallion Trust Series 03-1G Class A,
Variable Rate, 3 mo. LIBOR + .19%, 1.36%, due 12/21/33 1,587,769
GBP 2,000,000 RMAC Series 03-NS1X Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .45%, 4.46%, due 06/12/35 3,728,998
GBP 2,000,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.41%, due 09/12/35 3,713,456
-------------
9,030,223
-------------
U.S. GOVERNMENT -- 1.9%
USD 4,563,680 U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (c) 5,151,254
-------------
Total United States 14,181,477
-------------
TOTAL DEBT OBLIGATIONS (COST $27,255,132) 32,094,550
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT / SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED -- 2.4%
CROSS CURRENCY OPTIONS -- 2.4%
GBP 50,000,000 GBP Call/JPY Put, Expires 06/07/2004, Strike JPY 188.00 6,548,190
-------------
TOTAL CALL OPTIONS PURCHASED (COST $1,252,655) 6,548,190
-------------
MUTUAL FUNDS -- 86.2%
1,756,116 Merrimac Cash Fund 1,756,116
619,387 GMO Alpha LIBOR Fund 14,933,426
768,572 GMO Emerging Country Debt Fund, Class III 8,077,693
8,292,938
GMO Short-Duration Collateral Fund 208,816,182
-------------
TOTAL MUTUAL FUNDS (COST $233,570,413) 233,583,417
-------------
TOTAL INVESTMENTS -- 100.4%
(Cost $262,078,200) 272,226,157
Other Assets and Liabilities (net) -- (0.4%) (1,211,599)
-------------
TOTAL NET ASSETS -- 100.0% $ 271,014,558
=============
</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
Variable rates - The rates shown on variable rate notes are
the current interest rates at February 29, 2004, which are
subject to change based on the terms of the security.
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)
FEBRUARY 29, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT / SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------
CURRENCY ABBREVIATIONS:
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar
</Table>
(a) Security valued at fair value using methods determined
in good faith by or at the direction of the Trustees
(Note 2).
(b) Security backed by U.S. Treasury Strips.
(c) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts and open swap contracts (Note 8).
See accompanying notes to the financial statements.
3
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in affiliated issuers, at value (cost $231,814,297) (Notes 2 and 9) $ 231,827,301
Investments in unaffiliated issuers, at value (cost $30,263,903)(Note 2) 40,398,856
Foreign currency, at value (cost $31,482) (Note 2) 31,145
Receivable for Fund shares sold 316,946
Interest receivable 347,443
Receivable for open forward foreign currency contracts (Notes 2 and 8) 4,174,000
Receivable for variation margin on open futures contracts (Notes 2 and 8) 76,157
Net receivable for open swap contracts (Notes 2 and 8) 985,183
Periodic payments from open swap contracts (Notes 2 and 8) 312,789
Receivable for expenses reimbursed by Manager (Note 3) 21,889
---------------
Total assets 278,491,709
---------------
LIABILITIES:
Payable for investments purchased 1,000,000
Payable to affiliate for (Note 3):
Management fee 52,867
Shareholder service fee 31,720
Trustees fee 406
Payable for open forward foreign currency contracts (Notes 2 and 8) 6,329,251
Accrued expenses 62,907
---------------
Total liabilities 7,477,151
---------------
NET ASSETS $ 271,014,558
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 250,315,963
Accumulated undistributed net investment income 12,784,066
Accumulated net realized loss (3,146,230)
Net unrealized appreciation 11,060,759
---------------
$ 271,014,558
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 271,014,558
===============
SHARES OUTSTANDING:
Class III 26,114,792
===============
NET ASSET VALUE PER SHARE:
Class III $ 10.38
===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers (Note 9) $ 2,600,035
Interest 1,420,535
---------------
Total income 4,020,570
---------------
EXPENSES:
Management fee (Note 3) 424,261
Shareholder service fee (Note 3) - Class III 254,557
Custodian and transfer agent fees 84,787
Audit and tax fees 52,321
Legal fees 10,581
Trustees fees and related expenses (Note 3) 3,549
Registration fees 20,464
Miscellaneous 6,747
---------------
Total expenses 857,267
Fees and expenses reimbursed by Manager (Note 3) (173,318)
Indirectly incurred fees waived or borne by Manager (Note 3) (21,864)
Shareholder service fee waived (Note 3) - Class III (7,653)
---------------
Net expenses 654,432
---------------
Net investment income 3,366,138
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments in unaffiliated issuers (488,207)
Investments in affiliated issuers 391,199
Realized gains distributions from affiliated issuers 341,878
Closed futures contracts 4,529
Closed swap contracts 1,875,946
Written options 107,910
Foreign currency, forward contracts and foreign currency related transactions 22,356,690
---------------
Net realized gain 24,589,945
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 8,505,158
Open futures contracts 1,991,300
Open swap contracts (1,038,927)
Foreign currency, forward contracts and foreign currency related transactions (2,652,073)
---------------
Net unrealized gain 6,805,458
---------------
Net realized and unrealized gain 31,395,403
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 34,761,541
===============
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,366,138 $ 2,635,876
Net realized gain 24,589,945 17,236,556
Change in net unrealized appreciation (depreciation) 6,805,458 11,029,934
-------------- --------------
Net increase in net assets from operations 34,761,541 30,902,366
-------------- --------------
Distributions to shareholders from:
Net investment income
Class III (12,911,222) (15,448,356)
-------------- --------------
Total distributions from net investment income (12,911,222) (15,448,356)
-------------- --------------
Net realized gains
Class III (13,545,144) --
-------------- --------------
Total distributions from net realized gains (13,545,144) --
-------------- --------------
(26,456,366) (15,448,356)
-------------- --------------
Net share transactions (Note 7):
Class III 140,188,880 (27,981,311)
-------------- --------------
Increase (decrease) in net assets resulting from net
share transactions 140,188,880 (27,981,311)
-------------- --------------
Total increase (decrease) in net assets 148,494,055 (12,527,301)
NET ASSETS:
Beginning of period 122,520,503 135,047,804
-------------- --------------
End of period (including accumulated
undistributed net investment income of
$12,784,066 and distributions in excess of
net investment income of $568,991,
respectively) $ 271,014,558 $ 122,520,503
============== ==============
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,(e)
------------------------------------------------------------------------
2004 2003 2002 2001(d) 2000
----------- ---------- ----------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.94 $ 9.05 $ 9.44 $ 9.19 $ 10.06
----------- ---------- ----------- ---------- ----------
Income from investment operations:
Net investment income (a) 0.20+ 0.20+ 0.44+ 0.61+ 0.72
Net realized and unrealized gain (loss) 1.94 2.00 (0.80) (0.32) (1.01)
----------- ---------- ----------- ---------- ----------
Total from investment operations 2.14 2.20 (0.36) 0.29 (0.29)
----------- ---------- ----------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.71) (1.31) (0.03) -- (0.39)
From net realized gains (0.99) -- -- (0.04) (0.19)
----------- ---------- ----------- ---------- ----------
Total distributions (1.70) (1.31) (0.03) (0.04) (0.58)
----------- ---------- ----------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.38 $ 9.94 $ 9.05 $ 9.44 $ 9.19
=========== ========== =========== ========== ==========
TOTAL RETURN (b) 23.17% 25.17% (3.80)% 3.20% (2.98)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 271,015 $ 122,52 $ 135,04 $ 212,591 $ 145,373
Net operating expenses to average daily net assets 0.39%(f) 0.38%(f) 0.38%(f) 0.39%(f) 0.40%
Interest expense to average daily net assets -- -- -- -- 0.03%(c)
Total net expenses to average daily net assets 0.39% 0.38% 0.38% 0.39% 0.43%
Net investment income to average daily net assets(a) 1.98% 1.96% 4.73% 6.63% 6.72%
Portfolio turnover rate 26% 40% 36% 114% 39%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.12% 0.11% 0.11% 0.04% 0.98%
</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) As a result of recent changes in generally accepted accounting principles,
the Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to decrease the net investment income ratio for the
year ending February 29, 2004 by 0.16% and net investment income per share
by $0.02. For consistency, similar reclassifications have been made to prior
year amounts, resulting in increases (reductions) to the net investment
income ratio of (0.44%), (0.12%), (0.19%) and 0.21% and to net investment
income per share of $(0.04), $(0.01), $(0.02) and $0.02 in the fiscal years
ending February 28/29, 2003, 2002, 2001 and 2000, respectively.
(f) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 3.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
7
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO International Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees 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 February 29, 2004, 77.0% of the Fund was invested in the GMO
Short-Duration Collateral Fund and 5.5% 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 February 29, 2004, 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. These financial statements are available, upon
request, without charge by calling (617)330-7500 or by visiting GMO's
website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of a recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
Statement of Operations. For consistency, similar reclassifications have
been made to amounts appearing in the previous year's Statement of Changes
in Net Assets and the per share amounts in all prior year financial
highlights presented. Prior year net investment income ratios in the
financial highlights have also been modified accordingly. This
reclassification decreased net investment income and increased net realized
gains by $258,714 for the year ended February 29, 2004 and decreased net
investment income and increased net realized gains by $590,308 for the year
ended February 28, 2003. This change had no effect
8
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
on the Fund's net asset value, either in total or per share, or its total
increase (decrease) in net assets from operations during any period.
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 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. At February 29,
2004, the total value of these securities represented 16.8% 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,
9
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 and represents the currency exposure the Fund has
acquired or hedged through forward currency contracts as of February 29,
2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the contracts or the imposition of price
limits, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 8 for
all open futures contracts as of February 29, 2004.
10
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004.
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 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
11
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. Total return swap
agreements involve commitments to pay interest in exchange for a market
linked return, both based on notional amounts. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Forward
swap spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of the
swap rate. The swap spread is the difference between the benchmark swap
rate (market rate) and the specific treasury rate. In a credit default
swap, one party makes a stream of payments to another party in exchange for
the right to receive a specified return in the event of a default by a
third party on its obligation. The Fund may use credit default swaps to
provide a measure of protection against defaults of sovereign or corporate
issuers (i.e., to reduce risk where the Fund owns or has exposure to the
issuer) or to take an active long or short position with respect to the
likelihood of a particular issuer's default. In connection with these
agreements, cash or securities may be set aside as collateral by the Fund's
custodian in accordance with the terms of the swap agreement. The Fund
earns interest on cash set aside as collateral. Swaps are marked to market
daily based upon quotations from market makers and the change in value, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made on swap contracts 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 interest rates. See Note 8 for a
summary of open swap agreements as of February 29, 2004.
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. At February 29,
2004, there were no open repurchase agreements.
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
12
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 year
ended February 29, 2004, 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
February 29, 2004, 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.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $26,456,366
and $15,448,356, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $10,711,578 of undistributed ordinary income. The
temporary difference between book and tax basis distributable earnings are
primarily due to differing treatment for swap transactions, foreign
currency transactions, losses on wash sale transactions, and differing
treatments for amortization of premiums and discounts on debt securities.
13
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
-------------------- ------------------ ---------------
$ 22,898,141 $ (22,898,134) $ (7)
</Table>
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 29, 2004, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $2,589,333 expiring in 2012. The Fund elected to defer to March 1, 2004
post-October losses of $248,598.
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.
14
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. 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
GMO Short-Duration Collateral Fund ("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 .25% of
the average daily net assets. 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, SCDF and ECDF. For the year ended February 29, 2004, 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 (including Alpha LIBOR Fund,
SDCF and ECDF) were .016% and .014% of the Fund's average daily net assets,
respectively. For the year ended February 29, 2004, the shareholder service
fees incurred indirectly by the Fund were .005% 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 year ended February 29, 2004 was $2,140. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$185,669,414 and $42,095,460, respectively.
15
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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
---------------- ------------------ ------------------ ----------------
$ 262,513,950 $ 10,699,724 $ (987,517) $ 9,712,207
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 71.6% 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. At February 29, 2004, 2.93% of the Fund was
held by eight related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------- --------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
Shares sold 13,829,268 $ 141,970,903 1,695,024 $ 17,095,583
Shares issued to shareholders
in reinvestment of distributions 2,558,984 25,199,403 1,459,236 13,731,415
Shares repurchased (2,594,462) (26,981,426) (5,748,110) (58,808,309)
----------- ------------- ----------- -------------
Net increase (decrease) 13,793,790 $ 140,188,880 (2,593,850) $ (27,981,311)
=========== ============= =========== =============
</Table>
16
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/RECEIVE UNITS OF CURRENCY VALUE (DEPRECIATION)
---------- --------------- ----------------- -------------- ---------------
Buys
3/23/04 AUD 51,200,000 $ 39,403,818 $ 1,082,158
3/30/04 CAD 5,200,000 3,871,675 (95,277)
4/27/04 CHF 11,900,000 9,381,926 (271,554)
4/20/04 EUR 110,900,000 137,609,362 (122,942)
4/13/04 GBP 8,500,000 15,718,716 223,236
3/09/04 JPY 21,620,000,000 197,918,858 (4,505,325)
3/02/04 NZD 14,700,000 10,076,850 673,960
5/04/04 NZD 14,200,000 9,660,506 (28,296)
---------------
$ (3,044,040)
===============
Sales
3/23/04 AUD 40,800,000 $ 31,399,917 $ 1,934
3/30/04 CAD 19,000,000 14,146,507 634,952
4/27/04 CHF 2,300,000 1,813,313 6,480
4/20/04 EUR 6,400,000 7,941,388 8,161
4/13/04 GBP 37,500,000 69,347,275 (430,562)
3/09/04 JPY 6,090,000,000 55,750,502 1,333,900
3/02/04 NZD 14,700,000 10,076,850 786
---------------
$ 1,555,651
===============
</Table>
17
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FORWARD CROSS CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT DELIVER/UNITS OF RECEIVE/IN APPRECIATION
DATE CURRENCY EXCHANGE FOR (DEPRECIATION)
---------- ------------------------- ------------------------ ---------------
3/11/04 CHF 12,200,180 EUR 7,900,000 $ 205,236
3/11/04 EUR 3,700,000 CHF 5,788,243 (37,660)
3/16/04 EUR 9,800,000 NOK 81,346,390 (619,505)
4/06/04 EUR 25,000,000 SEK 229,722,198 (218,130)
4/06/04 SEK 23,111,000 EUR 2,500,000 3,197
---------------
$ (666,862)
===============
</Table>
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF CONTRACT APPRECIATION
CONTRACTS TYPE EXPIRATION DATE VALUE (DEPRECIATION)
---------- ----------------------------------- --------------- ------------- --------------
Buys
104 Australian Government Bond 10 Yr. March 2004 $ 8,295,285 $ 166,615
238 Australian Government Bond 3 Yr. March 2004 18,638,958 152,881
19 Canadian Government Bond 10 Yr June 2004 1,573,527 5,257
6 Canadian Government Bond 10 Yr. March 2004 501,196 5,931
227 Euro BOBL March 2004 31,806,497 559,613
274 Euro Bund March 2004 39,423,531 795,997
17 Japanese Government Bond 10 Yr. March 2004 21,784,459 221,431
1 Swiss Federal Bond March 2004 102,279 3,458
18 U.K. Gilt June 2004 3,625,380 2,222
-----------
$ 1,913,405
===========
Sales
55 Federal Fund 30 Day April 2004 $ 22,689,314 $ (315)
26 U.S. Long Bond June 2004 2,923,375 (14,368)
18 U.S. Treasury Note 10 Yr. June 2004 2,049,750 (7,784)
178 U.S. Treasury Note 5 Yr. June 2004 20,008,313 (21,884)
-----------
$ (44,351)
===========
</Table>
18
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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>
SWAP AGREEMENTS
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
---------------- ------------- ----------------------------------------------- --------------
INTEREST RATE SWAPS
9,700,000 SEK 11/07/05 Agreement with Citibank N.A. dated 10/09/03 $ 30,069
to receive the notional amount multiplied
by 6.045% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
10,700,000 GBP 11/28/05 Agreement with Deutsche Bank AG dated 82,279
11/28/03 to receive the notional amount
multiplied by 4.883% and to pay the notional
amount multiplied by the 6 month Floating
Rate British LIBOR.
15,100,000 EUR 12/02/05 Agreement with Citibank N.A. dated 11/28/03 (191,997)
to pay the notional amount multiplied by
2.976% and to receive the notional amount
multiplied by the 6 month Floating Rate
EURIBOR.
160,000,000 SEK 1/09/06 Agreement with Deutsche Bank AG dated 1/07/04 17,782
to pay the notional amount multiplied by
3.435% and
</Table>
19
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
to receive the notional amount multiplied by
the 3 month Floating Rate Swedish STIBOR.
<Caption>
NET
UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
---------------- ------------- ----------------------------------------------- --------------
21,600,000 USD 1/09/06 Agreement with Deutsche Bank AG dated 1/07/04 $ 118,223
to receive the notional amount multiplied
by 2.183% and to pay the notional amount
multiplied by the 3 month LIBOR.
30,900,000 CAD 1/30/06 Agreement with Citibank N.A. dated 1/30/04 to (108,671)
pay the notional amount multiplied by 2.765%
and to receive the notional amount multiplied
by the 3 month Floating Rate Canadian CDOR.
23,300,000 USD 2/03/06 Agreement with Citibank N.A. dated 1/30/04 to 109,291
receive the notional amount multiplied by
2.17% and to pay the notional amount
multiplied by the 3 month LIBOR.
1,900,000 CHF 10/13/08 Agreement with Deutsche Bank AG dated (29,047)
10/09/03 to pay the notional amount
multiplied by 2.18% and to receive the
notional amount multiplied by the 6 month
Floating Rate Swiss LIBOR.
25,200,000 SEK 10/13/08 Agreement with Citibank N.A. dated 10/09/03 72,335
to receive the notional amount multiplied
by 4.475% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
2,100,000 CHF 10/23/08 Agreement with Citibank N.A. dated 10/21/03 (33,698)
to pay the notional amount multiplied by
2.205% and to receive the notional amount
multiplied by the 6 month Floating Rate Swiss
LIBOR.
25,000,000 SEK 11/05/10 Agreement with Citibank N.A. dated 11/03/03 163,440
to receive the notional amount multiplied
by 4.985% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
5,000,000 CHF 11/08/10 Agreement with Deutsche Bank AG dated (113,579)
11/05/03 to pay the notional amount
multiplied by 2.72% and
</Table>
20
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
to receive the notional amount multiplied by
the 6 month Floating Rate Swiss LIBOR.
<Caption>
NET
UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
---------------- ------------- ----------------------------------------------- --------------
2,500,000 SEK 10/13/13 Agreement with Citibank N.A. dated 10/09/03 $ 11,030
to receive the notional amount multiplied
by 5.045% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
1,600,000 CHF 10/14/13 Agreement with Deutsche Bank AG dated (32,320)
10/09/03 to pay the notional amount
multiplied by 3.025% and to receive the
notional amount multiplied by the 6 month
Floating Rate Swiss LIBOR.
2,400,000 CHF 10/23/13 Agreement with JP Morgan Chase Bank dated (48,821)
10/21/03 to pay the notional amount
multiplied by 3.028% and to receive the
notional amount multiplied by the 6 month
Floating Rate Swiss LIBOR.
2,100,000 GBP 12/16/13 Agreement with Citibank N.A. dated 12/16/03 (5,226)
to pay the notional amount multiplied by
5.028% and to receive the notional amount
multiplied by the 6 month Floating Rate
British LIBOR.
4,800,000 CAD 12/16/13 Agreement with Deutsche Bank AG dated (104,236)
12/16/03 to pay the notional amount
multiplied by 5.0% and to receive the
notional amount multiplied by the 3 month
Floating Rate Canadian CDOR.
3,700,000 USD 12/18/13 Agreement with Deutsche Bank AG dated 75,800
12/16/03 to receive the notional amount
multiplied by 4.593% and to pay the notional
amount multiplied by the 3 month LIBOR.
3,000,000 EUR 12/18/13 Agreement with Citibank N.A. dated 12/16/03 67,652
to receive the notional amount multiplied
by 4.383% and to pay the notional amount
multiplied by the 6
</Table>
21
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
month Floating Rate EURIBOR.
14,900,000 SEK 1/09/14 Agreement with Deutsche Bank AG dated 1/07/04 41,262
to receive the notional amount multiplied by
4.998% and to pay the notional amount
multiplied by the 3 month Floating Rate
Swedish STIBOR.
<Caption>
NET
UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
---------------- ------------- ----------------------------------------------- --------------
5,600,000 CAD 1/16/14 Agreement with Deutsche Bank AG dated 1/16/04 $ (51,946)
to pay the notional amount multiplied by
4.803% and to receive the notional amount
multiplied by the 3 month Floating Rate
Canadian CDOR.
2,400,000 GBP 1/16/14 Agreement with Deutsche Bank AG dated 1/16/04 12,516
to pay the notional amount multiplied by
4.925% and to receive the notional amount
multiplied by the 6 month Floating Rate
British LIBOR.
5,800,000 AUD 1/20/14 Agreement with Citibank N.A. dated 1/16/04 to (5,178)
receive the notional amount multiplied by
5.995% and to pay the notional amount
multiplied by the 6 month Floating Rate
Australian BBSW.
5,600,000 CHF 1/20/14 Agreement with Citibank N.A. dated 1/16/04 to 28,214
receive the notional amount multiplied by
2.825% and to pay the notional amount
multiplied by the 6 month Floating Rate
Swiss LIBOR.
6,800,000 CAD 2/18/14 Agreement with Deutsche Bank AG dated 2/18/04 (12,802)
to pay the notional amount multiplied by
4.688% and to receive the notional amount
multiplied by the 3 month Floating Rate
Canadian CDOR.
6,600,000 AUD 2/19/14 Agreement with Deutsche Bank AG dated 2/18/04 10,142
to receive the notional amount multiplied by
6.04% and to pay the notional amount
multiplied by the 3 month Floating Rate
Australian BBSW.
37,400,000 SEK 2/20/14 Agreement with Citibank N.A. dated 2/18/04 to 8,780
pay the notional amount multiplied by 4.72%
and to receive the notional amount multiplied
by the 3
</Table>
22
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
month Floating Rate Swedish STIBOR.
5,200,000 USD 2/20/14 Agreement with Deutsche Bank AG dated 2/18/04 4,430
to receive the notional amount multiplied
by 4.375% and to pay the notional amount
multiplied by the 3 month LIBOR.
<Caption>
NET
UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
---------------- ------------- ----------------------------------------------- --------------
7,500,000 CHF 2/26/14 Agreement with Deutsche Bank AG dated 2/24/04 $ (432)
to pay the notional amount multiplied by
2.77% and to receive the notional amount
multiplied by the 6 month Floating Rate Swiss
LIBOR.
3,337,962 USD 7/28/24 Agreement with JP Morgan Chase Bank dated (9,330)
9/20/02 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).
5,000,000 EUR 3/21/30 Agreement with UBS AG dated 3/17/00 to 848,324
receive the notional amount multiplied by
5.895% and to pay the notional amount
multiplied by the 3 month Floating Rate
EURIBOR.
TOTAL RETURN SWAPS
33,000,000 USD 7/26/04 Agreement with JP Morgan Chase Bank dated 139,411
7/01/03 to receive the notional amount
multiplied by the return on the JP Morgan
Non-U.S. Traded Total Return Government Bond
Index and to pay the notional amount
multiplied by the 1 month LIBOR adjusted by a
specified spread.
33,000,000 USD 7/26/05 Agreement with JP Morgan Chase Bank dated 139,448
7/01/03 to receive the notional amount
multiplied by the return on the JP Morgan
Non-U.S. Traded Total Return Government Bond
Index and to pay the notional amount
multiplied by the 1 month LIBOR adjusted by a
specified spread.
-----------
$ 1,233,145
===========
</Table>
23
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
--------------------------------------------------------------------------------------------------------------
GMO Alpha LIBOR Fund $ 14,691,865 $ -- $ -- $ -- $ 14,933,426
GMO Emerging Country Debt
Fund, Class III 4,604,832 4,051,770 1,000,000 509,892 8,077,693
GMO Short-Duration
Collateral Fund 65,867,490 172,965,144 30,600,000 2,090,143 208,816,182
-------------- -------------- -------------- -------------- --------------
Totals $ 85,164,187 $ 177,016,914 $ 31,600,000 $ 2,600,035 $ 231,827,301
============== ============== ============== ============== ==============
</Table>
10. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.14% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by ALF were
then distributed to its shareholders, including the Fund. After
distribution of the SDCF shares, ALF changed its name to GMO Special
Purpose Holding Fund and elected partnership status for Federal income tax
purposes.
24
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO INTERNATIONAL BOND FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Bond Fund (the
"Fund") (a series of GMO Trust) at February 29, 2004, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
25
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included: $12,719,158 from
short-term capital gains.
26
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ ---------------- ----------------- ---------------- ------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)(1998 -
present);
Consultant -
Business and
Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
27
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ------------------ ---------------- ----------------- ---------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, Mayo, 41 None
c/o GMO Trust Trustees President from Van Otterloo &
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
28
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ------------------- ---------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 - August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since Otterloo & Co. LLC (June
40 Rowes Wharf March 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
29
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Currency Hedged International Bond Fund returned +9.5% for the fiscal
year ended February 29, 2004, as compared to +2.2% for the J.P. Morgan Non-US
Government Ex-Japan Bond Index (Hedged). The Fund's exposure to various issues
is achieved directly and indirectly through its investment in the GMO Emerging
Country Debt Fund, the GMO Alpha Libor Fund, and the GMO Short-Duration
Collateral Fund.
The Fund outperformed the benchmark during the fiscal year by 7.3%. Bond market,
currency selection, emerging debt exposure, and issue selection each added value
during the fiscal year.
Overweight positions in Canadian and Swedish bond markets, as well as
underweight positions in British and U.S. bond markets, added value to the Fund
during the period. In addition, overweight positions in British pounds,
Australian dollars, New Zealand dollars, and Swedish krona, and an underweight
position in the Canadian dollar generated significant gains, offsetting
underweight positions in Swiss francs, Japanese yen, and the euro. Issue
selection added value while the Fund's exposure to non-Treasury/Agency
securities benefited relative performance as spreads tightened during the
period. Emerging country debt exposure also added value to the Fund during the
fiscal year.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
CURRENCY HEDGED INT'L. BOND FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO CURRENCY HEDGED J.P. MORGAN NON-U.S. EX-JAPAN J.P. MORGAN NON-U.S.
INTERNATIONAL BOND FUND GOV'T. BOND INDEX (HEDGED) +* GOVERNMENT BOND INDEX (HEDGED)
9/30/1994 5,000,000 5,000,000 5,000,000
12/31/1994 4,988,025 5,081,245 5,081,245
3/31/1995 5,140,410 5,313,050 5,313,050
6/30/1995 5,577,245 5,563,760 5,563,760
9/30/1995 5,975,255 5,774,175 5,774,175
12/31/1995 6,373,965 6,023,205 6,023,205
3/31/1996 6,521,920 6,075,145 6,075,145
6/30/1996 6,977,625 6,241,145 6,241,145
9/30/1996 7,420,840 6,507,420 6,507,415
12/31/1996 7,894,840 6,758,120 6,758,115
3/31/1997 8,021,640 6,847,755 6,847,755
6/30/1997 8,361,990 7,076,070 7,076,070
9/30/1997 8,904,170 7,326,360 7,326,360
12/31/1997 9,139,155 7,523,705 7,523,705
3/31/1998 9,461,510 7,758,815 7,758,815
6/30/1998 9,539,920 7,936,625 7,936,625
9/30/1998 9,656,360 8,361,400 8,361,400
12/31/1998 9,657,715 8,436,825 8,436,830
3/31/1999 9,758,505 8,585,135 8,585,145
6/30/1999 9,712,690 8,522,775 8,522,790
9/30/1999 9,678,430 8,546,295 8,546,315
12/31/1999 9,913,875 8,641,435 8,641,460
3/31/2000 10,214,610 8,829,595 8,829,620
6/30/2000 10,370,160 8,986,920 8,986,945
9/30/2000 10,611,995 9,121,120 9,121,150
12/31/2000 11,155,315 9,458,765 9,458,795
3/31/2001 11,520,675 9,726,025 9,726,055
6/30/2001 11,485,265 9,761,350 9,761,385
9/30/2001 11,718,370 9,974,535 9,974,575
12/31/2001 11,863,860 10,029,170 10,029,210
3/31/2002 11,850,635 10,000,205 10,000,245
6/30/2002 12,333,715 10,223,875 10,223,920
9/30/2002 12,673,565 10,565,855 10,565,900
12/31/2002 12,220,430 10,732,535 10,732,580
3/31/2003 12,503,640 10,878,375 10,878,425
6/30/2003 13,070,055 11,018,375 11,018,425
9/30/2003 13,112,055 10,936,330 10,936,380
12/31/2003 13,291,880 10,945,620 10,945,670
2/29/2004 13,726,450 11,129,565 11,099,705
</Table>
Average Annual Returns
Inception 9/30/1994
<Table>
<Caption>
1YR 5YR 10YR(ITD)
9.53 7.45 11.32
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Past performance is not indicative of future
performance. Information is unaudited. Current performance of the Fund may be
lower or higher than the performance quoted. Performance data current to the
most recent month end may be obtained by visiting www.gmo.com.
* J.P. Morgan Non-U.S. ex-Japan Government Bond Index (Hedged) + represents the
J.P. Morgan Non-U.S. Government Bond Index (Hedged) prior to 12/31/03 and the
J.P. Morgan Non-U.S. ex-Japan Government Bond Index (Hedged) thereafter.
Effective as of January 1, 2004, the Fund changed its benchmark from the J.P.
Morgan Non-U.S. Government Bond Index (Hedged) to the J.P. Morgan Non-U.S.
Government Bond Index (Hedged) (ex-Japan).
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE /
SHARES /
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 3.5%
UNITED STATES -- 3.5%
U.S. GOVERNMENT -- 3.5%
USD 6,743,460 U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (a) 7,806,609
--------------
TOTAL DEBT OBLIGATIONS (COST $7,474,571) 7,806,609
--------------
MUTUAL FUNDS -- 94.0%
90,853 GMO Alpha LIBOR Fund 2,190,470
581,569 GMO Emerging Country Debt Fund, Class III 6,112,287
7,988,720
GMO Short-Duration Collateral Fund 201,155,969
--------------
TOTAL MUTUAL FUNDS (COST $208,912,435) 209,458,726
--------------
CALL OPTIONS PURCHASED -- 2.2%
CROSS CURRENCY OPTIONS -- 2.2%
GBP 37,000,000 GBP Call/JPY Put, Expires 06/07/2004, Strike 188.00 4,845,661
--------------
TOTAL CALL OPTIONS PURCHASED (COST $2,509,777) 4,845,661
--------------
TOTAL INVESTMENTS -- 99.7%
(Cost $218,896,783) 222,110,996
Other Assets and Liabilities (net) -- 0.3% 761,464
--------------
TOTAL NET ASSETS -- 100.0% $ 222,872,460
==============
</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)
FEBRUARY 29, 2004
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
(a) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts (Note 8).
See accompanying notes to the financial statements.
2
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $9,984,348) (Note 2) $ 12,652,270
Investments in affiliated issuers, at value (cost $208,912,435) (Notes 2 and 9) 209,458,726
Cash 468,552
Foreign currency, at value (cost $289,146) (Note 2) 283,160
Receivable for Fund shares sold 336,264
Interest receivable 33,125
Receivable for open forward foreign currency contracts (Notes 2 and 8) 2,431,170
Receivable for variation margin on open futures contracts (Notes 2 and 8) 199,031
Net receivable for open swap contracts (Notes 2 and 8) 253,144
Receivable for expenses reimbursed by Manager (Note 3) 14,163
---------------
Total assets 226,129,605
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 42,115
Shareholder service fee 25,269
Trustees fee 876
Payable for open forward foreign currency contracts (Notes 2 and 8) 3,047,803
Periodic payments from open swap contracts (Notes 2 and 8) 86,243
Accrued expenses 54,839
---------------
Total liabilities 3,257,145
---------------
NET ASSETS $ 222,872,460
===============
NET ASSETS CONSIST OF:
Paid-in capital 220,167,679
Accumulated undistributed net investment income 1,581,188
Accumulated net realized loss (3,999,923)
Net unrealized appreciation 5,123,516
---------------
$ 222,872,460
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 222,872,460
===============
SHARES OUTSTANDING:
Class III 24,342,430
===============
NET ASSET VALUE PER SHARE:
Class III $ 9.16
===============
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers $ 398,745
Interest 85,195
---------------
Total income 483,940
---------------
EXPENSES:
Management fee (Note 3) 113,941
Shareholder service fee (Note 3) - Class III 68,365
Custodian and transfer agent fees 29,247
Audit and tax fees 61,290
Legal fees 2,124
Trustees fees and related expenses (Note 3) 495
Registration fees 8,098
Miscellaneous 2,849
---------------
Total expenses 286,409
Fees and expenses reimbursed by Manager (Note 3) (103,516)
Indirectly incurred fees waived or borne by Manager (Note 3) (5,980)
Shareholder service fee waived (Note 3) - Class III (2,090)
---------------
Net expenses 174,823
---------------
Net investment income 309,117
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments in unaffiliated issuers (229,921)
Investments in affiliated issuers 83,454
Realized gains distributions from affiliated issuers 46,878
Closed futures contracts 21,987
Closed swap contracts (75,637)
Written options 16,830
Foreign currency, forward contracts and foreign currency related transactions 1,187,649
---------------
Net realized gain 1,051,240
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 3,239,730
Open futures contracts 2,262,406
Open swap contracts 237,150
Foreign currency, forward contracts and foreign currency related transactions (729,823)
---------------
Net unrealized gain 5,009,463
---------------
Net realized and unrealized gain 6,060,703
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,369,820
===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 309,117 $ 140,481
Net realized gain 1,051,240 106,972
Change in net unrealized appreciation (depreciation) 5,009,463 528,743
----------------- -----------------
Net increase in net assets from operations 6,369,820 776,196
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (1,182,701) (1,285,568)
----------------- -----------------
Net share transactions (Note 7):
Class III 197,466,338 2,795,937
----------------- -----------------
Increase in net assets resulting from net share transactions 197,466,338 2,795,937
----------------- -----------------
Total increase in net assets 202,653,457 2,286,565
NET ASSETS:
Beginning of period 20,219,003 17,932,438
----------------- -----------------
End of period (including accumulated
undistributed net investment income of
$1,581,188 and $1,074,093, respectively) $ 222,872,460 $ 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>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------------------------------
2004(d) 2003(d) 2002(d) 2001(c)(d) 2000(d)
---------- --------- --------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.85 $ 9.04 $ 9.72 $ 9.70 $ 10.47
---------- --------- --------- ---------- ----------
Income from investment operations:
Net investment income (a)+ 0.06 0.09 0.50 0.57 0.64
Net realized and unrealized gain (loss) 0.76 0.32 (0.13) 0.73 (0.16)
---------- --------- --------- ---------- ----------
Total from investment operations 0.82 0.41 0.37 1.30 0.48
---------- --------- --------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.51) (0.60) (1.05) (1.18) (1.11)
From net realized gains -- -- -- (0.10) (0.14)
---------- --------- --------- ---------- ----------
Total distributions (0.51) (0.60) (1.05) (1.28) (1.25)
---------- --------- --------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.16 $ 8.85 $ 9.04 $ 9.72 $ 9.70
========== ========= ========= ========== ==========
TOTAL RETURN (b) 9.53% 4.81% 4.21% 14.06% 4.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 222,872 $ 20,219 $ 17,932 $ 18,102 $ 283,340
Net expenses to average daily net assets 0.38%(e) 0.40%(e) 0.38%(e) 0.40%(e) 0.40%
Net investment income to average daily net assets (a) 0.68% 0.97% 5.45% 5.79% 6.34%
Portfolio turnover rate 36% 66% 44% 120% 65%
Fees and expenses reimbursed by the Manager
to average daily net assets: 0.24% 0.51% 0.54% 0.07% 0.08%
</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) 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 6.05% 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) As a result of recent changes in generally accepted accounting principles,
the Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to increase the net investment income ratio for the
year ending February 29, 2004 by 0.25% and net investment income per share
by $0.02. For consistency, similar reclassifications have been made to prior
year amounts, resulting in increases (reductions) to the net investment
income ratio of (0.05%), less than 0.00%, (0.17%) and (0.17%) for the fiscal
years ending February 28/29, 2003, 2002, 2001 and 2000, respectively and to
net investment income per share of less than $(0.00), less than $0.00,
$(0.02) and $(0.01) for the fiscal years ending February 28/29, 2003, 2002,
2001 and 2000 respectively.
(e) Net expenses exclude expenses incurred indirectly through investment in
underlying Funds. (See Note 2)
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
6
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Currency Hedged International Bond Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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. ex-Japan
Government Bond Index (Hedged). Effective January 1, 2004, the Fund changed
benchmarks from J.P. Morgan Non-U.S. Government Bond Index (Hedged).
At February 29, 2004, 1.0% of the Fund was invested in GMO Alpha LIBOR Fund
and 90.3% 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 February 29, 2004, 2.7% 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. These financial
statements are available, without charge, upon requrest by calling (617)
330-7500 or by visiting GMO's website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of a recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
statement of operations. For consistency, similar reclassifications have
been made to amounts appearing in the previous year's statement of changes
in net assets and the per share amounts in all prior year financial
highlights presented. Prior year net investment income ratios in the
financial highlights have also been
7
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
modified accordingly. This reclassification increased net investment income
and decreased net realized gains by $113,003 for the year ended February
29, 2004 and decreased net investment income and increased net realized
gains by $7,909 for the year ended February 28, 2003. This change had no
effect on the Fund's net asset value, either in total or per share, or its
total increase (decrease) in net assets from operations during any period.
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.
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 February 29,
2004, the total value of these securities represented 6.9% 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
8
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 and represents the currency exposure the Fund has
acquired or hedged through forward currency contracts as of February 29,
2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing liquidation of unfavorable
positions. Losses may arise from the changes in the value of the underlying
instrument, if the Fund is unable to liquidate a futures position due to an
illiquid secondary market for the
9
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
contracts or the imposition of price limits, 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 8 for all open futures contracts as of
February 29, 2004.
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. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 2004, there were no open written option contracts. (See Note
8)
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004.
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
10
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. The swap spread is the difference between the benchmark swap
rate (market rate) and the specific treasury rate. In a credit default
swap, one party makes a stream of payments to another party in exchange for
the right to receive a specified return in the event of a default by a
third party on its obligation. The Fund may use credit default swaps to
provide a measure of protection against defaults of sovereign or corporate
issuers (i.e., to reduce risk where the Fund owns or has exposure to the
issuer) or to take an active long or short position with respect to the
likelihood of a particular issuer's default. In connection with these
agreements, cash or securities may be set aside as collateral by the Fund's
custodian in accordance with the terms of the swap agreement. The Fund
earns interest on cash set aside as collateral. Swaps are marked to market
daily based upon quotations from market makers and the change in value, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made on swap contracts 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
11
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 for a summary of open swap agreements as of February 29, 2004.
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. At February 29,
2004, there were no open repurchase agreements.
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 year ended February 29,
2004, 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 February 29, 2004, 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.
12
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from ordinary income were $1,182,701
and $1,285,568, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $964,555 of undistributed ordinary income. The temporary
differences between book and tax basis distributable earnings are primarily
due to foreign currency transactions, losses on wash sales transactions and
differing treatments for amortization of premiums and discounts on debt
securities.
At February 29, 2004, the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code,
of $3,639,053 expiring in 2009. The Fund elected to defer to March 1, 2004
post-October capital losses of $376,779.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
------------------- --------------- -----------------
$ 1,380,679 $ (1,380,679) $ --
</Table>
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.
13
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
3. 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 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 .25% of
average daily net assets. 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 exclude 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 year ended February 29, 2004, 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 (including Alpha LIBOR Fund,
SDCF
14
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
and ECDF) were .016% and .010% of the Fund's average daily net assets,
respectively. For the year ended February 29, 2004, shareholder service
fees incurred indirectly by the Fund were .005% 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 year ended February 29, 2004 was $105. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, were as
follows:
<Table>
<Caption>
PURCHASES SALES
------------ ------------
U.S. Government securities $ 6,370,780 $ --
Investments (non-U.S. Government securities) 207,225,623 16,887,922
</Table>
At February 29, 2004, 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
---------------- ------------------ ------------------ ----------------
$ 218,920,921 $ 3,319,888 $ (129,813) $ 3,190,075
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 67.1% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's shares
outstanding. Two of the shareholders are other funds of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund. At February 29, 2004, less than .01% of the Fund was held by one
related party.
15
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
-------------------------------- --------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
Shares sold 22,864,308 $ 204,926,687 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 (936,320) (8,584,295) (1,275,960) (11,011,182)
-------------- -------------- -------------- --------------
Net increase 22,057,624 $ 197,466,338 301,055 $ 2,795,937
============== ============== ============== ==============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/RECEIVE UNITS OF CURRENCY VALUE (DEPRECIATION)
---------- --------------- ----------------- ------------- ----------------
Buys
3/23/04 AUD 35,300,000 $ 27,167,085 $ 281,302
3/30/04 CAD 3,800,000 2,829,301 (69,626)
4/27/04 CHF 7,800,000 6,149,498 (191,339)
4/20/04 EUR 7,500,000 9,306,314 (41,381)
4/13/04 GBP 2,500,000 4,623,152 83,672
3/09/04 JPY 8,560,000,000 78,361,953 (2,092,974)
3/02/04 NZD 11,600,000 7,951,800 211,213
5/04/04 NZD 10,600,000 7,211,364 (21,122)
----------------
$ (1,840,255)
================
</Table>
16
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FORWARD CURRENCY CONTRACTS -- CONTINUED
<Table>
Sales
3/23/04 AUD 28,600,000 $ 22,010,726 $ (25,397)
3/30/04 CAD 17,300,000 12,880,767 523,552
4/27/04 CHF 9,200,000 7,253,254 135,277
4/20/04 EUR 4,400,000 5,459,704 6,249
4/13/04 GBP 25,400,000 46,971,221 (225,130)
3/09/04 JPY 5,680,000,000 51,997,184 1,160,932
3/02/04 NZD 11,600,000 7,951,800 (31,110)
----------------
$ 1,544,373
================
</Table>
FORWARD CROSS CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/UNITS OF CURRENCY RECEIVE/IN EXCHANGE FOR (DEPRECIATION)
------------ ------------------------- ----------------------- ----------------
3/11/04 CHF 1,543,936 EUR 1,000,000 $ 26,287
3/11/04 EUR 3,000,000 CHF 4,693,170 (30,535)
3/16/04 EUR 7,800,000 NOK 66,938,040 (181,646)
4/06/04 EUR 17,800,000 SEK 163,694,650 (137,543)
4/06/04 SEK 19,413,240 EUR 2,100,000 2,686
----------------
$ (320,751)
================
</Table>
See Notes for the Schedule of Investments for definitions of currency
abbreviations.
FUTURES CONTRACTS
<Table>
<Caption>
NET UNREALIZED
NUMBER OF CONTRACT APPRECIATION
CONTRACTS TYPE EXPIRATION DATE VALUE (DEPRECIATION)
------------ --------------------------------- --------------- ------------ ----------------
Buys
86 Australian Government Bond 10 Yr. March 2004 $ 6,859,563 $ 117,543
197 Australian Government Bond 3 Yr. March 2004 15,428,045 97,311
27 Canadian Government Bond 10 Yr. March 2004 2,255,383 27,555
90 Canadian Government Bond 10 Yr. June 2004 7,453,549 24,903
420 Euro BOBL March 2004 58,849,025 847,265
687 Euro Bund March 2004 98,846,590 1,681,420
92 UK Gilt Long Bond June 2004 18,529,718 11,354
----------------
$ 2,807,351
================
</Table>
17
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
FUTURES CONTRACTS -- CONTINUED
<Table>
Sales
195 Federal Fund 30 Day April 2004 $ 80,443,935 $ (1,121)
28 Japanese Government Bond 10 Yr. March 2004 35,880,286 (388,694)
54 Swiss Federal Bond March 2004 5,523,090 (99,832)
20 U.S. Long Bond June 2004 2,248,750 (11,052)
13 U.S. Treasury Note 10 Yr. June 2004 1,480,375 (5,622)
181 U.S. Treasury Note 5 Yr. June 2004 20,345,531 (22,252)
----------------
$ (528,573)
================
</Table>
At February 29, 2004, 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 1,700 16,830 1,700 16,830
Options exercised (1,700) (16,830) -- --
Options expired -- -- (1,700) (16,830)
---------------- ---------------- ---------------- ----------------
Outstanding, end of period -- $ -- -- $ --
================ ================ ================ ================
</Table>
SWAP AGREEMENTS
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- ----------------
INTEREST RATE SWAPS
1,300,000 SEK 11/07/05 Agreement with Citibank N.A. dated 11/03/03 to $ 4,030
receive the notional amount multiplied by 3.8% and
to pay the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
1,300,000 GBP 11/28/05 Agreement with Deutsche Bank AG dated 11/28/03 to 9,997
</Table>
18
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
receive the notional amount multiplied by 4.8825%
and to pay the notional amount multiplied by the 6
month Floating Rate British LIBOR.
</Table>
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- ----------------
1,800,000 EUR 12/02/05 Agreement with Citibank N.A. dated 11/28/03 to pay $ (22,887)
the notional amount multiplied by 2.976% and to
receive the notional amount multiplied by the 6
month Floating Rate EURIBOR.
112,000,000 SEK 1/09/06 Agreement with Deutsche Bank AG dated 1/07/04 to 12,448
pay the notional amount multiplied by 3.435% and
to receive the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
15,400,000 USD 1/09/06 Agreement with Deutsche Bank AG dated 1/07/04 to $ 84,288
receive the notional amount multiplied by 2.183%
and to pay the notional amount multiplied by the 3
month LIBOR.
21,700,000 CAD 1/30/06 Agreement with Citibank N.A. dated 1/30/04 to pay (76,316)
the notional amount multiplied by 2.765% and to
receive the notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
16,400,000 USD 2/03/06 Agreement with Citibank N.A. dated 1/30/04 to 76,926
receive the notional amount multiplied by 2.17%
and to pay the notional amount multiplied by the 3
month LIBOR.
200,000 CHF 10/13/08 Agreement with Deutsche Bank AG dated 10/09/03 to (3,058)
pay the notional amount multiplied by 2.18% and to
receive the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
3,300,000 SEK 10/13/08 Agreement with Citibank N.A. dated 10/09/03 to 9,474
receive the notional amount multiplied by 4.475%
and to pay the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
</Table>
19
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- ----------------
300,000 CHF 10/23/08 Agreement with Citibank N.A. dated 10/21/03 to pay $ (4,814)
the notional amount multiplied by 2.205% and to
receive the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
37,500,000 SEK 1/09/09 Agreement with Deutsche Bank AG dated 1/07/04 to 79,600
receive the notional amount multiplied by 4.3825%
and to pay the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
3,100,000 SEK 11/05/10 Agreement with Citibank N.A. dated 11/03/03 to 20,246
receive the notional amount multiplied by 4.985%
and to pay the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
700,000 CHF 11/07/10 Agreement with Deutsche Bank AG dated 11/05/03 to (15,901)
pay the notional amount multiplied by 2.72% and to
receive the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
1,300,000 SEK 10/13/13 Agreement with Citibank N.A. dated 10/09/03 to 4,382
receive the notional amount multiplied by 5.045%
and to pay the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
300,000 CHF 10/14/13 Agreement with Deutsche Bank AG dated 10/09/03 to (6,060)
pay the notional amount multiplied by 3.025% and
to receive the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
300,000 CHF 10/23/13 Agreement with JP Morgan Chase Bank dated 10/21/03 (6,112)
to pay the notional amount multiplied by 3.0275%
and to receive the notional amount multiplied by
the 6 month
</Table>
20
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
Floating Rate Swiss LIBOR.
</Table>
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- ----------------
600,000 CAD 12/16/13 Agreement with Deutsche Bank AG dated 12/16/03 to $ (13,029)
pay the notional amount multiplied by 5% and to
receive the notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
300,000 GBP 12/16/13 Agreement with Citibank N.A. dated 12/16/03 to pay (747)
the notional amount multiplied by 5.0275% and to
receive the notional amount multiplied by the 6
month Floating Rate British LIBOR.
400,000 EUR 12/18/13 Agreement with Citibank N.A. dated 12/16/03 to 9,020
receive the notional amount multiplied by 4.3825%
and to pay the notional amount multiplied by the 6
month Floating Rate EURIBOR.
500,000 USD 12/18/13 Agreement with Deutsche Bank AG dated 12/16/03 to 10,243
receive the notional amount multiplied by 4.5925%
and to pay the notional amount multiplied by the 3
month LIBOR.
22,000,000 SEK 1/09/14 Agreement with Deutsche Bank AG dated 1/07/04 to 60,923
receive the notional amount multiplied by 4.9975%
and to pay the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
3,900,000 CAD 1/16/14 Agreement with Deutsche Bank AG dated 1/16/04 to (36,177)
pay the notional amount multiplied by 4.8025% and
to receive the notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
1,600,000 GBP 1/16/14 Agreement with Deutsche Bank AG dated 1/16/04 to 8,344
pay the notional amount multiplied by 4.925% and
to receive the notional amount multiplied by the 6
month Floating
</Table>
21
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
Rate British LIBOR.
</Table>
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- ----------------
4,000,000 AUD 1/20/14 Agreement with Citibank N.A. dated 1/16/04 to $ (3,571)
receive the notional amount multiplied by 5.995%
and to pay the notional amount multiplied by the 6
month Floating Rate Australian BBSW.
3,700,000 CHF 1/20/14 Agreement with Citibank N.A. dated 1/16/04 to 18,641
receive the notional amount multiplied by 2.825%
and to pay the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
5,400,000 CAD 2/18/14 Agreement with Deutsche Bank AG dated 2/18/04 to (10,166)
pay the notional amount multiplied by 4.6875% and
to receive the notional amount multiplied by the 3
month Floating Rate Canadian CDOR.
5,200,000 AUD 2/19/14 Agreement with Deutsche Bank AG dated 2/18/04 to 7,990
receive the notional amount multiplied by 6.04%
and to pay the notional amount multiplied by the 3
month Floating Rate Australian BBSW.
29,800,000 SEK 2/20/14 Agreement with Citibank N.A. dated 2/18/04 to pay 6,996
the notional amount multiplied by 4.72% and to
receive the notional amount multiplied by the 3
month Floating Rate Swedish STIBOR.
4,100,000 USD 2/20/14 Agreement with Deutsche Bank AG dated 2/18/04 to 3,493
receive the notional amount multiplied by 4.375%
and to pay the notional amount multiplied by the 3
month LIBOR.
</Table>
22
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
SWAP AGREEMENTS -- CONTINUED
<Table>
7,100,000 CHF 2/26/14 Agreement with Deutsche Bank AG dated 2/24/04 to (409)
pay the notional amount multiplied by 2.77% and to
receive the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR.
</Table>
<Table>
<Caption>
NET
UNREALIZED
EXPIRATION APPRECIATION
NOTIONAL AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- ----------------
TOTAL RETURN SWAPS
3,000,000 USD 7/21/04 Agreement with JP Morgan Chase Bank dated 7/01/03 $ 12,673
to receive the notional amount multiplied by the
return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index 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 12,677
to receive the notional amount multiplied by the
return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index and to pay the
notional amount multiplied by the 1 month LIBOR
adjusted by a specified spread.
----------------
$ 253,144
================
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
23
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
VALUE, VALUE,
BEGINNING SALES DIVIDEND END OF
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME PERIOD
--------------------------------------------------------------------------------------------------------------------
GMO EMERGING COUNTRY DEBT FUND,
CLASS III $ 454,761 $ 5,843,060 $ 200,000 $ 66,182 $ 6,112,287
GMO ALPHA LIBOR FUND 2,155,037 -- -- -- 2,190,470
GMO SHORT-DURATION
COLLATERAL FUND 15,707,624 201,382,563 16,650,000 332,563 201,155,969
-------------- -------------- -------------- -------------- --------------
TOTALS $ 18,317,422 $ 207,225,623 $ 16,850,000 $ 398,745 $ 209,458,726
============== ============== ============== ============== ==============
</Table>
10. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.14% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by ALF were
then distributed to its shareholders, including the Fund. After
distribution of the SDCF shares, ALF changed its name to GMO Special
Purpose Holding Fund and elected partnership status for Federal income tax
purposes.
24
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Currency Hedged International Bond Fund (the "Fund") (a series of GMO
Trust) at February 29, 2004, and the results of its operations, the changes
in its net assets and the financial highlights for the periods presented,
in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 29, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
25
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------- --------------- ----------------- ------------------------------ ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of Business 41 *(2)
c/o GMO Trust Administration and Senior
40 Rowes Wharf Associate Dean, Harvard
Boston, MA University.
02110
DOB: 10/03/1941
Donald W. Trustee Since Advisory Counsel, Goodwin 41 None
Glazer, Esq. December 2000 Procter LLP; Secretary and
c/o GMO Trust Consultant, Provant, Inc.
40 Rowes Wharf (provider of performance
Boston, MA improvement training services
02110 and products)(1998 - present);
DOB: 07/26/1944 Consultant - Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
26
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- --------------- --------------- ----------------- ------------------------------ ------------- --------------
R. Jeremy Chairman of Since September Chairman, Grantham, Mayo, Van 41 None
Grantham(3) the Board of 1985. President Otterloo & Co. LLC
c/o GMO Trust Trustees from February
40 Rowes Wharf 2002 - October
Boston, MA 2002; President
02110 Quantitative from
DOB: 10/06/1938 September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
27
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ------------------- ------------------------------ ------------------------------
Scott Eston President and Chief President and Chief Executive Chief Financial Officer
c/o GMO Trust Executive Officer Officer since October 2002; (1997-present), Chief
40 Rowes Wharf Vice President from August Operating Officer (2000 -
Boston, MA 02110 1998 - October 2002. present) and Member, Grantham,
DOB: 01/20/1956 Mayo, Van Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Officer since Member, Grantham, Mayo, Van
c/o GMO Trust Officer and February 2000; Treasurer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 1998.
Boston, MA 02110
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo &
40 Rowes Wharf Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since February General Counsel, Anti-Money
c/o GMO Trust Clerk 1997; Clerk since March 2001 - Laundering Reporting Officer
40 Rowes Wharf present and May 1999 - August (July 2002 - February 2003)
Boston, MA 02110 1999. and Member, Grantham, Mayo,
DOB: 07/20/1965 Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since August Associate General Counsel,
c/o GMO Trust Secretary 1999; Secretary since March Grantham, Mayo, Van Otterloo &
40 Rowes Wharf 2001. Co. LLC (June 1999 - present);
Boston, MA 02110 Associate/Junior Partner, Hale
DOB: 02/18/1945 and Dorr LLP (1991 - 1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and Compliance
Boston, MA 02110 Compliance Officer Officer, Grantham, Mayo, Van
DOB: 10/07/1970 Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since February Member, Grantham, Mayo, Van
c/o GMO Trust 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
28
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGEMENT
Day-to-day management of the Fund's portfolio is the responsibility of the Fixed
Income Division at Grantham, Mayo, Van Otterloo & Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Emerging Country Debt Fund returned +30.5% for
the fiscal year ended February 29, 2004, as compared with +20.8% for the J.P.
Morgan Emerging Markets Bond Index Global (EMBIG).
The Fund outperformed the benchmark during the fiscal year by 9.7%. EMBIG
spreads over U.S. Treasuries tightened from 659 to 431 basis points during the
period. The EMBIG return of +20.8% was driven by carry (the yield on the index
averaged almost 9%) and capital gains from spread tightening, despite the 28
basis point increase in U.S. interest rates.
The biggest gainers of the fiscal year were Ecuador (+78.9%), Uruguay (+73.5%),
and Brazil (+44.6%). Latin American countries outperformed those outside the
region, +26.6% to +14.4%. The worst performing countries for the year were the
Dominican Republic (-22.6%), Croatia (+1.7%), and Hungary (+3.5%).
Market selection added value, primarily from the South Korea and Malaysia
underweights and the overweight in Ivory Coast. Overweighting Dominican Republic
and Bulgaria detracted from value added. Security selection added 820 basis
points of positive alpha in total. Positions in Russia were the largest
contributor, where 2030 Eurobonds outperformed and options trades added value.
Bond selection was also highly positive in Argentina and Brazil.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
EMERGING COUNTRY DEBT FUND-III
As Of: 2/29/2004
<Table>
<Caption>
J.P. MORGAN EMERGING MARKETS J.P. MORGAN EMERGING MARKETS
GMO EMERGING COUNTRY DEBT FUND BOND INDEX GLOBAL BOND INDEX GLOBAL +*
4/19/1994 4,975,000 5,000,000 5,000,000
6/30/1994 4,870,525 5,098,215 4,952,980
9/30/1994 5,293,400 5,744,775 5,491,020
12/31/1994 4,767,270 5,250,735 5,031,065
3/31/1995 4,384,840 4,694,080 4,474,095
6/30/1995 5,532,130 5,698,115 5,495,625
9/30/1995 6,063,840 6,064,965 5,870,505
12/31/1995 6,917,300 6,635,835 6,399,830
3/31/1996 7,376,415 6,940,395 6,654,525
6/30/1996 8,655,810 7,601,965 7,390,405
9/30/1996 10,263,930 8,391,280 8,325,945
12/31/1996 11,462,575 8,973,540 8,915,675
3/31/1997 11,907,895 9,083,810 8,985,425
6/30/1997 13,653,555 9,879,340 9,831,725
9/30/1997 15,695,870 10,521,845 10,509,755
12/31/1997 15,016,750 10,045,620 10,076,340
3/31/1998 15,899,315 10,595,915 10,601,240
6/30/1998 14,160,535 10,038,775 9,967,920
9/30/1998 9,217,050 7,970,595 7,851,615
12/31/1998 10,431,505 8,885,900 8,630,410
3/31/1999 10,879,210 9,350,320 9,066,945
6/30/1999 11,535,845 9,774,425 9,542,840
9/30/1999 11,685,475 9,920,175 9,657,175
12/31/1999 13,799,750 11,034,355 10,872,070
3/31/2000 15,785,945 11,759,550 11,586,605
6/30/2000 15,803,215 11,801,265 11,627,700
9/30/2000 17,075,775 12,390,330 12,208,105
12/31/2000 17,129,095 12,623,920 12,438,255
3/31/2001 17,689,390 12,910,390 12,720,510
6/30/2001 18,669,910 13,358,570 13,162,095
9/30/2001 17,996,660 12,801,210 12,612,935
12/31/2001 19,560,260 12,795,170 12,606,985
3/31/2002 21,365,470 13,535,435 13,336,365
6/30/2002 20,565,695 12,912,000 12,722,095
9/30/2002 20,664,925 12,862,805 12,673,630
12/31/2002 23,344,240 14,473,250 14,260,390
3/31/2003 25,209,705 15,428,305 15,201,390
6/30/2003 29,018,365 16,983,000 16,733,225
9/30/2003 29,862,815 17,368,955 17,113,495
12/31/2003 31,838,670 18,187,170 17,919,670
2/29/2004 32,064,155 18,344,460 18,074,645
</Table>
Average Annual Returns
Inception 4/19/1994
<Table>
<Caption>
1YR 5YR 10YR(ITD)
29.35 25.42 20.71
</Table>
EMERGING COUNTRY DEBT FUND-IV
As Of: 2/29/2004
Average Annual Returns
Inception 1/9/1998
<Table>
<Caption>
1YR 5YR 10YR(ITD)
29.27 25.5 13.81
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 50 bp on the purchase and 25 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Performance
for Class IV shares may vary due to different shareholder serving fees. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
* J.P. Morgan EMBI Global + represents the J.P. EMBI prior to 8/95, J.P. Morgan
EMBI+ through 12/31/99 and the J.P. Morgan EMBI Global thereafter. The manager
changed the benchmark due to the belief that the EMBIG is more diversified and
representative of the universe of emerging country debt.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 76.1%
ARGENTINA -- 3.1%
USD 6,931,000 Argentina Government International Bond, 12.00%, due 02/01/20 (a) 1,906,025
DEM 20,000,000 Argentina Government International Bond, 5.87%, due 03/31/23 (a) 6,162,218
USD 31,390,000 Argentina Government International Bond,
Variable Rate, 3 mo. USD LIBOR + 5.75%, 6.90%, due 04/06/04 (a) 7,062,750
ARS 8,048,134 Central Bank Argentina, 2.00%, due 02/04/18 (a)(b) 1,762,466
ARS 89,162 Provincia Corrientes Strip, 0.00%, due 04/01/09 (a)(b) --
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) 15,680,000
DEM 3,830,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 3.06%, due 03/31/23 (a) 1,070,574
USD 26,545,000 Republic of Argentina Global Bond, 12.13%, due 02/25/19 (a) 7,698,050
USD 8,000,000 Republic of Argentina Global Bond, 9.75%, due 09/19/27 (a) 2,220,000
DEM 5,000,000 Republic of Argentina Global Bond, 9.00%, due 11/19/08 (a)(b) 746,454
USD 3,540,000 Republic of Argentina Global Bond, 8.88%, due 03/01/29 (a) 772,605
USD 3,433,525 Republic of Argentina Global Bond Series 2018, 12.12%, due 06/19/18 (a) 944,219
USD 198,230 Republic of Argentina Global Bond, Series 2008, 7.00%, due 12/19/08 (a) 54,513
EUR 3,500,000 Republic of Argentina Global Bond, Series FEB, 8.00%, due 02/26/08 (a) 1,087,188
ARS 15,432,863 Republic of Argentina INDER Certificates, 6.00%, due 04/15/06 (a)(b) 629,726
USD 2,000,000 Republic of Argentina Pro 4, 0.00%, due 12/28/10 (a) 281,600
USD 96,602 Republic of Argentina Pro 4 Coupon Certificates, 2.00%, 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) 698,906
USD 64,800,000 Republic of Argentina, 12.00% Capitalization Bond, PIK, due 06/19/31 (a)(c) 17,658,000
----------------
66,435,294
----------------
BOSNIA & HERZEGOVINA -- 0.5%
DEM 25,244,000 Bosnia & Herzegovina Series A, Step Up, 3.00%, due 12/11/17 11,065,539
----------------
BRAZIL -- 21.2%
USD 24,936,053 Brazil Capitalization Bond Series L, PIK, 8.00%, due 04/15/14 23,860,561
USD 150,847,725 Brazil Capitalization Bond, PIK, 8.00%, due 04/15/14 (c) 144,341,663
USD 174,000,000 Brazil DCB (Bearer),
Variable Rate, 6 mo. LIBOR + .88%, 2.06%, due 04/15/12 149,313,750
USD 69,500,000 Brazil DCB (Registered) Series RG,
Variable Rate, 6 mo. LIBOR + .88%, 2.06%, due 04/15/12 59,639,688
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
BRAZIL -- CONTINUED
USD 49,525,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.00%, due 04/15/24 39,620,000
USD 18,886,384 Brazil FLIRB (Registered),
Variable Rate, Step Up, 6 mo LIBOR + .81%, 2.00%, due 04/15/09 17,375,473
USD 13,314,573 Brazil MYDFA Trust Certificates Reg S,
Variable Rate, 6 mo. LIBOR + .81%, 2.00%, due 09/15/07 12,249,407
USD 13,166,712 Brazilian Government International Exit Bonds, 6.00%, due 09/15/13 11,290,455
USD 659,118 Brazilian Government International Exit Bonds Odd Lot, 6.00%, due 09/15/13 552,011
----------------
458,243,008
----------------
BULGARIA -- 1.7%
USD 5,000,000 Bulgaria Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 2.00%, due 07/28/24 4,931,250
USD 42,000,000 Bulgaria Discount Bond, Interest Strips, Series 62, 0.00%, due 1/28/10
to 07/28/16 10,773,000
USD 42,000,000 Bulgaria Discount Bond, Interest Strips, Series 63, 0.00%, due 1/28/17
to 07/28/24 7,900,200
USD 10,822,000 Republic of Bulgaria Reg S, 8.25%, due 01/15/15 (c) 12,972,873
----------------
36,577,323
----------------
CHINA -- 0.4%
USD 7,500,000 China Government International Bond, 6.80%, due 05/23/11 8,673,041
----------------
COLOMBIA -- 0.5%
USD 2,000,000 Republic of Colombia, 11.85%, due 03/09/28 2,040,000
USD 8,000,000 Republic of Colombia, 8.70%, due 02/15/16 7,760,000
----------------
9,800,000
----------------
COSTA RICA -- 0.4%
USD 3,710,000 Costa Rica Government International Bond, 10.00%, due 08/01/20 4,526,200
USD 3,000,000 Republic of Costa Rica, 8.05%, due 01/31/13 3,330,000
----------------
7,856,200
----------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
DOMINICAN REPUBLIC -- 1.5%
USD 42,557,000 Dominican Republic Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due 08/30/24 27,236,480
USD 3,600,000 Dominican Republic International Bond RegS, 9.04%, due 01/23/13 2,412,000
USD 5,000,000 Dominican Republic Reg S, 9.50%, due 09/27/06 (c) 3,600,000
----------------
33,248,480
----------------
ECUADOR -- 1.1%
USD 2,900,628 Republic of Ecuador PDI (Global Bearer Capitalization Bond), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due 02/27/15 (b) 1,601,791
USD 27,587,000 Republic of Ecuador Reg S,
Variable Rate, Step Up, 7.00%, due 08/15/30 22,842,036
----------------
24,443,827
----------------
EL SALVADOR -- 0.6%
USD 11,000,000 El Salvador Government International Bond, 8.50%, due 07/25/11 12,567,500
----------------
IVORY COAST -- 1.3%
FRF 37,500,000 Ivory Coast Discount Bond,
Variable Rate, Step Up, 3.50%, due 03/31/28 (a) 2,130,951
USD 73,600,000 Ivory Coast FLIRB Series YR20,
Variable Rate, Step Up, 2.00%, due 03/29/18 (a) 13,800,000
FRF 65,905,000 Ivory Coast FLIRB,
Variable Rate, Step Up, 2.00%, due 03/29/18 (a) 2,215,837
FRF 256,889,500 Ivory Coast PDI,
Variable Rate, Step Up, 1.90%, due 03/29/18 (a) 9,366,948
----------------
27,513,736
----------------
JAMAICA -- 0.1%
USD 2,000,000 Jamaica Government International Bond, 10.63%, due 06/20/17 1,900,000
----------------
JORDAN -- 0.1%
USD 1,421,051 Hashemite Kingdom of Jordan IAB,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due 12/23/05 1,399,736
----------------
KAZAKHSTAN -- 0.2%
USD 4,000,000 Kaztransoil Reg S, 8.50%, due 07/06/06 4,330,000
----------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
MACEDONIA -- 0.8%
USD 21,365,498 Macedonia Capitalization Bond, PIK,
Variable Rate, 6 mo. LIBOR + .81%, 2.02%, due 07/13/12 17,840,191
----------------
MALAYSIA -- 0.4%
USD 8,000,000 Malaysia Global Bond, 7.50%, due 07/15/11 9,516,038
----------------
MEXICO -- 8.1%
USD 47,250,000 Mexico Global Bond, 11.50%, due 05/15/26 (c) 71,347,500
USD 12,500,000 Mexico Global Bond Series MTN, 8.30%, due 08/15/31 14,531,250
DEM 10,000,000 Mexico Government International Bond, 8.00%, due 07/23/08 7,235,346
EUR 4,500,000 Mexico Government International Bond, 7.50%, due 03/08/10 6,322,490
USD 3,000,000 Mexico Government International Bond, 7.50%, due 04/08/33 3,228,000
EUR 20,000,000 Mexico Government International Bond, 7.38%, due 03/13/08 27,738,570
ITL 36,000,000,000 Mexico Government International Bond, Series EMTN, 11.00%, due 05/08/17 32,110,553
USD 12,000,000 Pemex Project Funding Master Trust, 8.63%, due 02/01/22 13,634,400
----------------
176,148,109
----------------
NICARAGUA -- 0.3%
USD 10,194,188 Republic of Nicaragua BPI Series E, 5.00%, due 02/01/11 6,126,401
----------------
NIGERIA -- 1.1%
USD 27,000,000 Central Bank of Nigeria Par Bond Series WW, Step Up, 6.25%, due 11/15/20 24,840,000
----------------
PANAMA -- 1.6%
USD 5,000,000 Republic of Panama, 9.63%, due 02/08/11 5,800,000
USD 5,000,000 Republic of Panama, 9.38%, due 07/23/12 (c) 5,775,000
USD 4,000,000 Republic of Panama, 9.38%, due 01/16/23 4,360,000
USD 8,000,000 Republic of Panama Par Bond,
Variable Rate, Step Up, 4.75%, due 07/17/26 6,760,000
USD 14,317,875 Republic of Panama PDI Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.00%, due 07/17/16 12,742,909
----------------
35,437,909
----------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
PERU -- 2.9%
USD 40,381,000 Peru Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due 03/07/27 32,304,800
USD 12,925,000 Peru FLIRB,
Variable Rate, Step Up, 4.50%, due 03/07/17 11,180,125
USD 25,000,000 Peru Par Bond,
Variable Rate, Step Up, 3.00%, due 03/07/27 13,750,000
USD 9,477,925 Peru Trust II Series 1998-A LB, 0.00%, due 02/28/16 6,029,856
----------------
63,264,781
----------------
PHILIPPINES -- 4.7%
USD 59,501,000 Central Bank of the Philippines Series A, 8.60%, due 06/15/27 51,170,860
USD 4,310,000 Central Bank of the Philippines Series B,
Variable Rate, Step Up, 6.50%, due 12/01/17 4,116,050
EUR 12,000,000 Philippine Government International Bond, 9.13%, due 02/22/10 15,282,750
USD 30,843,000 Republic of Philippines, 8.38%, due 02/15/11 30,534,570
----------------
101,104,230
----------------
POLAND -- 0.3%
USD 6,000,000 Poland Government International Bond, 6.25%, due 07/03/12 6,667,500
----------------
QATAR -- 0.9%
USD 13,700,000 Qatar Government International Bond, 9.75%, due 06/15/30 19,454,000
----------------
RUSSIA -- 0.2%
USD 3,444,799 Russian Federation Reg S,
Variable Rate, Step Up, 5.00%, due 03/31/30 3,388,821
----------------
SOUTH KOREA -- 0.3%
USD 6,000,000 Export Import Bank of Korea, 7.10%, due 03/15/07 6,690,739
----------------
TUNISIA -- 0.1%
JPY 300,000,000 Banque Centrale De Tunisie Series 6RG, 4.35%, due 08/15/17 2,896,760
----------------
TURKEY -- 4.1%
USD 62,500,000 Republic of Turkey, 11.88%, due 01/15/30 (c) 88,046,875
----------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
----------------
UKRAINE -- 0.3%
USD 4,500,000 Ukraine Government 6.875% 3/4/11, 6.88%, due 03/04/11 4,500,000
USD 1,306,680 Ukraine Government International Bond Series, 11.00%, due 03/15/07 1,434,081
----------------
5,934,081
----------------
UNITED STATES -- 9.6%
ASSET-BACKED SECURITIES -- 4.4%
USD 4,000,000 Aircraft Finance Trust Series 99-1A Class A1,
Variable Rate, 1 mo. LIBOR + .48%, 1.57%, due 05/15/24 2,930,000
USD 22,037,058 BEA CBO Series 98-1A Class A2A, 144A, 6.72%, due 06/15/10 17,850,017
USD 3,712,789 California Infrastructure PG&E Series 97-1 Class A7, 6.42%, due 09/25/08 3,920,618
USD 3,426,876 Chevy Chase Mortgage Funding Corp Series 03-4, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .34%, 1.43%, due 10/13/34 3,427,219
USD 12,091,597 Chyps CBO Series 97-1A Class A2A, 144A, 6.72%, due 01/15/10 8,947,782
USD 4,977,900 CNL Commercial Mortgage Loan Trust Series 03-2A Class A1, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .44%, 1.53%, due 10/25/30 4,984,123
USD 5,000,000 Golden Securites Corp Series 03-A Class A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 1.40%, due 12/02/13 5,007,150
USD 9,266,499 Quest 2003-X4 Class A, 144A, AMBAC,
Variable Rate, 1 mo LIBOR + .43%, 1.52%, due 12/25/33 9,266,499
USD 1,806,047 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Step Up,
6.33%, due 09/15/09 1,869,258
GBP 4,000,000 RMAC Series 03-NS1A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .45%, 4.46%, due 06/12/35 7,457,996
GBP 5,000,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.41%, due 09/12/35 9,283,640
USD 22,359,126 SHYPPCO Finance Co Series 1I Class A-2B, 144A, 6.64%, due 06/15/10 20,793,987
----------------
95,738,289
----------------
CORPORATE DEBT -- 0.4%
USD 8,500,000 National Power Corp Global Bond, 8.40%, due 12/15/16 7,448,125
----------------
U.S. GOVERNMENT -- 4.8%
USD 92,414,520 U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (d) 104,312,889
----------------
Total United States 207,499,303
----------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
URUGUAY -- 0.9%
USD 5,250,000 Banco Central Del Uruguay Series B, 6.75%, due 03/21/21 4,777,500
USD 8,679,382 Uruguay Government International Bond, 7.88%, due 01/15/33 6,032,171
USD 84,000 Uruguay Government International Bond, 7.63%, due 01/20/12 (b) 60,060
USD 1,000,000 Uruguay Government International Bond, 7.50%, due 03/15/15 810,000
USD 1,000,000 Uruguay Government International Bond, 7.00%, due 04/07/08 (b) 765,000
JPY 1,150,000,000 Uruguay Government International Bond, 2.50%, due 03/14/11 7,367,747
----------------
19,812,478
----------------
VENEZUELA -- 5.7%
USD 11,000,000 Republic of Venezuela, 9.38%, due 01/13/34 9,130,000
USD 20,000,000 Republic of Venezuela, 5.38%, due 08/07/10 15,500,000
USD 825,145 Republic of Venezuela DCB DL Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 2.13%, due 12/18/07 (b) 705,499
USD 7,173,913 Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR + .88%, 2.06%, due 12/18/08 6,205,435
USD 19,107,000 Republic of Venezuela Discount Bond Series W-A,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due 03/31/20 15,858,810
USD 5,225,000 Republic of Venezuela Discount Bond Series W-B,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due 03/31/20 4,336,750
DEM 34,500,000 Republic Of Venezuela Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 3.06%, due 03/31/20 (b) 17,314,561
CHF 13,333,259 Republic of Venezuela FLIRB Series Sfr,
Variable Rate, CHF 6 mo. LIBOR + .88%, 1.19%, due 03/31/07 8,766,010
DEM 23,440,000 Republic of Venezuela Global Bond, Step Down, 7.38%, due 10/29/08 12,955,141
USD 2,922,490 Republic of Venezuela New Money Bond Series A Odd Lot,
Variable Rate, 6 mo. LIBOR + 1%, 2.25%, due 12/18/05 (b) 2,557,179
USD 2,047,058 Republic of Venezuela New Money Bond Series A,
Variable Rate, 6 mo. LIBOR + 1%, 2.25%, due 12/18/05 1,893,529
USD 612,708 Republic of Venezuela New Money Bond Series B Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 2.13%, due 12/18/05 (b) 536,119
DEM 320,000 Republic of Venezuela New Money Bond Series B-NP,
Variable Rate, 6 mo. DEM LIBOR + .88%, 3.13%, due 12/15/05 157,549
USD 235,294 Republic of Venezuela New Money Bond Series B-NP,
Variable Rate, 6 mo. LIBOR + .88%, 2.13%, due 12/18/05 217,647
FRF 54,175,000 Republic of Venezuela Par Bond, 7.71%, due 03/31/20 9,325,333
DEM 24,500,000 Republic of Venezuela Par Bond, 6.66%, due 03/31/20 13,054,610
USD 4,999,810 Republic of Venuzuela FLIRB Series A,
Variable Rate, 6 mo. LIBOR + .88%, 2.06%, due 03/31/07 4,574,826
----------------
123,088,998
----------------
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
VIETNAM -- 1.0%
USD 4,000,000 Vietnam Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.00%, due 03/13/28 3,280,000
USD 19,750,000 Vietnam Par Bond,
Variable Rate, Step Up, 3.50%, due 03/12/28 13,825,000
USD 6,000,000 Vietnam PDI,
Variable Rate, Step Up, 4.00%, due 03/12/16 5,520,000
----------------
22,625,000
----------------
YUGOSLAVIA -- 0.1%
USD 4,000,000 Second Emerging Markets Series EMTN, 0.00%, due 07/15/06 1,680,000
----------------
TOTAL DEBT OBLIGATIONS (COST $1,587,649,879) 1,646,115,898
----------------
LOAN ASSIGNMENTS -- 8.5%
ALGERIA -- 1.9%
JPY 228,660,047 Algeria Tranche 1 Loan Agreement, JPY 6 mo. LIBOR + .8125%,
(0.9375%), due 09/04/06 2,019,558
JPY 3,940,751,491 Algeria Tranche 3 Loan Agreement, JPY LIBOR + .8125%,
(0.9375%), due 03/04/10 34,264,268
JPY 609,375,000 Algeria Tranche 3 Loan Agreement, JPY Long Term Prime +.1875%,
(2.3875%), due 03/04/10 5,298,065
----------------
41,581,891
----------------
CAMEROON -- 0.1%
NLG 23,084,718 Cameroon Loan Agreement, (No Tranche specified, dated January 31, 1981) 1,561,882
FRF 18,396,841 Republic of Cameroon Tranche B, (dated January 30, 1979) * 418,163
----------------
1,980,045
----------------
CONGO REPUBLIC (BRAZZAVILLE) -- 0.4%
EUR 6,987,247 Republic of Congo 1,302,248
FRF 102,097,963 Republic of Congo Loan Agreement * 2,900,877
USD 8,496,466 Republic of Congo Loan Agreement * 1,274,470
EUR 14,565,612 Republic of Congo Loan Agreement * 2,714,666
----------------
8,192,261
----------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
INDONESIA -- 2.1%
JPY 250,560,000 Republic of Indonesia Loan Agreement, dated January 1, 1994
(0.94625%), due 03/28/13 1,926,326
USD 5,104,000 Republic of Indonesia Loan Agreement, dated January 1, 1994
(2.055%), due 03/29/13 4,491,520
USD 13,000,000 Republic of Indonesia Loan Agreement, dated June 14, 1995 LIBOR +
.625%, (1.635%), due 12/14/19 10,464,871
USD 9,500,000 Republic of Indonesia Loan Agreement, dated March 25, 1997 LIBOR +
.625%, (1.795%), due 03/25/05 8,835,343
USD 20,300,000 Republic of Indonesia Loan Agreement, dated May 21, 1996 LIBOR +
.625%, (1.8418%), due 05/21/04 19,183,197
----------------
44,901,257
----------------
JAMAICA -- 0.0%
USD 57,954 Jamaica Refinancing Agreement Tranche B, LIBOR + .8125%,
(2.125%), due 11/15/04 55,053
----------------
MOROCCO -- 0.4%
USD 10,227,273 Morocco Restructuring and Consolidating Agreement Tranche A, 6
mo. LIBOR + .8125% (2.03125), due 01/01/09 10,048,296
----------------
RUSSIA -- 3.5%
EUR 5,000,000 International Bank for Economic Cooperation Loan Agreement *(b) 4,845,750
DEM 15,000,000 International Bank for Economic Cooperation Loan Agreement *(b) 7,432,679
USD 2,000,000 International Bank for Economic Cooperation Loan Agreement *(b) 2,080,000
USD 8,222,222 International Investment Bank Loan Agreement *(b) 8,551,111
CHF 231,420 Russia Foreign Trade Obligations *(b) 142,126
FRF 71,883,000 Russia Foreign Trade Obligations *(b) 14,047,552
USD 33,641,081 Russia Foreign Trade Obligations *(b) 36,921,086
DEM 2,503,894 Russia Foreign Trade Obligations *(b) 1,222,751
----------------
75,243,055
----------------
SERBIA -- 0.1%
USD 2,899,941 Serbia New Financing Agreement 1,885,060
----------------
TOTAL LOAN ASSIGNMENTS (COST $129,394,430) 183,886,918
----------------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS -- 7.1%
ALGERIA -- 0.5%
JPY 162,500,000 Algeria Tranche 3 Loan Agreement, JPY Long Term Prime +.1875%,
(2.3875%), (Participation with Citigroup), due 03/04/10 1,412,738
JPY 1,093,026,318 Algeria Tranche S1, JPY Long Term Prime + .1875%, (2.3625%),
(Participation with Merrill Lynch), due 03/04/10 9,503,707
----------------
10,916,445
----------------
CAMEROON -- 0.0%
NLG 4,968,184 Cameroon Loan Agreement, (No Tranche specified, dated January 31,
1981), (Participation with Citigroup) * 336,139
----------------
INDONESIA -- 0.3%
USD 954,210 Republic of Indonesia Loan Agreement, 6 mo. LIBOR +.70%,
(1.8875%), (Participation with Deutsche Bank), due 10/05/05 896,957
USD 1,600,000 Republic of Indonesia Loan Agreement, dated June 14, 1995 LIBOR +
.625%, (1.635%), (Participation with Citigroup), due 12/14/19 1,288,129
USD 1,860,000 Republic of Indonesia Loan Agreement, dated March 25, 1997 LIBOR +
.625%, (1.795%), (Participation with Citigroup), due 03/25/05 1,729,457
USD 1,900,000 Republic of Indonesia Loan Agreement, dated May 21, 1996 LIBOR +
.625%, (1.8418%), (Participation with Citigroup), due 05/21/04 1,796,342
----------------
5,710,885
----------------
JAMAICA -- 0.0%
USD 93,750 Jamaica Refinancing Agreement Tranche B, LIBOR + .8125%,
(2.125%), (Participation with JP Morgan Chase), due 11/15/04 89,063
USD 468,750 Jamaica Refinancing Agreement Tranche B, LIBOR + .8125%,
(2.125%), (Participation with Citigroup), due 11/15/04 445,315
----------------
534,378
----------------
RUSSIA -- 6.1%
DEM 3,500,000 International Bank for Economic Cooperation Loan Agreement,
(Participation with Citigroup) *(b) 1,734,414
USD 2,000,000 International Bank for Economic Cooperation Loan Agreement,
(Participation with UBS) *(b) 2,080,000
DEM 7,500,000 International Investment Bank Loan (Participation with Mizuho) *(b) 3,668,743
JPY 900,000,000 International Investment Bank Loan Agreement, (Participation with
Bank of America) *(b) 7,001,647
</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)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE /
PRINCIPAL AMOUNT DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
RUSSIA -- CONTINUED
USD 10,000,000 Russia Foreign Trade Obligations, (Participation with Banca
Lombardi), due 12/29/49 *(b) 11,379,000
USD 214,371 Russia Foreign Trade Obligations, (Participation with Deutsche Bank),
due 02/19/05 *(b) 231,800
USD 81,965 Russia Foreign Trade Obligations, (Participation with Deutsche Bank),
due 02/19/05 *(b) 93,202
DEM 2,625,598 Russia Foreign Trade Obligations, (Participation with Deutsche Bank),
due 02/19/05 *(b) 1,658,316
USD 531,297 Russia Foreign Trade Obligations, (Participation with Deutsche Bank),
due 02/19/05 *(b) 643,826
USD 9,730,693 Russian Paris Club Debt, (Participation with Standard Bank London),
due 08/16/20 6,390,146
USD 25,719,891 Russian Paris Club Debt, (Participation with Deutsche Bank), due 08/16/20 16,890,253
EUR 15,770,225 Russian Paris Club Debt, (Participation with Deutsche Bank), due 08/20/20 15,318,983
EUR 45,062,157 Russian Paris Club Debt, (Participation with Deutsche Bank), due 08/20/20 43,727,979
EUR 10,806,285 Russian Paris Club Debt, (Participation with Deutsche Bank), due 08/20/20 10,275,537
EUR 11,110,296 Russian Paris Club Debt, (Participation with Deutsche Bank), due 08/20/20 10,564,617
----------------
131,658,463
----------------
SERBIA -- 0.2%
USD 5,452,860 Serbia New Financing Agreement (Participation with JP Morgan Chase) * 3,544,260
USD 3,000,000 Serbia Trade & Deposit Facility Agreement (Participation with JP
Morgan Chase) * 720,000
----------------
4,264,260
----------------
TOTAL LOAN PARTICIPATIONS (COST $111,633,499) 153,420,570
----------------
PROMISSORY NOTES -- 0.2%
NIGERIA -- 0.2%
USD 12,000,000 Central Bank of Nigeria Promissory Notes Series RC, 5.09%, due 1/5/2010 4,680,000
----------------
TOTAL PROMISSORY NOTES (COST $5,307,533) 4,680,000
----------------
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PRINCIPAL AMOUNT DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED -- 0.2%
OPTIONS ON BONDS -- 0.2%
USD 40,000,000 Mexico Global Bond, 11.50%, due 05/15/26, Expires 03/05/04, Strike 147.00 1,554,352
USD 4,000,000 Mexico Global Bond, 7.50%, due 04/08/33, Expires 04/29/04, Strike 103.00 167,594
USD 3,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
` 04/05/04, Strike 142.00 49,763
USD 2,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
05/04/04, Strike 145.00 22,286
USD 10,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
07/06/04, Strike 141.00 284,806
USD 2,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
05/05/04, Strike 142.00 43,926
USD 3,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
06/07/04, Strike 143.00 54,137
USD 15,000,000 Republic of Turkey Bond, 11.875%, due 01/15/30, Expires 04/06/04,
Strike 138.87 443,686
USD 18,000,000 Russian Federation Bond, 5.0%, due 03/31/30, Expires 03/08/04,
Strike 97.625 222,595
USD 18,000,000 Russian Federation Bond, 5.0%, due 03/31/30, Expires 03/08/04,
Strike 97.875 196,148
USD 25,000,000 Russian Federation Bond, 5.0%, due 03/31/30, Expires 03/11/04,
Strike 97.75 286,345
USD 50,000,000 Russian Federation Bond, 5.0%, due 03/31/30, Expires 03/12/04,
Strike 98.75 320,725
USD 20,000,000 Russian Federation Bond, 5.0%, due 03/31/30, Expires 03/19/04,
Strike 99.125 121,612
USD 45,000,000 Russian Federation Bond, 5.0%, due 03/31/30, Expires 03/25/04,
Strike 98.3125 458,051
USD 50,000,000 Russian Federation Bond, 5.0%, due 03/31/30, Expires 03/29/04,
Strike 98.125 573,865
----------------
4,799,891
----------------
TOTAL CALL OPTIONS PURCHASED (COST $4,047,500) 4,799,891
----------------
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PRINCIPAL AMOUNT /
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED -- 0.2%
OPTIONS ON BONDS -- 0.1%
USD 3,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
04/05/04, Strike 137.00 8,217
USD 2,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
05/05/04, Strike 134.00 8,680
USD 2,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
05/04/04, Strike 140.00 34,355
USD 2,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
05/05/04, Strike 135.00 11,810
USD 10,000,000 Qatar Government International Bond, 9.75%, due 06/15/30, Expires
07/06/04, Strike 136.00 169,581
USD 12,000,000 Republic of Turkey Bond, 11.875%, due 01/15/30, Expires 07/6/04,
Strike 114.00 11,506
USD 20,000,000 Republic of Turkey Bond, 11.875%, due 01/15/30, Expires 04/08/04,
Strike 118.000 238
USD 25,000,000 Republic of Turkey Bond, 8.0%, due 02/14/34, Expires 09/28/04,
Strike 100.00 1,266,483
----------------
1,510,870
----------------
OPTIONS ON INTEREST RATE SWAPS -- 0.1%
USD 61,146,497 KRW Swaption, Expires 02/24/2009, Strike 6.05 1,550,985
USD 61,146,497 KRW Swaption, Expires 02/24/2009, Strike 6.05 1,496,408
USD 50,000,000 KRW Swaption, Expires 06/01/05, Strike 7.5% 1,588
USD 75,000,000 KRW Swaption, Expires 06/07/05, Strike 7.42% 3,285
----------------
3,052,266
----------------
TOTAL PUT OPTIONS PURCHASED (COST $9,269,365) 4,563,136
----------------
MUTUAL FUNDS -- 4.8%
382,922 Dreyfus Money Market Fund (e) 382,922
56,736,724 Merrimac Cash Fund (e) 56,736,724
353,939 GMO Alpha LIBOR Fund 8,533,467
1,538,110 GMO Short-Duration Collateral Fund 38,729,606
----------------
TOTAL MUTUAL FUNDS (COST $105,148,560) 104,382,719
----------------
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
RIGHTS AND WARRANTS -- 0.1%
MEXICO -- 0.1%
33,077,000 Mexico Par Bond Series B Warrants, Expires 6/30/04 * * 360,539
33,077,000 Mexico Par Bond Series C Warrants, Expires 6/30/05 * * 496,155
33,077,000 Mexico Par Bond Series D Warrants, Expires 6/30/06 * * 132,308
57,266,000 United Mexican States Warrants, Expires 12/31/09 * * 817,802
----------------
1,806,804
----------------
NIGERIA -- 0.0%
25,000 Central Bank of Nigeria Warrants, Expire 11/15/20 * * --
----------------
URUGUAY -- 0.0%
4,000,000 Banco Central Del Uruguay Warrants, Expires 1/2/21 * *(b) --
----------------
VENEZUELA -- 0.0%
164,215 Republic of Venezuela Bond Warrants, Expires 4/18/20 * *(b) --
262,360 Republic of Venezuela Recovery Warrants, Expires 4/15/20 * *(b) --
----------------
--
----------------
TOTAL RIGHTS AND WARRANTS (COST $0) 1,806,804
----------------
SHORT-TERM INVESTMENTS -- 3.3%
CASH EQUIVALENTS -- 0.1%
1,885,183 Harris Trust & Savings Bank Eurodollar Time Deposit, 1.01%, due 3/30/04 (e) 1,885,183
----------------
COMMERCIAL PAPER -- 3.2%
USD 70,000,000 Bellsouth Corp., 1.03%, due 03/04/04 69,989,986
----------------
TOTAL SHORT-TERM INVESTMENTS (COST $71,875,169) 71,875,169
----------------
TOTAL INVESTMENTS -- 100.5%
(Cost $2,024,325,935) 2,175,531,105
Other Assets and Liabilities (net) -- (0.5%) (11,292,629)
----------------
TOTAL NET ASSETS -- 100.0% $ 2,164,238,476
================
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
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 Company
DCB - Debt Conversion Bond
EMTN - Euromarket Medium Term Note
FLIRB - Front Loaded Interest Reduction Bond
IAB - Interest Arrears Bond
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 February 29, 2004, which are subject to change
based on the terms of the security, including varying
reset dates.
CURRENCY ABBREVIATIONS:
ARS - Argentine Peso
CHF - Swiss Franc
DEM - German Mark
EUR - Euro
FRF - French Franc
GBP - British Pound
HKD - Hong Kong Dollas
ITL - Italian Lira
JPY - Japanese Yen
KRW - South Korean Won
MYR - Malaysian Ringit
NLG - Netherlands Guilder
USD - United States Dollar
* 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 2).
(c) All or a portion of this security has been
segregated to cover collateral requirements on
reverse repurchase agreements (Note 8).
(d) All or a portion of this security is held as
collateral for open swap contracts (Note 8).
(e) All or a portion of this security represents
investment of security lending collateral (Note 2).
See accompanying notes to the financial statements.
15
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value, including securities on loan of $2,930,000
(cost $1,976,297,021) (Note 2) $ 2,128,268,032
Investments in affiliated issuers, at value (cost $48,028,914) (Notes 2 and 9) 47,263,073
Foreign currency, at value (cost $122,552) (Note 2) 119,869
Receivable for investments sold 28,685,395
Receivable for Fund shares sold 414,122
Interest receivable 30,258,030
Receivable for open forward foreign currency contracts (Notes 2 and 8) 1,232,092
Net receivable for open swap contracts (Notes 2 and 8) 54,227,948
Periodic payments from open swap agreements (Notes 2 and 8) 2,755,813
----------------
Total assets 2,293,224,374
----------------
LIABILITIES:
Payable for investments purchased 7,693,821
Payable upon return of securities loaned (Note 2) 3,000,000
Payable for Fund shares repurchased 8,048,815
Written options outstanding, at value (premiums $307,853) (Notes 2 and 8) 2,127
Payable to affiliate for (Note 2):
Management fee 597,678
Shareholder service fee 207,582
Trustees fee 3,890
Payable for open forward foreign currency contracts (Notes 2 and 8) 1,212,446
Payable for reverse repurchase agreements (Notes 2 and 8) 107,863,942
Accrued expenses 355,597
----------------
Total liabilities 128,985,898
----------------
NET ASSETS $ 2,164,238,476
================
NET ASSETS CONSIST OF:
Paid-in capital $ 1,944,569,987
Accumulated undistributed net investment income 5,750,140
Accumulated net realized gain 9,272,931
Net unrealized appreciation 204,645,418
----------------
$ 2,164,238,476
================
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 925,649,810
================
Class IV shares $ 1,238,588,666
================
SHARES OUTSTANDING:
Class III 88,054,469
================
Class IV 117,818,415
================
NET ASSET VALUE PER SHARE:
Class III $ 10.51
================
Class IV $ 10.51
================
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Interest (including securities lending income of $981) $ 166,332,697
Dividends from affiliated issuers 637,478
----------------
Total income 166,970,175
----------------
EXPENSES:
Management fee (Note 3) 5,675,334
Shareholder service fee (Note 3) - Class III 1,353,241
Shareholder service fee (Note 3) - Class IV 719,363
Custodian fees 884,285
Audit and tax fees 128,796
Legal fees 91,952
Trustees fees and related expenses (Note 3) 38,140
Registration fees 47,486
Interest expense (Notes 2 and 8) 1,227,382
Miscellaneous 23,604
----------------
Total expenses 10,189,583
----------------
Net investment income 156,780,592
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments in unaffiliated issuers 114,430,692
Investments in affiliated issuers 415,832
Closed futures contracts (901,510)
Closed swap contracts 8,359,309
Written options (406,644)
Foreign currency, forward contracts and foreign currency related transactions (22,356,765)
----------------
Net realized gain 99,540,914
----------------
Change in net unrealized appreciation (depreciation) on:
Investments 111,298,097
Open futures contracts 34,055
Open swap contracts 36,715,045
Written options 305,726
Foreign currency, forward contracts and foreign currency related transactions 3,628,303
----------------
Net unrealized gain 151,981,226
----------------
Net realized and unrealized gain 251,522,140
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 408,302,732
================
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 156,780,592 $ 118,639,947
Net realized gain 99,540,914 55,641,785
Change in net unrealized appreciation (depreciation) 151,981,226 16,516,738
---------------- ----------------
Net increase in net assets from operations 408,302,732 190,798,470
---------------- ----------------
Distributions to shareholders from:
Net investment income
Class III (86,269,522) (69,910,377)
Class IV (63,685,202) (55,714,018)
---------------- ----------------
Total distributions from net investment income (149,954,724) (125,624,395)
---------------- ----------------
Net realized gains
Class III (61,434,321) (12,966,279)
Class IV (43,781,757) (10,131,853)
---------------- ----------------
Total distributions from net realized gains (105,216,078) (23,098,132)
---------------- ----------------
(255,170,802) (148,722,527)
---------------- ----------------
Net share transactions (Note 7):
Class III 17,194,675 229,203,802
Class IV 555,657,850 106,900,799
---------------- ----------------
Increase in net assets resulting from net share transactions 572,852,525 336,104,601
---------------- ----------------
Total increase in net assets 725,984,455 378,180,544
NET ASSETS:
Beginning of period 1,438,254,021 1,060,073,477
---------------- ----------------
End of period (including accumulated
undistributed net investment income of
$5,750,140 and distributions in excess of
net investment income of $18,023,246,
respectively) $ 2,164,238,476 $ 1,438,254,021
================ ================
</Table>
See accompanying notes to the financial statements.
18
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,(e)
-----------------------------------------------------------------------
2004 2003 2002 2001(b) 2000
---------- ---------- ---------- ---------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.51 $ 9.30 $ 8.96 $ 8.74 $ 6.89
---------- ---------- ---------- ---------- ---------
Income from investment operations:
Net investment income+ 1.01 0.90 0.97 1.14 0.84
Net realized and unrealized gain 1.81 0.49 0.56 0.40 2.20
---------- ---------- ---------- ---------- ---------
Total from investment operations 2.82 1.39 1.53 1.54 3.04
---------- ---------- ---------- ---------- ---------
Less distributions to shareholders:
From net investment income (1.06) (0.99) (1.19) (1.32) (1.07)
From net realized gains (0.76) (0.19) -- -- (0.12)
---------- ---------- ---------- ---------- ---------
Total distributions (1.82) (1.18) (1.19) (1.32) (1.19)
---------- ---------- ---------- ---------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.51 $ 9.51 $ 9.30 $ 8.96 $ 8.74
========== ========== ========== ========== =========
Total Return 30.46% 15.94%(a) 18.53%(a) 18.78%(a) 46.81%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 925,517 $ 822,080 $ 570,459 $ 430,003 $ 378,593
Net operating expenses to average daily net assets 0.57%(g) 0.57%(g) 0.57%(g) 0.56% 0.56%
Interest expense to average daily net assets 0.08%(d) 0.08%(d) 0.14%(d) -- --
Total net expenses to average daily net assets 0.65% 0.65% 0.71% 0.56% 0.56%
Net investment income to average daily net assets 9.44% 9.78% 10.78% 12.64% 10.85%
Portfolio turnover rate 119% 121% 130% 139% 123%
Fees and expenses reimbursed by the
Manager to average daily net assets: --(h) 0.01%(h) 0.02% 0.03% 0.03%
Purchase and redemption fees consisted of the
following per share amounts: (c) $ 0.03 $ 0.01 --(f) $ 0.01 N/A
</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. Calculation excludes purchase premiums
and redemption fees which are borne by shareholders.
(b) Effective March 1, 2000, the Fund adopted the provisions of the AICPA Audit
and Accounting Guide for Investments 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) As a result of recent changes in generally accepted accounting principles,
the Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to decrease the net investment income ratio for the
year ending February 29, 2004 by 0.46% and net investment income per share
by $0.05. For consistency, similar reclassifications have been made to
prior year amounts, resulting in increases (reductions) to the net
investment income ratio of (0.43%), (0.39%), 0.07% and 0.03% and to net
investment income per share of $(0.04), $(0.04), $0.01 and less than $0.01
in the fiscal years ending February 28/29, 2003, 2002, 2001 and 2000,
respectively. This reclassification had no effect on total return.
(f) Purchase and redemption fees were less than $0.01 per share.
(g) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(h) Effective June 30, 2002, the Fund ceased reimbursing any Fund fees or
expenses. See Note 2.
See accompanying notes to the financial statements.
19
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,(e)
------------------------------------------------------------------------
2004 2003 2002 2001(b) 2000
------------ ---------- ---------- ---------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 9.29 $ 8.95 $ 8.74 $ 6.90
------------ ---------- ---------- ---------- ---------
Income from investment operations:
Net investment income + 1.06 0.91 0.98 1.15 0.84
Net realized and unrealized gain 1.75 0.50 0.55 0.39 2.20
------------ ---------- ---------- ---------- ---------
Total from investment operations 2.81 1.41 1.53 1.54 3.04
------------ ---------- ---------- ---------- ---------
Less distributions to shareholders:
From net investment income (1.06) (0.99) (1.19) (1.33) (1.08)
From net realized gains (0.76) (0.19) -- -- (0.12)
------------ ---------- ---------- ---------- ---------
Total distributions (1.82) (1.18) (1.19) (1.33) (1.20)
------------ ---------- ---------- ---------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.51 $ 9.52 $ 9.29 $ 8.95 $ 8.74
============ ========== ========== ========== =========
Total Return 30.38% 16.25%(a) 18.60%(a) 18.71%(a) 47.00%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,238,411 $ 616,174 $ 489,615 $ 579,912 $ 545,869
Net operating expenses to average daily net assets 0.52%(g) 0.52%(g) 0.52%(g) 0.51% 0.51%
Interest expense to average daily net assets 0.08%(d) 0.08%(d) 0.14%(d) -- --
Total net expenses to average daily net assets 0.60%(g) 0.60% 0.66% 0.51% 0.51%
Net investment income to average daily net assets 9.95% 9.89% 10.83% 12.69% 10.90%
Portfolio turnover rate 119% 121% 130% 139% 123%
Fees and expenses reimbursed by the
Manager to average daily net assets: --(h) 0.01%(h) 0.02% 0.03% 0.03%
Purchase and redemption fees consisted of
the following per share amounts: (c) $ 0.04 $ 0.01 --(f) $ 0.01 N/A
</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. Calculation excludes purchase premiums
and redemption fees which are borne by shareholders.
(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 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) As a result of recent changes in generally accepted accounting principles,
the Fund has reclassified periodic payments made under interest rate swap
agreements, previously included within interest income, as a component of
realized gain (loss) in the statement of operations. The effect of this
reclassification was to decrease the net investment income ratio for the
year ending February 29, 2004 by 0.46% and net investment income per share
by $0.05. For consistency, similar reclassifications have been made to
prior year amounts, resulting in increases (reductions) to the net
investment income ratio of (0.43%), (0.39%), 0.07% and 0.03% and to net
investment income per share of $(0.04), $(0.03), $0.01 and less than $0.01
in the fiscal years ending February 28/29, 2003, 2002, 2001 and 2000,
respectively. This reclassification has no effect on total return.
(f) Purchase and redemption fees were less than $0.01 per share.
(g) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(h) Effective June 30, 2002, the Fund ceased reimbursing any Fund fees or
expenses. See Note 2.
See accompanying notes to the financial statements.
20
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees 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 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).
Throughout the year ended February 29, 2004, 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 February 29, 2004, 1.8% of the Fund was invested in GMO Short-Duration
Collateral Fund and 0.4% 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. These financial statements are available, upon
request, without charge by calling (617)330-7500 or by visiting GMO's
website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
CHANGE IN ACCOUNTING PRINCIPLE
As a result of a recent FASB Emerging Issues Task Force consensus (and
subsequent related SEC staff guidance), the Fund has reclassified periodic
payments made under interest rate swap agreements, previously included
within interest income, as a component of realized gain (loss) in the
statement of operations. For consistency, similar reclassifications have
been made to amounts appearing in the previous year's statement of changes
in net assets and the per share amounts in all prior year financial
21
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
highlights presented. Prior year net investment income ratios in the
financial highlights have also been modified accordingly. This
reclassification decreased net investment income and increased net realized
gains by $7,512,545 for the year ended February 29, 2004 and decreased net
investment income and increased net realized gains by $4,954,686 for the
year ended February 28, 2003. This change had no effect on the Fund's net
asset value, either in total or per share, or its total increase (decrease)
in net assets from operations during any period.
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 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 February 29,
2004, the total value of the securities represented 23.8% 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
22
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 and represents the currency exposure the Fund has acquired or
hedged through forward currency contracts as of February 29, 2004.
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. Under certain
circumstances, futures exchanges may establish daily limits on the amount
that the price of a futures contract can vary from the previous day's
settlement price, thereby effectively preventing
23
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
liquidation of unfavorable positions. Losses may arise from the changes in
the value of the underlying instrument, if the Fund is unable to liquidate
a futures position due to an illiquid secondary market for the contracts or
the imposition of price limits, or if counterparties do not perform under
the contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. At February 29, 2004, 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 unfavorable change in the
price of the future, security or currency underlying the written option. In
the event that the Fund writes uncovered call options (i.e. options for
investments that the Fund does not own), it bears the risk of incurring
substantial losses if the price of the underlying investment increases
during the term of the option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. See Note
8 for all open written option contracts as of February 29, 2004.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the 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
February 29, 2004.
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
24
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. The swap spread is the difference between the benchmark swap
rate (market rate) and the specific treasury rate. In a credit default
swap, one party makes a stream of payments to another party in exchange for
the right to receive a specified return in the event of a default by a
third party on its obligation. The Fund may use credit default swaps to
provide a measure of protection against defaults of sovereign or corporate
issuers (i.e., to reduce risk where the Fund owns or has exposure to the
issuer) or to take an active long or short position with respect to the
likelihood of a particular issuer's default. In connection with these
agreements, cash or securities may be set aside as collateral by the Fund's
custodian in accordance with the terms of the swap agreement. The Fund
earns interest on cash set aside as collateral. Swaps are marked to market
daily based upon quotations from market makers and the change in value, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made on swap contracts 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
25
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 8 for a summary of open swap agreements as of February 29, 2004.
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 February 29, 2004, the Fund
had entered into reverse repurchase agreements having a market value of
$107,863,942, collateralized by securities with a market value of
$91,406,122. See Note 8 for a summary of open reverse repurchase agreements
as of February 29, 2004.
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
26
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
securities fail financially. The Fund receives compensation for lending its
securities. At February 29, 2004, the Fund loaned securities having a
market value of $2,930,000 collateralized by cash in the amount of
$3,000,000, 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 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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distribution paid was as follows: ordinary income --
$254,371,337 and $139,039,496, respectively and long-term capital gains --
$799,465 and $9,683,031, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $58,906,089 and $16,613,482 of undistributed ordinary
income and undistributed long-term capital gains, respectively. The
temporary differences between book and tax distributable earnings are
primarily due to differing treatments for amortization of premiums and
discounts on debt securities and losses on wash sale transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET UNDISTRIBUTED NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
-------------------- ----------------- -----------------
$ 16,947,518 $ (16,947,518) $ --
</Table>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
27
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 premuims and redemption fees are paid to and recorded by the Fund
as paid-in-capital. For the years ended February 29, 2004 and February 28,
2003, the Fund received $3,970,806 and $1,199,731 in purchase premiums and
$1,132,584 and $85,527 in redemption fees, respectively. There is no
premium for reinvested distributions.
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 typically less liquid than those of developed
markets.
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
28
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 the Fund as of
February 29, 2004, has sold more of such default protection than it has
purchased, in addition, it is important to note that (i) such protection
would not cover losses due to defaults on loan assignments or
participations, (ii) such protection will generally 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.
3. 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.
The Fund incurs fees and expenses indirectly as a shareholder in GMO Alpha
LIBOR Fund and GMO Short-Duration Collateral Fund. For the year ended
February 29, 2004, indirect operating expenses (excluding
investment-related expenses) were less than .001% 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% 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 year ended February 29, 2004, was $25,457. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$2,329,666,085 and $1,976,836,844 respectively.
29
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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
----------------- ----------------- ------------------ ----------------
$ 2,046,523,902 $ 241,671,622 $ (112,664,419) $ 129,007,203
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 36.6% 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.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
Shares sold 27,702,974 $ 299,551,810 29,282,626 $ 269,640,084
Shares issued to shareholders
in reinvestment of distributions 12,149,941 126,408,551 7,513,503 67,172,341
Shares repurchased (38,201,416) (408,765,686) (11,754,805) (107,608,623)
------------- -------------- ------------- --------------
Net increase 1,651,499 $ 17,194,675 25,041,324 $ 229,203,802
============= ============== ============= ==============
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ ------------------------------
CLASS IV: SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
Shares sold 63,468,362 $ 670,423,087 9,603,263 $ 86,925,003
Shares issued to shareholders
in reinvestment of distributions 10,137,250 105,372,058 7,164,059 64,094,884
Shares repurchased (20,533,687) (220,137,295) (4,705,391) (44,119,088)
------------- -------------- ------------- --------------
Net increase 53,071,925 $ 555,657,850 12,061,931 $ 106,900,799
============= ============== ============= ==============
</Table>
30
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT APPRECIATION
DATE DELIVER/RECEIVE UNITS OF CURRENCY VALUE (DEPRECIATION)
------------ --------------- ----------------- -------------- --------------
Buys
3/09/04 KRW 16,198,000,000 $ 13,765,484 $ (68,319)
8/16/04 MYR 68,580,000 18,000,000 0
--------------
$ (68,319)
==============
Sales
4/27/04 CHF 2,800,000 $ 2,207,512 $ 52,266
4/20/04 EUR 169,300,000 210,074,527 192,673
4/13/04 GBP 5,000,000 9,246,303 (156,304)
10/12/05 HKD 422,400,000 54,771,896 228,104
3/09/04 JPY 6,590,000,000 60,327,718 759,049
3/17/04 KRW 16,471,000,000 13,987,823 (987,823)
--------------
$ 87,965
==============
</Table>
31
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
WRITTEN OPTIONS
<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 -- -- 133,141 1,396,904
Options closed -- -- -- --
Options exercised -- -- (30,785) (301,695)
Options expired -- -- (30,785) (92,356)
Options sold -- -- (10,000) (695,000)
---------------- ------ -------- -----------
Outstanding, end of period -- $ -- 61,571 $ 307,853
================ ====== ======== ===========
</Table>
SUMMARY OF WRITTEN OPTIONS OUTSTANDING
<Table>
<Caption>
PRINCIPAL
AMOUNT
OF CONTRACTS EXERCISE EXPIRATION
(000'S OMITTED) PRICE DATE VALUE
--------------- ------------ ------------ ----------
BRAZIL CAPITALIZATION BONDS,
8%,
DUE 4/15/2014 62 USD 99.8 USD 4/07/04 $ 61,040
BRAZIL CAPITALIZATION BONDS,
8%,
DUE 4/15/2014 111 USD 100.1 USD 4/07/04 110,381
BRAZIL CAPITALIZATION BONDS,
8%,
DUE 4/15/2014 135 USD 100.2 USD 4/07/04 134,305
----------
$ 305,726
==========
</Table>
REVERSE REPURCHASE AGREEMENTS
<Table>
<Caption>
MARKET
FACE VALUE DESCRIPTION VALUE
---------------- ------------------------------------------------------------ -------------
USD 3,286,000 Lehman Brothers, 0.50%, dated 7/08/03, to be repurchased
on demand by Lehman Brothers, at face value plus
accrued interest. $ 3,286,000
</Table>
32
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
USD 14,744,304 JP Morgan Chase & Co., 0.95%, dated 1/08/04, to be
repurchased on demand by JP Morgan Chase & Co., at
face value plus accrued interest. 14,744,304
</Table>
<Table>
<Caption>
MARKET
FACE VALUE DESCRIPTION VALUE
---------------- ------------------------------------------------------------ -------------
USD 31,493,311 Lehman Brothers, 0.40%, dated 1/12/04, to be repurchased on
demand by the fund, at face value plus accrued interest. $ 31,493,311
USD 31,361,191 UBS AG, 0.40%, dated 1/12/04, to be repurchased on demand
by the fund, at face value plus accrued interest. 31,361,191
USD 14,203,299 JP Morgan Chase & Co., 0.70%, dated 1/16/04, to be
repurchased on demand by JP Morgan Chase & Co., at face
value plus accrued interest. 14,203,299
USD 6,133,073 JP Morgan Chase & Co., 0.85%, dated 1/22/04, to be
repurchased on demand by JP Morgan Chase & Co., at face
value plus accrued interest. 6,133,073
USD 4,264,931 JP Morgan Chase & Co., 0.70%, dated 2/02/04, to be
repurchased on demand by JP Morgan Chase & Co., at face
value plus accrued interest. 4,264,931
USD 2,377,833 JP Morgan Chase & Co., 0.95%, dated 2/13/04, to be
repurchased on demand by JP Morgan Chase & Co., at face
value plus accrued interest. 2,377,833
-------------
$ 107,863,942
=============
Average balance outstanding $ 146,757,018
Average interest rate 0.91%
</Table>
33
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
Maximum balance outstanding $ 351,725,308
Average shares outstanding 151,511,442
Average balance per share outstanding 0.97
</Table>
SWAP AGREEMENTS
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
CREDIT DEFAULT SWAPS
5,000,000 USD 4/13/04 Agreement with Goldman Sachs International dated $ (136,831)
4/04/01 to pay 11.50% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Turkey, Goldman
Sachs International agrees to pay the fund the
notional amount of the swap. To receive that
payment, the fund must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Turkey to Goldman Sachs
International.
8,000,000 USD 4/15/04 Agreement with Morgan Guaranty Trust Company (221,581)
dated 3/13/02 to pay 5.75% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, Morgan
Guaranty Trust agrees to pay the fund the
notional amount of the swap. To receive that
payment, the fund must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Brazil to Morgan Guaranty Trust.
5,000,000 USD 4/15/04 Agreement with Bank of America N.A. dated (194,004)
11/28/01 to pay 7.95% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, Bank of
America N.A. agrees to pay the fund the notional
amount of the swap. To receive that payment,
the fund must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Brazil to Bank of America N.A.
20,000,000 USD 6/20/04 Agreement with Deutsche Bank AG dated 11/18/03 (250,444)
to pay 4% per year times the notional amount.
The fund receives payment only upon a default
event on the Gazprom Loan Facility.
40,000,000 USD 12/20/04 Agreement with Deutsche Bank AG dated 4/16/03 to 1,314,163
receive 5.25% per year times the notional
amount. The fund makes payment only upon a
default event on the Gazprom Loan Facility.
</Table>
34
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
15,000,000 USD 2/20/05 Agreement with JP Morgan Chase Bank dated $ 67,306
1/27/04 to pay 1.40% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, JP
Morgan Chase Bank agrees to pay the fund the
notional amount of the swap. To receive that
payment, the fund must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Brazil to JP Morgan Chase Bank.
2,000,000 USD 4/23/05 Agreement with Deutsche Bank AG dated 4/22/03 (126,502)
to pay 6.25% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Lebanon, Deutsche Bank
AG agrees to pay the fund the notional amount
of the swap. To receive that payment, the fund
must deliver a bond (with par value equal to
the notional amount of the swap) issued by
Lebanon to Deutsche Bank AG.
5,000,000 USD 6/18/05 Agreement with Deutsche Bank AG dated 6/13/02 36,226
to pay 2.35% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in the Philippines,
Deutsche Bank AG agrees to pay the fund the
notional amount of the swap. To receive that
payment, the fund must deliver a bond (with par
value equal to the notional amount of the swap)
issued by the Philippines to Deutsche Bank AG.
5,000,000 USD 7/15/05 Agreement with Banque Paribas dated 10/18/02 to (305,885)
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.
</Table>
35
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
7,000,000 USD 8/05/05 Agreement with Deutsche Bank AG dated 7/31/02 to $ (4,047)
pay 3.35% per year times the notional amount. In
exchange for that periodic payment, upon a
default event in the Philippines, Deutsche Bank
AG agrees to pay the fund the notional amount of
the swap. To receive that payment, the fund
must deliver a bond (with par value equal to the
notional amount of the swap) issued by the
Philippines to Deutsche Bank AG.
10,000,000 USD 11/06/05 Agreement with JP Morgan Chase Bank dated (1,437,667)
11/05/02 to pay 9.30% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Columbia, JP
Morgan Chase Bank agrees to pay the fund the
notional amount of the swap. To receive that
payment, the fund must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Columbia to JP Morgan Chase Bank.
10,000,000 USD 12/20/05 Agreement with UBS AG dated 12/10/03 to pay 214,802
2.03% per year times the notional amount. In
exchange for that periodic payment, upon a
default event in Brazil, UBS AG agrees to pay
the fund the notional amount of the swap. To
receive that payment, the fund must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Brazil to UBS AG.
15,000,000 USD 1/21/06 Agreement with Deutsche Bank AG dated 7/18/03 to 782,477
receive 5.4% per year times the notional
amount. The fund makes payment only upon a
default event on the Gazprom Loan Facility.
15,000,000 USD 4/03/06 Agreement Morgan Guaranty Trust Company dated (33,554)
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.
</Table>
36
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
15,000,000 USD 4/06/06 Agreement with Morgan Guaranty Trust Company $ (36,900)
dated 4/03/01 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.
10,000,000 USD 4/09/06 Agreement with Morgan Guaranty Trust Company (24,489)
dated 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.
30,000,000 USD 4/10/06 Agreement with Morgan Guaranty Trust Company (82,820)
dated 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.
25,000,000 USD 4/30/06 Agreement with Morgan Guaranty Trust Company (85,942)
dated 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.
15,000,000 USD 6/08/06 Agreement with Morgan Guaranty Trust Company 870,216
dated 6/05/01 to receive 2.95% per year times
the notional amount. In exchange for that
periodic payment, upon a default event in
Mexico, the fund agrees to pay Morgan Guaranty
Trust Company the notional amount of the swap.
To receive that payment, Morgan Guaranty Trust
Company must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Mexico to the fund.
35,000,000 USD 7/05/06 Agreement with Deutsche Bank AG dated 7/01/03 to 1,769,849
receive 5.0% per year times the notional
amount. The fund makes payment only upon a
default event on the Gazprom Loan Facility.
</Table>
37
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
20,000,000 USD 8/09/06 Agreement with JP Morgan Chase Bank dated $ (149,025)
8/06/02 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.
15,000,000 USD 8/21/06 Agreement with Deutsche Bank AG dated 7/18/03 to 825,924
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 (1,281,279)
11/01/02 to receive 5.70% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in the Dominican
Republic, the fund agrees to pay Merrill Lynch
International the notional amount of the swap.
To receive that payment, Merrill Lynch
International must deliver a bond (with par
value equal to the notional amount of the swap)
issued by the Dominican Republic to the fund.
10,000,000 USD 11/20/06 Agreement with Deutsche Bank AG dated 11/05/03 (81,421)
to pay 4.4% per year times the notional amount.
In exchange for that periodic payment, upon a
default event in Brazil, Deutsche Bank AG agrees
to pay the fund the notional amount of the
swap. To receive that payment, the fund must
deliver a bond (with par value equal to the
notional amount of the swap) issued by Brazil to
Deutsche Bank AG.
15,000,000 USD 11/20/06 Agreement with Deutsche Bank AG dated 11/04/03 (186,902)
to pay 4.55% per year times the notional amount.
In exchange for that periodic payment, upon a
default event in Brazil, Deutsche Bank AG agrees
to pay the fund the notional amount of the
swap. To receive that payment, the fund must
deliver a bond (with par value equal to the
notional amount of the swap) issued by Brazil to
Deutsche Bank AG.
</Table>
38
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
20,000,000 USD 12/20/06 Agreement with JP Morgan Chase Bank dated $ (201,319)
11/03/03 to pay 4.75% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, JP
Morgan Chase Bank agrees to pay the fund the
notional amount of the swap. To receive that
payment, the fund must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Brazil to JP Morgan Chase Bank.
10,000,000 USD 2/18/07 Agreement with JP Morgan Chase Bank dated (870,273)
2/13/02 to pay 4.6% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Russia, JP Morgan Chase
Bank agrees to pay the fund the notional amount
of the swap. To receive that payment, the fund
must deliver a bond (with par value equal to the
notional amount of the swap) issued by Russia to
JP Morgan Chase Bank.
10,000,000 USD 2/26/07 Agreement Salomon Brothers International Limited (383,558)
dated 2/21/02 to pay 2.15% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in South Africa,
Salomon Brother International agrees to pay the
fund the notional amount of the swap. To
receive that payment, the fund must deliver a
bond (with par value equal to the notional
amount of the swap) issued by South Africa to
Salomon Brother International.
10,000,000 USD 6/27/07 Agreement with JP Morgan Chase Bank dated (71,554)
6/24/02 to pay 0.330% per year times the
notional amount. The fund receives payment only
upon a default event on the Argentaria SA.
10,000,000 USD 7/02/07 Agreement with Citibank N.A. dated 6/27/02 to (112,592)
pay 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.
</Table>
39
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
3,000,000 USD 7/02/07 Agreement with Deutsche Bank AG dated 6/27/02 to $ (34,003)
pay 0.64% per year times the notional amount.
In exchange for that periodic payment, upon a
default event in China, Deutsche Bank AG agrees
to pay the fund the notional amount of the
swap. To receive that payment, the fund must
deliver a bond (with par value equal to the
notional amount of the swap) issued by China to
Deutsche Bank AG.
15,000,000 USD 9/27/07 Agreement with JP Morgan Chase Bank dated (117,114)
9/26/02 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 (208,237)
10/09/02 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 (2,288,277)
to pay 15.0% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Venezuela, Deutsche Bank
AG agrees to pay the fund the notional amount of
the swap. To receive that payment, the fund
must deliver a bond (with par value equal to the
notional amount of the swap) issued by Venezuela
to Deutsche Bank AG.
5,000,000 USD 10/22/07 Agreement with JP Morgan Chase Bank dated (74,893)
10/21/02 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>
40
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<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 $ (63,981)
10/22/02 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 (56,521)
to pay 0.44% 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 11/23/07 Agreement with Deutsche Bank AG dated 11/22/02 (324,797)
to 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 (452,584)
11/26/02 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.
5,000,000 USD 5/07/08 Agreement with JP Morgan Chase Bank dated 837,458
5/06/03 to receive 9.65% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Brazil to the fund.
</Table>
41
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 5/30/08 Agreement with JP Morgan Chase Bank dated $ 1,023,908
5/29/03 to receive 8.65% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Turkey, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Turkey to the fund.
5,000,000 USD 8/06/08 Agreement with Bear Stearns International 22,773
Limited dated 8/05/03 to receive 1.10% per year
times the notional amount. In exchange for that
periodic payment, upon a default event in
Trinidad and Tobago, the fund agrees to pay Bear
Stearns International Limited the notional
amount of the swap. To receive that payment,
Bear Stearns International Limited must deliver
a bond (with par value equal to the notional
amount of the swap) issued by Trinidad and
Tobago to the fund.
2,000,000 USD 9/20/08 Agreement with UBS AG dated 6/26/03 to receive (416,274)
9.2% per year times the notional amount. In
exchange for that periodic payment, upon a
default event in the Dominican Republic, the
fund agrees to pay UBS AG the notional amount of
the swap. To receive that payment, UBS AG must
deliver a bond (with par value equal to the
notional amount of the swap) issued by the
Dominican Republic to the fund.
10,000,000 USD 9/20/08 Agreement with Morgan Stanley Capital Services, 442,464
Inc., dated 7/09/03 to receive 5.15% per year
times the notional amount. In exchange for that
periodic payment, upon a default event in
Columbia, the fund agrees to pay Morgan Stanley
Capital Services, Inc., the notional amount of
the swap. To receive that payment, Morgan
Stanely Capital Services, Inc. must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Columbia to the
fund.
</Table>
42
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
4,000,000 USD 10/20/08 Agreement with Deutsche Bank AG dated 10/01/03 $ 277,083
to receive 8.50% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Uruguay, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Uruguay to the fund.
10,000,000 USD 11/20/08 Agreement with Deutsche Bank AG dated 11/05/03 99,069
to receive 5.70% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Brazil, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Brazil to the fund.
9,000,000 USD 11/20/08 Agreement with Deutsche Bank AG dated 11/17/03 156,315
to receive 4.77% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Columbia, the fund
agrees to pay Deutsche Bank AG the notional
amount of the swap. To receive that payment,
Deutsche Bank AG must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Columbia to the fund.
15,000,000 USD 11/20/08 Agreement with Deutsche Bank AG dated 11/04/03 211,904
to receive 5.80% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Brazil, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Brazil to the fund.
</Table>
43
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
20,000,000 USD 12/20/08 Agreement with JP Morgan Chase Bank dated $ 224,963
11/03/03 to receive 5.95% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Brazil to the fund.
14,000,000 USD 12/20/08 Agreement with Deutsche Bank AG dated 10/22/03 (156,058)
to pay 0.79% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Korea, Deutsche Bank AG
agrees to pay the fund the notional amount of
the swap. To receive that payment, the fund
must deliver a bond (with par value equal to the
notional amount of the swap) issued by Korea to
Deutsche Bank AG.
5,000,000 USD 1/20/09 Agreement with Lehman Brothers dated 1/02/04 to (315,290)
receive 5.45% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Venezuela, the fund
agrees to pay Lehman Brothers the notional
amount of the swap. To receive that payment,
Lehman Brothers must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Venezuela to the fund.
10,000,000 USD 3/20/09 Agreement with JP Morgan Chase Bank dated (247,938)
12/23/03 to receive 4.30% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in the
Philippines, the fund agrees to pay JP Morgan
Chase Bank the notional amount of the swap. To
receive that payment, JP Morgan Chase Bank must
deliver a bond (with par value equal to the
notional amount of the swap) issued by the
Philippines to the fund.
</Table>
44
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 3/20/09 Agreement with JP Morgan Chase Bank dated $ (187,518)
12/23/03 to receive 2.85% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Peru, the fund
agrees to pay JP Morgan Chase Bank the notional
amount of the swap. To receive that payment, JP
Morgan Chase Bank must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Peru to the fund.
12,000,000 USD 3/05/10 Agreement with Deutsche Bank AG dated 3/04/03 to 3,398,922
receive 9.1% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Turkey, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Turkey to the fund.
3,000,000 USD 3/29/10 Agreement with JP Morgan Chase Bank dated 503,746
3/28/03 to receive 4.7% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Egypt, the fund
agrees to pay JP Morgan Chase Bank the notional
amount of the swap. To receive that payment, JP
Morgan Chase Bank must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Egypt to the fund.
5,000,000 USD 7/30/12 Agreement with JP Morgan Chase Bank dated 832,974
7/25/02 to receive 3.05% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Chile, the fund
agrees to pay JP Morgan Chase Bank the notional
amount of the swap. To receive that payment, JP
Morgan Chase Bank must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Chile to the fund.
</Table>
45
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
10,000,000 USD 8/12/12 Agreement with JP Morgan Chase Bank dated $ 1,904,939
8/07/02 to receive 4.42% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Mexico, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Mexico to the fund.
15,000,000 USD 9/19/12 Agreement with Bank of America N.A. dated 2,759,601
9/18/02 to receive 4.07% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Mexico, the
fund agrees to pay Bank of America N.A. the
notional amount of the swap. To receive that
payment, Bank of America N.A. must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Mexico to the fund.
10,000,000 USD 10/03/12 Agreement with JP Morgan Chase Bank dated 1,863,323
10/02/02 to receive 4.12% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Mexico, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Mexico to the fund.
10,000,000 USD 10/04/12 Agreement with JP Morgan Chase Bank dated 1,707,789
10/03/02 to receive 2.95% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Chile, the fund
agrees to pay JP Morgan Chase Bank the notional
amount of the swap. To receive that payment, JP
Morgan Chase Bank must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Chile to the fund.
</Table>
46
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 11/05/12 Agreement with Deutsche Bank AG dated 11/04/02 $ (498,388)
to receive 6.50% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Jamaica, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Jamaica to the fund.
10,000,000 USD 1/08/13 Agreement with Deutsche Bank AG dated 1/07/03 to 1,105,056
receive 7.15% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Columbia, the fund
agrees to pay Deutshce Bank AGthe notional
amount of the swap. To receive that payment,
Deutsche Bank must deliver a bond (with par
value equal to the notional amount of the swap)
issued by Columbia to the fund.
10,000,000 USD 1/09/13 Agreement with Deutsche Bank AG dated 1/08/03 to 2,458,751
receive 8.25% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Turkey, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Turkey to the fund.
7,000,000 USD 1/10/13 Agreement with JP Morgan Chase Bank dated 908,740
1/09/03 to receive 7.50% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Columbia, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Columbia to the
fund.
</Table>
47
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
10,000,000 USD 2/07/13 Agreement with JP Morgan Chase Bank dated $ 1,697,112
2/06/03 to receive 8.30% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Columbia, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Columbia to the
fund.
15,000,000 USD 2/11/13 Agreement with JP Morgan Chase Bank dated 1,476,940
2/10/03 to receive 3.05% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Mexico, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Mexico to the fund.
10,000,000 USD 6/06/13 Agreement with Deutsche Bank AG dated 6/05/03 to 1,780,553
receive 9.4% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Brazil, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Brazil to the fund.
5,000,000 USD 6/07/13 Agreement with Citibank N.A. dated 6/06/03 to 234,331
receive 3.15% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Russia, the fund agrees
to pay Citibank N.A. the notional amount of the
swap. To receive that payment, Citibank N.A.
must deliver a bond (with par value equal to the
notional amount of the swap) issued by Russia to
the fund.
</Table>
48
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
10,000,000 USD 6/11/13 Agreement with Citibank N.A. dated 6/10/03 to $ 514,909
receive 3.22% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Russia, the fund agrees
to pay Citibank N.A. the notional amount of the
swap. To receive that payment, Citibank N.A.
must deliver a bond (with par value equal to the
notional amount of the swap) issued by Russia to
the fund.
20,000,000 USD 6/12/13 Agreement with Deutsche Bank AG dated 6/11/03 to 3,185,102
receive 9.08% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Brazil, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Brazil to the fund.
20,000,000 USD 6/13/13 Agreement with Deutsche Bank AG dated 6/12/03 to 1,064,527
receive 3.25% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Russia, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Russia to the fund.
10,000,000 USD 6/24/13 Agreement with JP Morgan Chase Bank dated 572,548
6/23/03 to receive 3.32% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Russia, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Russia to the fund.
</Table>
49
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 6/24/13 Agreement with JP Morgan Chase Bank dated $ 296,797
6/23/03 to receive 3.35% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Russia, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Russia to the fund.
10,000,000 USD 9/20/13 Agreement with Deutsche Bank AG dated 6/23/03 to 675,317
receive 3.35% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Russia, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Russia to the fund.
10,000,000 USD 12/20/13 Agreement with Deutsche Bank AG dated 12/15/03 685,937
to receive 10.50% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Ecuador, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Ecuador to the fund.
10,000,000 USD 12/24/13 Agreement with JP Morgan Chase Bank dated (269,949)
12/23/03 to receive 3.8% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Turkey, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Turkey to the fund.
</Table>
50
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
10,000,000 USD 1/20/14 Agreement with Citibank N.A. dated 12/23/03 to $ (196,325)
receive 4.94% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Columbia, the fund
agrees to pay Citibank N.A. the notional amount
of the swap. To receive that payment, Citibank
N.A must deliver a bond (with par value equal to
the notional amount of the swap) issued by
Columbia to the fund.
10,000,000 USD 1/20/14 Agreement with Deutsche Bank AG dated 1/05/04 to (1,156,683)
receive 4.28% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Brazil, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Brazil to the fund.
10,000,000 USD 1/20/14 Agreement with Deutsche Bank AG dated 12/23/03 66,372
to receive 1.77% per year times the notional
amount. In exchange for that periodic payment,
upon a default event in Mexico, the fund agrees
to pay Deutsche Bank AG the notional amount of
the swap. To receive that payment, Deutsche
Bank AG must deliver a bond (with par value
equal to the notional amount of the swap) issued
by Mexico to the fund.
5,000,000 USD 3/20/14 Agreement with JP Morgan Chase Bank dated (113,209)
12/23/03 to receive 4.90% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Columbia, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Columbia to the
fund.
</Table>
51
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
15,000,000 USD 3/20/14 Agreement with JP Morgan Chase Bank dated $ (1,734,415)
1/05/04 to receive 4.30% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Brazil to the fund.
5,000,000 USD 3/20/14 Agreement with JP Morgan Chase Bank dated (572,487)
1/05/04 to receive 4.32% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Brazil, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Brazil to the fund.
10,000,000 USD 10/07/17 Agreement with JP Morgan Chase Bank dated 2,375,167
10/04/02 to receive 4.20% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Mexico, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Mexico to the fund.
20,000,000 USD 3/20/19 Agreement with JP Morgan Chase Bank dated 330,775
12/23/03 to receive 1.90% per year times the
notional amount. In exchange for that periodic
payment, upon a default event in Mexico, the
fund agrees to pay JP Morgan Chase Bank the
notional amount of the swap. To receive that
payment, JP Morgan Chase Bank must deliver a
bond (with par value equal to the notional
amount of the swap) issued by Mexico to the fund.
</Table>
52
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<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 $ (2,601,609)
dated 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.
130,600,000 USD 8/07/04 Agreement with Morgan Guaranty Trust Company 2,146,811
dated 8/03/01 to receive the notional amount
multiplied by 4.835% and to pay the notional
amount multiplied by the 3 month LIBOR.
15,000,000 EUR 2/22/07 Agreement with UBS AG dated 2/18/00 to pay the (1,586,320)
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 23,274
notional amount multiplied by 0.355% and to
receive the notional amount multiplied by the 6
month Japanese LIBOR.
6,000,000,000 JPY 3/10/08 Agreement with Deutsche Bank AG dated 3/06/03 to 214,152
pay the notional amount multiplied by 0.285% and
to receive the notional amount multiplied by the
6 month Japanese LIBOR.
6,000,000,000 JPY 3/26/08 Agreement with JP Morgan Chase Bank dated 267,565
3/24/03 to pay the notional amount multiplied by
0.27% and to receive the notional amount
multiplied by the 6 month Japanese LIBOR.
6,000,000,000 JPY 4/16/08 Agreement with Citibank N.A. dated 4/14/03 to 294,515
pay the notional amount multiplied by 0.27% and
to receive the notional amount multiplied by the
6 month Japanese LIBOR.
</Table>
53
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- ---------------
6,000,000,000 JPY 5/09/08 Agreement with Citibank N.A. dated 5/07/03 to $ 413,648
pay the notional amount multiplied by 0.23% and
to receive the notional amount multiplied by
the 6 month Japanese LIBOR.
6,000,000,000 JPY 5/19/08 Agreement with Deutsche Bank AG dated 5/15/03 439,646
to pay the notional amount multiplied by 0.27%
and to receive the notional amount multiplied
by the 6 month Japanese LIBOR.
6,000,000,000 JPY 5/29/08 Agreement with Deutsche Bank AG dated 5/27/03 304,180
to pay the notional amount multiplied by 0.215%
and to receive the notional amount multiplied
by the 6 month Japanese LIBOR.
12,000,000,000 JPY 6/03/08 Agreement with Deutsche Bank AG dated 5/30/03 1,034,681
to pay the notional amount multiplied by 0.2%
and to receive the notional amount multiplied
by the 6 month Japanese LIBOR.
6,000,000,000 JPY 6/11/08 Agreement with JP Morgan Chase Bank dated 546,302
6/09/03 to pay the notional amount multiplied
by 0.1925% and to receive the notional amount
multiplied by the 6 month Japanese LIBOR.
6,000,000,000 JPY 6/12/08 Agreement with Deutsche Bank AG dated 6/10/03 558,939
to pay the notional amount multiplied by
0.1875% and to receive the notional amount
multiplied by the 6 month Japanese LIBOR.
6,000,000,000 JPY 12/17/09 Agreement with Citibank N.A. dated 12/13/02 to 406,819
pay the notional amount multiplied by 0.5475%
and to receive the notional amount multiplied
by the 6 month Japanese LIBOR.
26,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive 5,408,511
the notional amount multiplied by 7.406% and to
pay the notional amount multiplied by the 3
month LIBOR.
</Table>
54
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
35,000,000 USD 9/13/10 Agreement with Bear Stearns Bank Plc dated $ 6,688,551
9/08/00 to receive the notional amount
multiplied by 7.01% and to pay the notional
amount multiplied by the 3 month LIBOR.
20,000,000 USD 1/24/11 Agreement with UBS AG dated 1/22/01 to receive 2,804,958
the notional amount multiplied by 6.12% and to
pay the notional amount multiplied by the 3
month LIBOR.
30,000,000 USD 1/25/11 Agreement with Bear Stearns Bank Plc dated 4,362,616
1/23/01 to receive the notional amount
multiplied by 6.201% and to pay the notional
amount multiplied by the 3 month LIBOR.
50,000,000 USD 7/17/13 Agreement with JP Morgan Chase Bank dated 133,885
7/15/03 to receive the notional amount
multiplied by 4.3175% and to pay the notional
amount multiplied by the 3 month LIBOR.
50,000,000 USD 7/23/13 Agreement with JP Morgan Chase Bank dated 1,005,601
7/21/03 to receive the notional amount
multiplied by 4.54% and to pay the notional
amount multiplied by the 3 month LIBOR.
50,000,000 USD 12/10/13 Agreement with Goldman Sachs International 1,259,629
dated 12/08/03 to receive the notional amount
multiplied by 4.65% and to pay the notional
amount multiplied by the 3 month LIBOR.
50,000,000 USD 8/04/18 Agreement with Deutsche Bank AG dated 7/31/03 3,392,775
to receive the notional amount multiplied by
5.4475% and to pay the notional amount
multiplied by the 3 month LIBOR.
</Table>
55
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
NET UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
------------------- ---------- -------------------------------------------------- --------------
50,000,000 USD 12/02/23 Agreement with JP Morgan Chase Bank dated $ 895,221
11/28/03 to receive the notional amount
multiplied by 5.341% and to pay the notional
amount multiplied by the 3 month LIBOR.
------------
$ 54,227,948
============
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
9. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
------------------------------------------------------------------------------------------------------------
GMO ALPHA LIBOR FUND $ 8,395,431 $ -- $ -- $ -- $ 8,533,467
GMO SHORT-DURATION
COLLATERAL FUND 30,568,955 112,937,479 105,000,000 637,478 38,729,606
------------ -------------- ------------- ----------- --------------
TOTALS $ 38,964,386 $ 112,937,479 $ 105,000,000 $ 637,478 $ 47,263,073
============ ============== ============= =========== ==============
</Table>
10. SUBSEQUENT EVENT
On January 23, 2004, the trustees of the Trust approved a transaction
pursuant to which GMO Alpha LIBOR Fund (ALF) contributed its net assets,
other than its interest in GMO SPV I, LLC, its claims resulting from its
holdings of the NPF Securities, and a fixed amount of cash, such
contribution representing 94.14% of ALF's assets, to GMO Short-Duration
Collateral Fund (SDCF) in exchange for SDCF shares. The transaction, which
was structured as a tax-free reorganization, was consummated after the
close of business on March 31, 2004 and the shares received by ALF were
then distributed to its shareholders, including the Fund. After
distribution of the SDCF shares, ALF changed its name to GMO Special
Purpose Holding Fund and elected partnership status for Federal income tax
purposes.
56
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO EMERGING COUNTRY DEBT FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Emerging Country Debt Fund (the "Fund") (a series of GMO Trust) at February
29, 2004, and the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
57
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$104,416,613 from short-term capital gains
$799,465 from long-term capital gains, all of which was subject to the
20% rate category.
58
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------- --------------- ----------------- ----------------- -------------- --------------
Jay O. Light Trustee Since May 1996 Professor of 41 *(2)
c/o GMO Trust Business
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory 41 None
Glazer, Esq. December 2000 Counsel, Goodwin
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training services
and products)
(1998 - present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
59
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------- --------------- ----------------- ----------------- -------------- --------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
60
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ---------------------- ------------------ --------------------- -----------------------------
Scott Eston President and President and Chief Chief Financial Officer
c/o GMO Trust Chief Executive Executive Officer (1997-present), Chief
40 Rowes Wharf Officer since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - Grantham, Mayo, Van
October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Since September 1998. Senior Fund Administrator,
c/o GMO Trust Treasurer Grantham, Mayo, Van
40 Rowes Wharf Otterloo & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President Vice President since General Counsel, Anti-Money
c/o GMO Trust and Clerk February 1997; Clerk Laundering Reporting
40 Rowes Wharf since March 2001 - Officer (July 2002 -
Boston, MA 02110 present and May 1999 February 2003) and Member,
DOB: 07/20/1965 -August 1999. Grantham, Mayo, Van
Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President Vice President since Associate General Counsel,
Esq. and Secretary August 1999; Grantham, Mayo, Van
c/o GMO Trust Secretary since Otterloo & Co. LLC (June
40 Rowes Wharf March 2001. 1999 - present);
Boston, MA 02110 Associate/Junior Partner,
DOB: 02/18/1945 Hale and Dorr LLP (1991 -
1999).
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer,
DOB: 10/07/1970 Grantham, Mayo, Van
Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
61
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the Asset
Allocation Team within the Quantitative Division at Grantham, Mayo, Van Otterloo
& Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO US Sector Fund returned +43.7% for the fiscal year ended February 29,
2004, as compared to +41.3% for the Russell 3000 Index. Consistent with the
Fund's investment objectives and policies, during the fiscal year the Fund was
exposed substantially to common stocks through its investment in underlying GMO
mutual funds.
Implementation was a slight negative, as the underlying GMO mutual funds under
performed their respective benchmarks by approximately 0.7%.
Asset allocation added nearly 3%. The Fund's overweight to REITs (the MS REIT
Index rose 46.6%) and small cap value (the Russell 2500 Value Index rose 61.4%)
drove the outperformance.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
U.S. SECTOR FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO U.S. SECTOR FUND RUSSELL 3000 INDEX RUSSELL 3000 INDEX BLEND* S&P 500 INDEX
2/28/1994 4,992,500 5,000,000 5,000,000 5,000,000
3/31/1994 4,806,280 4,781,375 4,782,015 4,782,015
6/30/1994 4,797,740 4,755,485 4,802,155 4,802,150
9/30/1994 5,010,775 5,007,770 5,036,940 5,036,930
12/31/1994 5,064,135 4,981,210 5,036,155 5,036,145
3/31/1995 5,525,395 5,429,810 5,526,510 5,526,500
6/30/1995 6,133,345 5,941,165 6,054,065 6,054,055
9/30/1995 6,798,215 6,476,165 6,535,180 6,535,175
12/31/1995 7,250,910 6,814,505 6,928,620 6,928,615
3/31/1996 7,502,640 7,187,260 7,300,470 7,300,465
6/30/1996 7,758,600 7,486,710 7,628,145 7,628,140
9/30/1996 7,974,095 7,707,875 7,863,965 7,863,965
12/31/1996 8,573,140 8,301,210 8,519,445 8,519,445
3/31/1997 8,766,885 8,373,305 8,747,805 8,747,805
6/30/1997 9,837,010 9,776,000 10,275,030 10,275,030
9/30/1997 10,990,815 10,688,345 11,044,635 11,044,635
12/31/1997 11,028,290 10,939,645 11,361,810 11,361,810
3/31/1998 12,179,070 12,366,940 12,946,700 12,946,700
6/30/1998 12,124,270 12,592,205 13,374,235 13,374,230
9/30/1998 10,606,105 11,183,820 12,043,890 12,043,885
12/31/1998 12,312,250 13,580,240 14,608,865 14,608,860
3/31/1999 12,338,280 14,041,200 15,336,735 15,336,730
6/30/1999 13,509,635 15,123,600 16,417,705 16,417,705
9/30/1999 12,520,490 14,127,710 15,392,515 15,392,515
12/31/1999 14,074,240 16,418,885 17,682,795 17,682,790
3/31/2000 14,705,535 17,168,730 18,088,245 18,088,240
6/30/2000 14,423,280 16,575,145 17,607,815 17,607,810
9/30/2000 15,311,770 16,697,765 17,437,250 17,437,245
12/31/2000 15,459,000 15,194,015 16,072,885 16,072,880
3/31/2001 14,899,530 13,347,285 14,167,375 14,167,365
6/30/2001 16,312,925 14,266,120 14,996,525 14,996,515
9/30/2001 14,854,380 12,037,330 12,795,310 12,795,300
12/31/2001 16,582,340 13,453,130 14,162,505 14,162,490
3/31/2002 17,309,900 13,583,300 14,201,570 14,201,550
6/30/2002 16,218,560 11,805,795 12,298,840 12,298,815
9/30/2002 13,536,775 9,771,310 10,174,105 10,174,085
12/31/2002 14,386,615 10,555,225 11,032,570 11,032,545
3/31/2003 13,779,585 10,234,055 10,693,645 10,684,990
6/30/2003 16,268,410 11,896,380 12,430,605 12,329,825
9/30/2003 16,858,390 12,303,910 12,856,435 12,656,020
12/31/2003 18,957,970 13,833,310 14,454,515 14,196,500
2/29/2004 19,731,110 14,312,140 14,954,850 14,658,680
</Table>
Average Annual Returns
Inception 12/31/1992
<Table>
<Caption>
1YR 5YR 10YR(ITD)
43.29 10.33 14.71
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 15 bp on the purchase and 15 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
* Russell 3000 Index Blend represents the S&P 500 prior to 2/28/03 and the
Russell 3000 thereafter. Effective the close of business on February 28, 2003,
the Fund's benchmark changed from the S&P 500 Index to the Russell 3000 Index.
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
250,000 GMO U.S. Quality Equity Fund, Class III 4,982,500
429,240 GMO Real Estate Fund, Class III 6,288,365
260,659 GMO Small Cap Growth Fund, Class III 5,677,148
507,320 GMO Small Cap Value Fund, Class III 7,868,539
3,584,851 GMO U.S. Core Fund, Class III 48,538,886
------------
TOTAL MUTUAL FUNDS (COST $62,474,839) 73,355,438
------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
8,016 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $8,016 and
an effective yield of 0.65%, collateralized by a U.S.
Treasury Obligation with a rate of 0.915%, maturity date of
5/20/04 and market value, including accrued interest
of $8,178. 8,016
------------
TOTAL SHORT-TERM INVESTMENTS (COST $8,016) 8,016
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $62,482,855) 73,363,454
Other Assets and Liabilities (net) -- (0.0%) (21,094)
------------
TOTAL NET ASSETS -- 100.0% $ 73,342,360
============
</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 -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $8,016) (Note 2) $ 8,016
Investments in affiliated issuers, at value (cost $62,474,839) (Notes 2 and 8) 73,355,438
Receivable for expenses reimbursed by Manager (Note 3) 34,651
------------
Total assets 73,398,105
------------
LIABILITIES:
Payable to affiliate for (Note 3):
Management fee 19,106
Shareholder service fee 8,684
Trustees fee 130
Accrued expenses 27,825
------------
Total liabilities 55,745
------------
NET ASSETS $ 73,342,360
============
NET ASSETS CONSIST OF:
Paid-in capital $ 61,881,939
Accumulated undistributed net investment income 696,068
Accumulated net realized loss (116,246)
Net unrealized appreciation 10,880,599
------------
$ 73,342,360
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 73,342,360
============
SHARES OUTSTANDING:
Class III 11,466,914
============
NET ASSET VALUE PER SHARE:
Class III $ 6.40
============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers $ 635,368
Interest 3,359
------------
Total income 638,727
------------
EXPENSES:
Management fee (Note 3) 147,018
Shareholder service fee (Note 3) - Class III 66,826
Custodian and transfer agent fees 7,235
Audit and tax fees 22,212
Legal fees 822
Trustees fees and related expenses (Note 3) 906
Registration fees 13,571
Miscellaneous 574
------------
Total expenses 259,164
Fees and expenses reimbursed by Manager (Note 3) (44,414)
Indirectly incurred fees waived or borne by Manager (Note 3) (147,008)
Shareholder service fee waived (Note 3) - Class III (66,826)
------------
Net expenses 916
------------
Net investment income 637,811
------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments in affiliated issuers 89,946
Realized gains distributions from affiliated issuers 63,959
------------
Net realized gain on investments 153,905
------------
Change in net unrealized appreciation (depreciation) on investments 13,161,993
------------
Net realized and unrealized gain 13,315,898
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,953,709
============
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 637,811 $ 127,210
Net realized gain 153,905 531,618
Change in net unrealized appreciation (depreciation) 13,161,993 (2,256,923)
-------------- --------------
Net increase (decrease) in net assets from operations 13,953,709 (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 7):
Class III 46,939,733 14,478,433
-------------- --------------
Increase in net assets resulting from net share
transactions 46,939,733 14,478,433
-------------- --------------
Total increase in net assets 60,198,028 12,874,282
NET ASSETS:
Beginning of period 13,144,332 270,050
-------------- --------------
End of period (including accumulated undistributed
net investment income of $696,068 and $133,406,
respectively) $ 73,342,360 $ 13,144,332
============== ==============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.53 $ 5.45 $ 5.11 $ 4.84 $ 4.63
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a)+ 0.08 0.09 0.11 0.14 0.09
Net realized and unrealized gain (loss) 1.89 (1.00) 0.39 0.35 0.54
-------- -------- -------- -------- --------
Total from investment operations 1.97 (0.91) 0.50 0.49 0.63
-------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.02) (0.01) (0.16) (0.17) (0.23)
From net realized gains (0.08) -- -- (0.05) (0.19)
-------- -------- -------- -------- --------
Total distributions (0.10) (0.01) (0.16) (0.22) (0.42)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 6.40 $ 4.53 $ 5.45 $ 5.11 $ 4.84
======== ======== ======== ======== ========
TOTAL RETURN (b) 43.72% (16.78)% 9.80% 10.14% 13.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 73,342 $ 13,144 $ 270 $ 253 $ 1,602
Net expenses to average daily net assets (d) 0.00%(c) 0.02% 0.00%(c) 0.00% 0.00%
Net investment income to average daily net assets (a) 1.43% 1.93% 1.99% 2.71% 1.85%
Portfolio turnover rate 17% 24% 2% 35% 22%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.58% 0.88% 8.97% 3.05% 0.52%
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 which are borne by the shareholder.
(c) Net expenses were less than 0.01%.
(d) Net expenses exclude expenses incurred indirectly through investments in
underlying funds. (See Note 3)
(e) Purchase and redemption fees were less than $0.01.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
5
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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" and 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. These financial
statements are available, without charge, upon request, by calling (617)
330-7500 or by visiting GMO's website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Shares of the underlying funds 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 quoted 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.
6
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. See Schedule of
Investments for open repurchase agreement as of February 29, 2004.
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.
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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid were as follows: ordinary income -
$134,596 and $6,056, respectively and long-term capital gains - $560,818
and $0, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $696,068 and $1,111,823 of undistributed ordinary income
and undistributed long-term capital gains, respectively.
At February 29, 2004, 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.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net value of
the Fund and is primarily attributable to foreign currency transactions.
The financial highlights exclude these adjustments.
7
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED LOSS PAID-IN CAPITAL
----------------- ------------- ---------------
$ 59,447 $ (64,245) $ 4,798
</Table>
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. 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 3.)
PURCHASES AND REDEMPTIONS 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 year ended February 29, 2004, the Fund
received $41,506 in purchase premiums and $426 in redemption fees. There is
no premium for reinvested distributions or in-kind transactions.
3. 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%
8
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 service fees paid in
connection with the Fund's investment in shares of underlying Funds. For
the year ended February 29, 2004, the shareholder service fees incurred
indirectly by the Fund were .149% of the Fund's average daily net assets.
GMO has contractually agreed to reimburse the Fund with respect to certain
Fund expenses through at least June 30, 2004 to the extent the Fund's total
annual operating expenses (not including shareholder service fees, expenses
indirectly incurred by investment in other funds of the Trust, 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),
security lending fees and expenses, interest expenses and transfer taxes
(collectively, "Excluded Fund Fees and Expenses")) exceed .33% of the
Fund's average daily net assets. In addition, GMO has contractually agreed
to reimburse the Fund through at least June 30, 2004 to the extent that the
sum of (i) the Fund's total annual operating expenses (excluding Excluded
Fund Fees and Expenses), plus (ii) the amount of fees and expenses incurred
by the Fund through its investment in underlying Funds (excluding these
Fund's Excluded Fees and Expenses), exceeds .33% of the Fund's average
daily net assets, subject to a maximum total reimbursement to the Fund
equal to .33% of the Fund's average daily net assets.
For the year ended February 29, 2004, indirect operating expenses
(excluding shareholder service fees) 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
.332% and .000% 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 year ended February 29, 2004 was $542. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$54,433,327 and $7,475,000, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 62,706,089 $ 10,674,865 $ (17,500) $ 10,657,365
</Table>
9
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 66.7% 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. At February 29, 2004, .44% of the Fund was
held by one related party.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------------------- -----------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Shares sold 8,747,444 $ 48,031,926 2,852,744 $ 14,472,377
Shares issued to shareholders
in reinvestment of
distributions 129,259 695,414 1,214 6,056
Shares repurchased (313,276) (1,787,607) -- --
------------- ------------- ------------- -------------
Net increase 8,563,427 $ 46,939,733 2,853,958 $ 14,478,433
============= ============= ============= =============
</Table>
10
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END OF
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME PERIOD
------------------------------------------------------------------------------------------------------------
GMO U.S. Quality Equity
Fund, Class III $ -- $ 5,000,000 $ -- $ -- $ 4,982,500
GMO Real Estate Fund,
Class III 1,352,922 4,654,775 1,100,000 164,756 6,288,365
GMO Small Cap Growth Fund,
Class III -- 4,469,470 50,000 3,749 5,677,148
GMO Small Cap Value Fund,
Class III 3,512,349 5,123,856 3,487,000 82,526 7,868,539
GMO U.S. Core Fund, Class
III 8,282,138 35,185,226 2,838,000 384,337 48,538,886
------------- ------------- ------------- ------------- -------------
Totals $ 13,147,409 $ 54,433,327 $ 7,475,000 $ 635,368 $ 73,355,438
============= ============= ============= ============= =============
</Table>
11
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO U.S. SECTOR FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO U.S. Sector Fund (the "Fund") (
a series of GMO Trust) at February 29, 2004, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
12
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions included:
$560,818 from long-term capital gains, all of which were subject to the 20%
rate gains category.
For taxable, non-corporate shareholders, 0.88% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, 0.42% of the Fund's income qualified for the
dividends-received deduction.
13
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------------- ----------------- ------------------ --------------------- ---------------- ----------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration and
Boston, MA 02110 Senior Associate
DOB: 10/03/1941 Dean, Harvard
University.
Donald W. Glazer, Trustee Since December Advisory Counsel,
Esq. 2000 Goodwin Procter 41 None
c/o GMO Trust LLP; Secretary and
40 Rowes Wharf Consultant,
Boston, MA 02110 Provant, Inc.
DOB: 07/26/1944 (provider of
performance
improvement
training services
and products)(1998
- present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
14
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------------- ----------------- ------------------ --------------------- ---------------- ----------------
R. Jeremy Chairman of the Since September Chairman, Grantham,
Grantham(3) Board of 1985. President Mayo, Van Otterloo 41 None
c/o GMO Trust Trustees from February & Co. LLC
40 Rowes Wharf 2002 - October
Boston, MA 02110 2002; President
DOB: 10/06/1938 Quantitative
from September
1985 - February
2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
15
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ---------------------------- ------------------------ ---------------------------- ------------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer since (1997-present), Chief Operating
40 Rowes Wharf October 2002; Vice Officer (2000 - present) and
Boston, MA 02110 President from August 1998 Member, Grantham, Mayo, Van
DOB: 01/20/1956 - October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Officer Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust Officer and Treasurer since February 2000; & Co. LLC.
40 Rowes Wharf Treasurer since February
Boston, MA 02110 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator, Grantham,
c/o GMO Trust Mayo, Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk since Laundering Reporting Officer (July
40 Rowes Wharf March 2001 - present and 2002 - February 2003) and Member,
Boston, MA 02110 May 1999 -August 1999. Grantham, Mayo, Van Otterloo & Co.
DOB: 07/20/1965 LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel, Grantham,
c/o GMO Trust Secretary August 1999; Secretary Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf since March 2001. (June 1999 - present);
Boston, MA 02110 Associate/Junior Partner, Hale and
DOB: 02/18/1945 Dorr LLP (1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Laundering Officer (February 2003 - present)
40 Rowes Wharf Compliance Officer and Compliance Officer, Grantham,
Boston, MA 02110 Mayo, Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust February 2004. & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
16
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the Asset
Allocation Team within the Quantitative Division at Grantham, Mayo, Van Otterloo
& Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Equity Allocation Fund returned +60.4% for the fiscal year
ended February 29, 2004, as compared to +55.2% for the MSCI ACWI (All Country
World Index) ex-U.S. Index. Consistent with the Fund's investment objectives and
policies, during the fiscal year the Fund was fully exposed to international
equity and fixed income securities through its investment in underlying GMO
mutual funds.
Implementation was a slight negative, as the underlying GMO mutual funds
underperformed their respective benchmarks by approximately 0.5%.
Asset allocation added nearly 5%. The Fund's overweight to international small
caps (the S&P/Citigroup EMI World ex-US Index rose 70.6%) and emerging equities
(the MSCI Emerging Markets Index rose 74.3%) drove the outperformance.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
INT'L. EQUITY ALLOCATION FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO INTERNATIONAL EQUITY ALLOCATION FUND MSCI ALL COUNTRY WORLD EX-U.S. INDEX
10/11/1996 4,991,500 5,000,000
12/31/1996 5,125,400 5,093,435
3/31/1997 5,185,875 5,080,885
6/30/1997 5,634,410 5,740,380
9/30/1997 5,779,240 5,687,620
12/31/1997 5,214,560 5,197,495
3/31/1998 5,924,135 5,907,440
6/30/1998 5,500,590 5,819,885
9/30/1998 4,625,220 4,940,055
12/31/1998 5,318,310 5,948,925
3/31/1999 5,367,670 6,089,995
6/30/1999 6,163,565 6,374,275
9/30/1999 6,149,975 6,590,685
12/31/1999 6,741,890 7,787,480
3/31/2000 6,588,375 7,848,495
6/30/2000 6,524,410 7,528,325
9/30/2000 6,216,475 6,914,475
12/31/2000 6,302,085 6,612,730
3/31/2001 5,933,310 5,740,830
6/30/2001 6,196,720 5,723,635
9/30/2001 5,521,950 4,875,410
12/31/2001 5,940,995 5,308,250
3/31/2002 6,454,665 5,392,105
6/30/2002 6,549,290 5,240,330
9/30/2002 5,560,460 4,226,045
12/31/2002 5,917,025 4,514,785
3/31/2003 5,664,870 4,181,010
6/30/2003 6,869,550 4,999,540
9/30/2003 7,457,550 5,430,730
12/31/2003 8,787,210 6,358,185
2/29/2004 9,217,710 6,622,385
</Table>
Average Annual Returns
Inception 10/11/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
59.86 12.49 8.63
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 17 bp on the purchase and 17 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
619,837 GMO Emerging Countries Fund, Class III 9,291,363
2,836,530 GMO Emerging Markets Fund, Class VI 44,703,717
3,448,426 GMO International Growth Fund, Class III 81,624,250
4,110,786 GMO International Intrinsic Value Fund, Class IV 99,933,198
1,212,363 GMO International Small Companies Fund, Class III 20,719,281
-------------
TOTAL MUTUAL FUNDS (COST $218,012,449) 256,271,809
-------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
24,379 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $24,380
and an effective yield of 0.65%, collateralized by a
U.S. Treasury Bill with a rate of 0.915%, maturity of
5/20/04 and a market value, including accrued interest
of $24,870. 24,379
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $24,379) 24,379
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $218,036,828) 256,296,188
Other Assets and Liabilities (net) -- (0.0%) (19,418)
-------------
TOTAL NET ASSETS -- 100.0% $ 256,276,770
=============
</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 -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in affiliated issuers, at value (cost $218,012,449) (Notes 2 and 8) $ 256,271,809
Investments in unaffiliated issuers, at value (cost $24,379) (Note 2) 24,379
Receivable for expenses reimbursed by Manager (Note 3) 14,486
---------------
Total assets 256,310,674
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Trustees fee 404
Accrued expenses 33,500
---------------
Total liabilities 33,904
---------------
NET ASSETS $ 256,276,770
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 221,751,370
Accumulated undistributed net investment income 2,486,926
Accumulated net realized loss (6,220,886)
Net unrealized appreciation 38,259,360
---------------
$ 256,276,770
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 256,276,770
===============
SHARES OUTSTANDING:
Class III 19,972,739
===============
NET ASSET VALUE PER SHARE:
Class III $ 12.83
===============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers (Note 8) $ 3,012,971
Interest 3,926
---------------
Total income 3,016,897
---------------
EXPENSES:
Custodian and transfer agent fees 18,255
Audit and tax fees 20,599
Legal fees 5,649
Trustees fees and related expenses (Note 3) 3,034
Registration fees 17,276
Miscellaneous 3,623
---------------
Total expenses 68,436
Fees and expenses reimbursed by Manager (Note 3) (65,402)
---------------
Net expenses 3,034
---------------
Net investment income 3,013,863
---------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments in affiliated issuers 3,886,950
Realized gains distributions from affiliated issuers 466,578
---------------
Net realized gain on investments 4,353,528
---------------
Change in net unrealized appreciation (depreciation) on investments 47,887,803
---------------
Net realized and unrealized gain 52,241,331
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 55,255,194
===============
</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>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,013,863 $ 3,692,870
Net realized gain (loss) 4,353,528 (2,005,020)
Change in net unrealized appreciation (depreciation) 47,887,803 (8,571,150)
----------------- -----------------
Net increase (decrease) in net assets from operations 55,255,194 (6,883,300)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (3,178,417) (3,111,365)
----------------- -----------------
Net share transactions (Note 7):
Class III 100,432,054 48,050,692
----------------- -----------------
Increase in net assets resulting from net share transactions 100,432,054 48,050,692
----------------- -----------------
Total increase in net assets 152,508,831 38,056,027
NET ASSETS:
Beginning of period 103,767,939 65,711,912
----------------- -----------------
End of period (including accumulated undistributed net investment
income of $2,486,926 and $2,507,690, respectively) $ 256,276,770 $ 103,767,939
================= =================
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<Table>
<Caption>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.23 $ 9.02 $ 9.67 $ 9.87 $ 8.28
----------- ----------- ----------- ---------- ----------
Income from investment operations:
Net investment income (a)+ 0.25 0.36 0.25 0.16 0.22
Net realized and unrealized gain (loss) 4.60 (0.83) (0.66) (0.06) 1.73
----------- ----------- ----------- ---------- ----------
Total from investment operations 4.85 (0.47) (0.41) 0.10 1.95
----------- ----------- ----------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.25) (0.32) (0.24) (0.30) (0.08)
From net realized gains -- -- -- -- (0.28)
----------- ----------- ----------- ---------- ----------
Total distributions (0.25) (0.32) (0.24) (0.30) (0.36)
----------- ----------- ----------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 12.83 $ 8.23 $ 9.02 $ 9.67 $ 9.87
=========== =========== =========== ========== ==========
TOTAL RETURN (b) 60.41% (5.58)% (4.26)% 0.87% 23.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 256,277 $ 103,768 $ 65,712 $ 72,975 $ 76,047
Net expenses to average daily net assets (c) 0.00%(d) 0.00%(d) 0.00%(d) 0.00% 0.00%
Net investment income to average daily net assets (a) 2.35% 4.11% 2.83% 1.62% 2.24%
Portfolio turnover rate 43% 19% 50% 14% 8%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.05% 0.05% 0.05% 0.05% 0.04%
Purchase and redemption fees consisted of the
following per share amounts: $ 0.02 -- -- -- --
</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 which are borne by the shareholder.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 3.
(d) Net expenses to average daily net assets was less than 0.01%.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
5
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO International Equity Allocation Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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" and 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) ex-U.S. Index through
investment to varying extents in shares of underlying international equity
and fixed income funds of the Trust. The financial statements of the
underlying funds should be read in conjunction with the Fund's financial
statements. These financial statements are available, without charge, upon
request, by calling (617) 330-7500 or by visiting GMO's website at
www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Shares of 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.
6
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 of the underlying funds.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by certain underlying
funds in which the Fund invests be valued using fair value prices supplied
by an independent pricing service to the extent that such prices are
available.
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. See Schedule of
Investments for the open repurchase agreement at February 29, 2004.
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.
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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid for ordinary income were $3,178,417 and
$3,111,365, respectively.
7
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $2,486,926 of undistributed ordinary income. The
temporary differences between book and tax basis distributable earnings are
primarily due to wash sale transactions.
At February 29, 2004, 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, $1,731,139 and $114,118 expiring in 2008, 2010,
2011, and 2012, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to differing treatments for
redemption in-kind transactions. Net gains resulting from redemption
in-kind transactions were $474,207. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ------------- ---------------
$ 143,790 $ (617,999) $ 474,209
</Table>
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. 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 3).
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
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
8
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 year ended February 29,
2004, the Fund received $235,443 in purchase premiums and $11,136 in
redemption fees. 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 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.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives 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, transfer taxes and expenses indirectly incurred
by investments in the underlying funds).
The Fund incurs fees and expenses indirectly as a shareholder in the
underlying funds. For the year ended February 29, 2004, shareholder service
fees incurred indirectly by the Fund were .125% of the Fund's average daily
net assets, indirect operating expenses (excluding shareholder service fees
and investment-related expenses) were .650% of the Fund's average daily net
assets, and indirect investment-related
9
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
expenses (including, but not limited to, interest expense, foreign audit
expense, and investment-related legal expense) were .001% 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 year ended February 29, 2004 was $2,069. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$158,031,828 and $57,290,277, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- --------------
$ 218,622,267 $ 37,673,921 $ -- $ 37,673,921
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 13,178,662 $ 151,232,216 5,969,247 $ 53,418,077
Shares issued to shareholders
in reinvestment of distributions 338,923 2,899,314 314,940 2,836,415
Shares repurchased (6,155,689) (53,699,476) (959,472) (8,203,800)
--------------- --------------- --------------- ---------------
Net increase 7,361,896 $ 100,432,054 5,324,715 $ 48,050,692
=============== =============== =============== ===============
</Table>
10
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING OF SALES DIVIDEND VALUE, END
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
--------------------------------------------------------------------------------------------------------------------
GMO Emerging Countries
Fund, Class III $ 7,939,351 $ 475,489 $ 3,157,525 $ 136,834 $ 9,291,363
GMO Emerging Country Debt
Fund, Class III 4,301,534 -- 4,357,479 -- --
GMO Emerging Markets
Fund, Class III 13,969,773 8,014,764 25,460,508 81,764 --
GMO Emerging Markets
Fund, Class VI -- 40,197,848 3,918,783 429,357 44,703,717
GMO International Growth
Fund, Class III 26,005,305 59,434,293 15,263,281 537,871 81,624,250
GMO International Intrinsic
Value Fund, Class III 42,638,491 12,508,595 61,945,060 233,595 --
GMO International Intrinsic
Value Fund, Class IV -- 93,805,137 5,298,783 1,414,870 99,933,198
GMO International Small
Companies Fund, Class III 8,901,034 9,931,775 4,224,914 178,680 20,719,281
-------------- -------------- -------------- -------------- --------------
Totals $ 103,755,488 $ 224,367,901 $ 123,626,333 $ 3,012,971 $ 256,271,809
============== ============== ============== ============== ==============
</Table>
11
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INTERNATIONAL EQUITY ALLOCATION FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
International Equity Allocation Fund (the "Fund") (a series of GMO Trust)
at February 29, 2004, and the results of its operations, the changes in its
net assets and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 29, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
12
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 21.10% of the Fund's income
represents qualified dividend income subject to the 15% rate category.
13
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST OF TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------------- ------------------- ---------------------- ------------------------ ---------------- ----------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and 41 *(2)
40 Rowes Wharf Senior Associate Dean,
Boston, MA 02110 Harvard University.
DOB: 10/03/1941
Donald W. Glazer, Esq. Trustee Since December 2000 Advisory Counsel,
c/o GMO Trust Goodwin Procter LLP; 41 None
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant, Provant,
DOB: 07/26/1944 Inc. (provider of
performance
improvement training
services and
products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
14
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST OF TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------------- ------------------- ---------------------- ------------------------ -------------- ----------------
R. Jeremy Grantham(3) Chairman of the Since September 1985. Chairman, Grantham,
c/o GMO Trust Board of Trustees President from Mayo, Van Otterloo & 41 None
40 Rowes Wharf February 2002 - Co. LLC
Boston, MA 02110 October 2002;
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
15
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------------- ------------------------- ----------------------------- --------------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer since (1997-present), Chief Operating
40 Rowes Wharf October 2002; Vice Officer (2000 - present) and Member,
Boston, MA 02110 President from August 1998 Grantham, Mayo, Van Otterloo & Co.
DOB: 01/20/1956 - October 2002. LLC.
Susan Randall Harbert Chief Financial Officer Chief Financial Officer Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust and Treasurer since February 2000; & Co. LLC.
40 Rowes Wharf Treasurer since February
Boston, MA 02110 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator, Grantham,
c/o GMO Trust Mayo, Van Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk since Laundering Reporting Officer (July
40 Rowes Wharf March 2001 - present and 2002 - February 2003) and Member,
Boston, MA 02110 May 1999 - August 1999. Grantham, Mayo, Van Otterloo & Co.
DOB: 07/20/1965 LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since August Associate General Counsel, Grantham,
c/o GMO Trust Secretary 1999; Secretary since March Mayo, Van Otterloo & Co. LLC (June
40 Rowes Wharf 2001. 1999 - present); Associate/Junior
Boston, MA 02110 Partner, Hale and Dorr LLP (1991 -
DOB: 02/18/1945 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Laundering Officer (February 2003 - present) and
40 Rowes Wharf Compliance Officer Compliance Officer, Grantham, Mayo,
Boston, MA 02110 Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van Otterloo
c/o GMO Trust February 2004. & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
16
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(FORMERLY GMO WORLD BALANCED ALLOCATION FUND)
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the Asset
Allocation Team within the Quantitative Division at Grantham, Mayo, Van Otterloo
& Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Global Balanced Asset Allocation Fund returned +35.5% for the fiscal
year ended February 29, 2004, as compared to +28.2% for the Fund's benchmark,
the GMO Global Balanced Index (48.75% S&P 500 / 16.25% MSCI ACWI [All Country
World Index] ex-U.S. Index / 35% Lehman Brothers U.S. Aggregate Bond).
Consistent with the Fund's investment objectives and policies, during the fiscal
year the Fund was fully exposed to global equity and fixed income securities
through its investment in underlying GMO mutual funds.
Implementation was positive, as the underlying GMO mutual funds outperformed
their respective benchmarks by approximately 1.8%.
Asset allocation added nearly 5.6%. The Fund's overweight to international small
caps (the S&P/Citigroup EMI World ex-US Index rose 70.6%), emerging equities
(the MSCI Emerging Markets Index rose 74.3%), and U.S. small value (the Russell
2500 Value Index rose 61.4%) drove the outperformance.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
GLOBAL BALANCED ASSET ALLOCATION FUND BLND/MF
As Of: 2/29/2004
<Table>
<Caption>
GMO GLOBAL BALANCED GMO GLOBAL BALANCED ASSET GMO GLOBAL BALANCED 50% S&P 500 / 50% LEHMAN
ASSET ALLOCATION FUND ALLOCATION INDEX* ASSET ALLOCATION INDEX +** U.S. AGGREGATE
6/28/1996 4,993,500 5,000,000 5,000,000 5,000,000
9/30/1996 4,968,535 5,106,730 5,052,550 5,125,875
12/31/1996 5,231,355 5,381,605 5,266,550 5,416,900
3/31/1997 5,308,440 5,442,475 5,319,335 5,476,705
6/30/1997 5,837,740 6,085,000 6,115,465 6,047,720
9/30/1997 6,174,675 6,371,715 6,260,480 6,378,565
12/31/1997 5,766,640 6,437,180 6,056,265 6,567,330
3/31/1998 6,452,020 7,047,980 6,895,180 7,070,935
6/30/1998 6,103,420 7,202,905 6,950,770 7,271,830
9/30/1998 5,182,855 6,787,955 6,097,840 7,072,725
12/31/1998 5,924,190 7,707,190 7,386,570 7,814,905
3/31/1999 5,964,535 7,911,070 7,678,605 7,989,850
6/30/1999 6,805,085 8,218,525 8,112,015 8,235,090
9/30/1999 6,600,585 8,029,655 7,982,175 8,003,175
12/31/1999 7,313,105 8,833,175 9,367,390 8,580,755
3/31/2000 7,375,745 9,021,555 9,476,740 8,784,535
6/30/2000 7,266,125 8,899,785 9,115,595 8,743,470
9/30/2000 7,210,485 8,834,800 8,621,850 8,838,225
12/31/2000 7,267,455 8,561,520 8,061,925 8,672,775
3/31/2001 6,941,925 7,965,210 7,055,825 8,281,855
6/30/2001 7,326,915 8,208,510 7,246,580 8,552,250
9/30/2001 6,603,585 7,534,705 6,177,760 8,096,095
12/31/2001 7,156,720 8,034,905 6,755,510 8,527,865
3/31/2002 7,752,405 8,074,100 6,810,820 8,548,205
6/30/2002 7,679,125 7,599,525 6,192,605 8,114,505
9/30/2002 7,128,115 6,817,355 5,555,245 7,572,095
12/31/2002 7,382,155 7,220,980 5,884,145 7,964,550
3/31/2003 7,221,090 7,056,940 5,750,475 7,894,130
6/30/2003 8,251,875 7,864,310 6,408,380 8,592,185
9/30/2003 8,621,630 8,073,090 6,578,510 8,703,330
12/31/2003 9,483,375 8,776,275 7,151,515 9,239,090
2/29/2004 9,846,950 9,032,965 7,360,685 9,476,980
</Table>
Average Annual Returns
Inception 6/28/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
35.18 11.41 9.23
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 13 bp on the purchase and 13 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
* The GMO Global Balanced Asset Allocation Index is a composite benchmark
computed by GMO and comprised 48.75% S&P 500, 16.25% by MSCI AC World ex-U.S.
and 35% Lehman Brothers U.S. Aggregate Bond Index.
** GMO Global Balanced Asset Allocation Index +: MSCI ACWI (All Country World
Index) prior to 7/02 and GMO Global Balanced Index therefter.
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
4,486,295 GMO Core Plus Bond Fund, Class III 46,657,470
2,446,685 GMO Currency Hedged International Bond Fund, Class III 22,411,638
2,693,398 GMO Currency Hedged International Equity Fund, Class III 19,742,605
4,809,857 GMO Domestic Bond Fund, Class III 48,435,265
601,274 GMO Emerging Countries Fund, Class III 9,013,093
700,333 GMO Emerging Country Debt Fund, Class IV 7,360,504
2,070,937 GMO Emerging Markets Fund, Class VI 32,637,970
1,281,845 GMO Global Hedged Equity Fund, Class III 12,805,633
1,235,554 GMO Inflation Indexed Bond Fund, Class III 14,851,360
793,614 GMO International Bond Fund, Class III 8,237,711
1,105,815 GMO International Growth Fund, Class III 26,174,638
1,413,454 GMO International Intrinsic Value Fund, Class IV 34,361,076
1,798,288 GMO International Small Companies Fund, Class III 30,732,747
1,064,966 GMO Real Estate Fund, Class III 15,601,759
355,250 GMO Short-Duration Investment Fund, Class III 3,108,433
673,970 GMO Small Cap Value Fund, Class III 10,453,279
6,265,770 GMO U.S. Core Fund, Class VI 84,713,205
1,275,000 GMO U.S. Quality Equity Fund, Class IV 25,410,750
119,660 GMO Value Fund, Class III 1,110,443
-------------
TOTAL MUTUAL FUNDS (COST $384,986,398) 453,819,579
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
10,115 Citigroup Global Markets Repurchase Agreement, dated 2/27/04, due
3/01/04, with a maturity value of $10,115 and an effective yield of
0.65%, collateralized by a U.S. Treasury Bill with a rate of 0.915%,
maturity date of 5/20/04 and a market value of $10,319. 10,115
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $10,115) 10,115
--------------
TOTAL INVESTMENTS -- 100.0%
(Cost $384,996,513) 453,829,694
Other Assets and Liabilities (net) -- (0.0%) (22,561)
--------------
TOTAL NET ASSETS -- 100.0% $ 453,807,133
==============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $10,115) (Note 2) $ 10,115
Investments in affiliated issuers, at value (cost $384,986,398) (Notes 2 and 8) 453,819,579
Receivable for investments sold 145,000
Receivable for Fund shares sold 1,821,023
Receivable for expenses reimbursed by Manager (Note 3) 22,691
---------------
Total assets 455,818,408
---------------
LIABILITIES:
Payable for investments purchased 5,093
Payable for Fund shares repurchased 1,963,219
Payable to affiliate for (Note 3):
Trustees fee 784
Accrued expenses 42,179
---------------
Total liabilities 2,011,275
---------------
NET ASSETS $ 453,807,133
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 379,006,188
Accumulated undistributed net investment income 2,377,363
Accumulated net realized gain 3,590,401
Net unrealized appreciation 68,833,181
---------------
$ 453,807,133
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 453,807,133
===============
SHARES OUTSTANDING:
Class III 42,248,648
===============
NET ASSET VALUE PER SHARE:
Class III $ 10.74
===============
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers (Note 8) $ 7,320,118
Interest 5,689
---------------
Total income 7,325,807
---------------
EXPENSES:
Custodian and transfer agent fees 44,926
Audit and tax fees 26,520
Legal fees 17,053
Trustees fees and related expenses (Note 3) 7,320
Registration fees 19,640
Miscellaneous 5,682
---------------
Total expenses 121,141
Fees and expenses reimbursed by Manager (Note 3) (113,821)
---------------
Net expenses 7,320
---------------
Net investment income 7,318,487
---------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments in affiliated issuers 6,369,811
Realized gains distributions from affiliated issuers 3,658,520
---------------
Net realized gain on investments 10,028,331
---------------
Change in net unrealized appreciation (depreciation) on investments 87,757,076
---------------
Net realized and unrealized gain 97,785,407
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 105,103,894
===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 7,318,487 $ 4,010,954
Net realized gain 10,028,331 2,581,470
Change in net unrealized appreciation (depreciation) 87,757,076 (13,162,505)
----------------- -----------------
Net increase (decrease) in net assets from operations 105,103,894 (6,570,081)
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (9,122,583) (4,040,341)
Net realized gains
Class III (832,307) --
----------------- -----------------
(9,954,890) (4,040,341)
----------------- -----------------
Net share transactions (Note 7):
Class III 54,513,490 307,437,159
----------------- -----------------
Increase in net assets resulting from net share transactions 54,513,490 307,437,159
----------------- -----------------
Total increase in net assets 149,662,494 296,826,737
NET ASSETS:
Beginning of period 304,144,639 7,317,902
----------------- -----------------
End of period (including accumulated undistributed
net investment income of $2,377,363 and
$1,569,088, respectively) $ 453,807,133 $ 304,144,639
================= =================
</Table>
See accompanying notes to the financial statements.
5
<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>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.13 $ 8.64 $ 8.99 $ 8.96 $ 8.52
----------- ----------- ----------- ---------- ----------
Income from investment operations:
Net investment income (a) 0.18 0.20 0.23 0.21 0.20+
Net realized and unrealized gain (loss) 2.68 (0.28) (0.20) 0.18 1.69
----------- ----------- ----------- ---------- ----------
Total from investment operations 2.86 (0.08) 0.03 0.39 1.89
----------- ----------- ----------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.23) (0.43) (0.38) (0.36) --
From net realized gains (0.02) -- -- -- (1.45)
----------- ----------- ----------- ---------- ----------
Total distributions (0.25) (0.43) (0.38) (0.36) (1.45)
----------- ----------- ----------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.74 $ 8.13 $ 8.64 $ 8.99 $ 8.96
=========== =========== =========== ========== ==========
TOTAL RETURN (b) 35.53% (1.06)% 0.49% 4.29% 22.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 453,807 $ 304,145 $ 7,318 $ 11,021 $ 10,834
Net expenses to average daily net assets (c) 0.00%(d) 0.00%(d) 0.00%(d) 0.00% 0.00%
Net investment income to average daily net assets (a) 2.19% 4.01% 2.66% 2.31% 2.24%
Portfolio turnover rate 59% 61% 25% 12% 12%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.03% 0.05% 0.31% 0.20% 0.19%
Purchase and redemption fees consisted of the
following per share amounts: $ 0.01 -- -- -- --
</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 which are borne by the shareholder.
(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%.
+ Computed using average shares outstanding throughout the period.
6
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
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 7. 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.
The Fund operates as a "fund-of-funds" and 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 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 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 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. These financial statements are available, without charge, upon
request, by calling (617) 330-7500 or by visiting GMO's website at
www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
7
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
PORTFOLIO VALUATION
Shares of 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.
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 of the underlying funds. At February
29, 2004, the total value of the securities represented 5.7% of net assets.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by certain underlying
funds in which the Fund invests be valued using fair value prices supplied
by an independent pricing service to the extent that such prices are
available.
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. See Schedule of
Investments for the open repurchase agreement as of February 29, 2004.
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
8
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
effect to any available capital loss carryovers for U.S. federal income tax
purposes. Therefore, no provision for U.S. federal income or excise tax is
necessary.
The Fund's policy is to declare and pay distributions from net investment
income 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. During the years ended February 29, 2004 and February 28, 2003,
the tax basis of distributions paid from income were $9,145,803 and
$4,040,341, respectively. As of February 29, 2004 and February 28, 2003,
the tax basis distributions from capital long term gains were $809,087 and
$0, respectively.
As of February 29, 2004, the components of distributable earnings on a tax
basis consisted of $6,283,647 of undistributed ordinary income. The
temporary differences between book and tax distributable earnings are
primarily due to losses on wash sale transactions.
At February 29, 2004, the Fund had a capital loss carryforward to offset
future capital gains, if any, to the extent permitted by the Code of $2,552
and $1,276 expiring in 2008 and 2010, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
----------------- ------------- ---------------
$ 2,612,371 $ (2,612,370) $ (1)
</Table>
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.
9
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 3.)
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
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 redemptions 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 year
ended February 29, 2004, the Fund received $240,006 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.
10
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives 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, transfer taxes, and expenses indirectly
incurred by investments in the underlying funds).
The Fund incurs fees and expenses indirectly as a shareholder in the
underlying funds. For the year ended February 29, 2004, shareholder service
fees incurred indirectly by the Fund were .119% of the Fund's average daily
net assets, indirect operating expenses (excluding shareholder service fees
and investment-related expenses) were .418% 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 .011% 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 year ended February 29, 2004 was $5,037. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$254,926,002 and $199,352,013, respectively.
At February 29, 2004, 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
GROSS UNREALIZED UNREALIZED NET UNREALIZED
AGGREGATE COST APPRECIATION DEPRECIATION APPRECIATION
-------------- ---------------- ------------- --------------
$ 385,308,568 $ 68,900,304 $ (379,178) $ 68,521,126
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that
11
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
material liabilities related to such obligations will not arise in the
future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDER
At February 29, 2004, 21.0% 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. At February 29, 2004, .07% of the Fund was
held by five related parties.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
---------------------------------- ----------------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
Shares sold 22,027,764 $ 209,148,516 37,840,597 $ 318,274,774*
Shares issued to shareholders
in reinvestment of distributions 920,581 9,063,874 443,693 3,651,607
Shares repurchased (18,122,281) (163,698,900) (1,708,667) (14,489,222)
--------------- --------------- --------------- ---------------
Net increase 4,826,064 $ 54,513,490 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.
8. INVESTMENT IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING OF SALES DIVIDEND VALUE, END
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
-------------------------------------------------------------------------------------------------------------------------
GMO Core Plus Bond Fund,
Class III $ 19,054,904 $ 36,472,371 $ 10,821,743 $ 1,056,405 $ 46,657,470
GMO Currency Hedged
International Bond Fund, Class III 16,465,664 12,412,040 7,541,072 548,682 22,411,638
</Table>
12
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
VALUE,
BEGINNING OF SALES DIVIDEND VALUE, END
AFFILIATE PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
-------------------------------------------------------------------------------------------------------------------------
GMO Currency Hedged
International Equity Fund,
Class III 14,130,488 8,341,871 6,841,157 -- 19,742,605
GMO Domestic Bond Fund,
Class III 29,827,229 32,776,256 15,266,438 717,636 48,435,265
GMO Emerging Countries Fund,
Class III 5,033,310 451,302 257,123 123,929 9,013,093
GMO Emerging Country Debt Fund,
Class IV 10,920,921 4,026,732 8,609,516 590,752 7,360,504
GMO Emerging Markets Fund,
Class IV 22,931,562 1,793,330 15,306,870 -- --
GMO Emerging Markets Fund,
Class VI -- 9,339,693 167,792 457,880 32,637,970
GMO Global Hedged Equity Fund,
Class III 12,054,545 5,665,785 5,311,454 -- 12,805,633
GMO Inflation Indexed Bond Fund,
Class III 16,127,548 13,236,505 15,240,402 561,731 14,851,360
GMO International Bond Fund,
Class III 6,027,916 4,787,475 3,172,685 483,742 8,237,711
GMO International Growth Fund,
Class III 15,015,474 13,284,116 9,180,231 241,628 26,174,638
GMO International Intrinsic Value
Fund, Class IV 20,286,189 16,306,845 13,187,680 784,584 34,361,076
GMO International Small Companies
Fund, Class III 22,771,889 6,303,110 12,995,927 328,883 30,732,747
GMO Real Estate Fund, Class III 10,636,290 6,171,121 5,146,830 306,127 15,601,759
GMO Short-Duration
Investment Fund, Class III 3,040,470 43,194 -- 43,194 3,108,433
GMO Small Cap Value Fund, Class III 10,753,146 798,743 5,817,587 110,831 10,453,279
GMO U.S. Core Fund, Class V 67,705,567 3,987,895 36,907,644 264,853 --
GMO U.S. Core Fund, Class VI -- 53,168,684 26,910,612 677,640 84,713,205
GMO U.S. Quality Equity Fund,
Class IV -- 25,500,000 -- -- 25,410,750
GMO Value Fund, Class III 1,335,590 58,934 669,250 21,621 1,110,443
------------ ----------- ---------- --------- -----------
Totals $ 304,118,702 $ 254,926,002 $ 199,352,013 $ 7,320,118 $ 453,819,579
============== ============== ============== ============== ==============
</Table>
13
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO GLOBAL BALANCED ASSET ALLOCATION
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Global Balanced Asset
Allocation Fund (the "Fund") (formerly World Balanced Allocation Fund, a series
of GMO Trust) at February 29, 2004, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
14
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$23,220 from short-term capital gains,
$809,087 from long-term capital gains, all of which was subject to the 20%
rate gains category.
For taxable, non-corporate shareholders, 28.51% of the Fund's income and
short-term capital gains represents qualified dividend income subject to
the 15% rate category.
For corporate shareholders, 4.07% of the Fund's income and short-term
capital gains qualified for the dividends-received deduction.
15
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------------- ----------------- ----------------- ---------------------- ---------------- -----------------
Jay O. Light Trustee Since May 1996 Professor of Business
c/o GMO Trust Administration and 41 *(2)
40 Rowes Wharf Senior Associate
Boston, MA 02110 Dean, Harvard
DOB: 10/03/1941 University.
Donald W. Glazer, Esq. Trustee Since December Advisory Counsel,
c/o GMO Trust 2000 Goodwin Procter LLP; 41 None
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant, Provant,
DOB: 07/26/1944 Inc. (provider of
performance improvement
training services and
products)(1998 -
present); Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
16
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- ---------------------- ------------------ -------------------- --------------------- ---------------- ----------------
R. Jeremy Grantham(3) Chairman of the Since September Chairman, Grantham,
c/o GMO Trust Board of Trustees 1985. President Mayo, Van Otterloo & 41 None
40 Rowes Wharf from February Co. LLC
Boston, MA 02110 2002 - October
DOB: 10/06/1938 2002; President
Quantitative
from September
1985 - February
2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
17
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- --------------------------- ------------------------ ----------------------------- ---------------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer since (1997-present), Chief Operating
40 Rowes Wharf October 2002; Vice Officer (2000 - present) and
Boston, MA 02110 President from August 1998 Member, Grantham, Mayo, Van
DOB: 01/20/1956 - October 2002. Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Officer Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Treasurer since February 2000; Otterloo & Co. LLC.
40 Rowes Wharf Treasurer since February
Boston, MA 02110 1998.
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo & Co.
40 Rowes Wharf LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk since Laundering Reporting Officer (July
40 Rowes Wharf March 2001 - present and 2002 - February 2003) and Member,
Boston, MA 02110 May 1999 - August 1999. Grantham, Mayo, Van Otterloo & Co.
DOB: 07/20/1965 LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Secretary Grantham, Mayo, Van Otterloo & Co.
40 Rowes Wharf since March 2001. LLC (June 1999 - present);
Boston, MA 02110 Associate/Junior Partner, Hale and
DOB: 02/18/1945 Dorr LLP (1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering Reporting
c/o GMO Trust Anti-Money Laundering Officer (February 2003 - present)
40 Rowes Wharf Compliance Officer and Compliance Officer, Grantham,
Boston, MA 02110 Mayo, Van Otterloo & Co. LLC.
DOB: 10/07/1970
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004 Otterloo & Co. LLC
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
18
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the Asset
Allocation Team within the Quantitative Division at Grantham, Mayo, Van Otterloo
& Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Global (U.S.+) Equity Allocation Fund returned +49.6% for the fiscal
year ended February 29, 2004, as compared to +42.6% for the Fund's benchmark the
GMO Global Equity Index (75% S&P 500 / 25% MSCI ACWI [All Country World Index]
ex-U.S. Index). Consistent with the Fund's investment objectives and policies,
during the fiscal year the Fund was fully exposed to global equity and fixed
income securities through its investment in underlying GMO mutual funds.
Implementation was a slight positive, as the underlying GMO mutual funds
outperformed their respective benchmarks by approximately 0.4%.
Asset allocation added nearly 6.6%. The Fund's overweight to international small
caps (the S&P/Citigroup EMI World ex-US Index rose 70.6%), emerging equities
(the MSCI Emerging Markets Index rose 74.3%), and U.S. small value (the Russell
2500 Value Index rose 61.4%) drove the outperformance.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
GLOBAL (U.S.+) EQUITY ALLOCATION FUND-III
As Of: 2/29/2004
<Table>
<Caption>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND GMO GLOBAL EQUITY INDEX* S&P 500 INDEX
11/26/1996 4,991,500 5,000,000 5,000,000
12/31/1996 5,026,440 4,910,140 4,908,860
3/31/1997 5,107,920 5,009,135 5,040,440
6/30/1997 5,713,945 5,828,130 5,920,420
9/30/1997 6,224,740 6,140,530 6,363,860
12/31/1997 6,026,660 6,136,240 6,546,615
3/31/1998 6,678,685 6,988,155 7,459,820
6/30/1998 6,465,405 7,135,115 7,706,160
9/30/1998 5,591,210 6,335,420 6,939,620
12/31/1998 6,386,250 7,671,485 8,417,545
3/31/1999 6,421,340 8,004,585 8,836,940
6/30/1999 7,200,320 8,521,360 9,459,790
9/30/1999 6,835,235 8,190,440 8,869,080
12/31/1999 7,617,655 9,477,450 10,188,725
3/31/2000 7,843,770 9,663,570 10,422,345
6/30/2000 7,703,425 9,373,245 10,145,525
9/30/2000 7,893,005 9,111,760 10,047,245
12/31/2000 7,902,980 8,478,890 9,261,105
3/31/2001 7,575,900 7,445,775 8,163,160
6/30/2001 8,026,740 7,765,575 8,640,910
9/30/2001 7,252,890 6,624,540 7,372,580
12/31/2001 7,844,625 7,302,915 8,160,350
3/31/2002 8,341,820 7,347,980 8,182,855
6/30/2002 8,065,600 6,553,215 7,086,510
9/30/2002 6,912,170 5,386,955 5,862,250
12/31/2002 7,355,535 5,820,790 6,356,890
3/31/2003 7,052,605 5,575,170 6,156,630
6/30/2003 8,377,925 6,491,205 7,104,375
9/30/2003 8,870,500 6,758,945 7,292,325
12/31/2003 10,167,365 7,663,730 8,179,940
2/29/2004 10,619,445 7,930,510 8,446,245
</Table>
Average Annual Returns
Inception 11/26/1996
<Table>
<Caption>
1YR 5YR 10YR(ITD)
49.12 11.29 10.93
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 17 bp on the purchase and 17 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
* The GMO Global Equity Index is a composite benchmark computed by GMO and
comprised 75% by S&P 500 and 25% by MSCI AC World ex-U.S. Index.
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ----------------- ----------------------------------------------------------- --------------
PRIVATE INVESTMENT FUND -- 0.0%
175 GMO SPV I, LLC *(a) 2,102
-------------
TOTAL PRIVATE INVESTMENT FUND (COST $3,505) 2,102
-------------
MUTUAL FUNDS -- 100.0%
943,059 GMO Currency Hedged International Equity Fund, Class III 6,912,619
266,213 GMO Emerging Countries Fund, Class III 3,990,530
494,655 GMO Emerging Country Debt Fund, Class IV 5,198,822
1,936,490 GMO Emerging Markets Fund, Class VI 30,519,082
295,278 GMO Global Hedged Equity Fund, Class III 2,949,824
6,427 GMO Growth Fund, Class III 122,313
161,336 GMO Inflation Indexed Bond Fund, Class III 1,939,255
772,624 GMO International Growth Fund, Class III 18,288,002
929,448 GMO International Intrinsic Value Fund, Class IV 22,594,881
1,003,806 GMO International Small Companies Fund, Class III 17,155,051
683,132 GMO Real Estate Fund, Class III 10,007,887
16,391 GMO Short-Duration Investment Fund, Class III 143,423
626,581 GMO Small Cap Value Fund, Class III 9,718,278
5,866,119 GMO U.S. Core Fund, Class VI 79,309,935
640,000 GMO U.S. Quality Equity Fund, Class IV 12,755,200
136,064 GMO Value Fund, Class III 1,262,676
-------------
TOTAL MUTUAL FUNDS (COST $185,946,372) 222,867,778
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ----------------- ----------------------------------------------------------- -------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
8,143 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $8,144 and
an effective yield of .65%, collateralized by a U.S.
Treasury Bill with a rate of 0.915%, maturity date of
5/20/04, and a market value, including accrued
interest of $8,308. 8,143
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $8,143) 8,143
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $185,958,020) 222,878,023
Other Assets and Liabilities (net) -- (0.0%) (22,122)
-------------
TOTAL NET ASSETS -- 100.0% $ 222,855,901
=============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* 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 2).
See accompanying notes to the financial statements.
2
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in affiliated issuers, at value (cost $185,949,877)(Notes 2 and 8) $ 222,869,880
Investments in unaffiliated issuers, at value (cost $8,143) (Note 2) 8,143
Receivable for expenses reimbursed by Manager (Note 3) 12,223
---------------
Total assets 222,890,246
---------------
LIABILITIES:
Payable to affiliate for (Note 3):
Trustees fee 392
Accrued expenses 33,953
---------------
Total liabilities 34,345
---------------
NET ASSETS $ 222,855,901
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 183,858,151
Accumulated net realized gain 2,077,747
Net unrealized appreciation 36,920,003
---------------
$ 222,855,901
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 222,855,901
===============
SHARES OUTSTANDING:
Class III 20,528,696
===============
NET ASSET VALUE PER SHARE:
Class III $ 10.86
===============
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers (Note 8) $ 2,993,560
Interest 1,573
---------------
Total income 2,995,133
---------------
EXPENSES:
Custodian and transfer agent fees 22,151
Audit and tax fees 20,274
Legal fees 6,028
Trustees fees and related expenses (Note 3) 3,404
Registration fees 17,809
Miscellaneous 3,116
---------------
Total expenses 72,782
Fees and expenses reimbursed by Manager (Note 3) (69,378)
---------------
Net expenses 3,404
---------------
Net investment income 2,991,729
---------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments in affiliated issuers 6,815,173
Realized gains distributions from affiliated issuers 730,922
---------------
Net realized gain on investments 7,546,095
---------------
Change in net unrealized appreciation (depreciation) on investments 48,547,085
---------------
Net realized and unrealized gain 56,093,180
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 59,084,909
===============
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,991,729 $ 1,633,247
Net realized gain (loss) 7,546,095 (43,226)
Change in net unrealized appreciation (depreciation) 48,547,085 (6,859,717)
------------------ ------------------
Net increase (decrease) in net assets from operations 59,084,909 (5,269,696)
------------------ ------------------
Distributions to shareholders from:
Net investment income
Class III (3,981,084) (1,700,368)
Net realized gains
Class III (2,513,352) --
(6,494,436) (1,700,368)
------------------ ------------------
Net share transactions (Note 7):
Class III 90,529,150 46,581,994
------------------ ------------------
Increase in net assets resulting from net share
transactions 90,529,150 46,581,994
------------------ ------------------
Total increase in net assets 143,119,623 39,611,930
NET ASSETS:
Beginning of period 79,736,278 40,124,348
------------------ ------------------
End of period (including accumulated undistributed net
investment income of $0 and $526,755, respectively) $ 222,855,901 $ 79,736,278
================== ==================
</Table>
See accompanying notes to the financial statements.
5
<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>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.51 $ 8.66 $ 8.92 $ 9.49 $ 8.85
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (a) 0.14 0.15 0.23 0.24 0.25
Net realized and unrealized gain
(loss) 3.55 (1.07) (0.14) 0.39 1.45
---------- ---------- ---------- ---------- ----------
Total from investment
operations 3.69 (0.92) 0.09 0.63 1.70
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.21) (0.23) (0.13) (0.51) (0.43)
From net realized gains (0.13) -- (0.22) (0.69) (0.63)
---------- ---------- ---------- ---------- ----------
Total distributions (0.34) (0.23) (0.35) (1.20) (1.06)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.86 $ 7.51 $ 8.66 $ 8.92 $ 9.49
========== ========== ========== ========== ==========
TOTAL RETURN (b) 49.63% (10.84)% 1.12% 6.57% 19.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 222,856 $ 79,736 $ 40,124 $ 42,776 $ 36,669
Net expenses to average daily
net assets(c) 0.00%(d) 0.00%(d) 0.00%(d) 0.00% 0.00%
Net investment income to average daily net
assets (a) 1.99% 3.06% 2.73% 2.56% 2.63%
Portfolio turnover rate 14% 30% 13% 19% 18%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.05% 0.07% 0.07% 0.07% 0.09%
Purchase and redemption fees consisted of the
following per share amounts: $ 0.01 -- -- -- --
</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 which are borne by the shareholders.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. (See Note 3.)
(d) Net expenses to average daily net assets was less than 0.01%.
See accompanying notes to the financial statements.
6
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO Global (U.S.+) Equity Allocation Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees 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" and 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) 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) ex-U.S. Index). The financial
statements of the underlying funds should be read in conjunction with the
Fund's financial statements. These financial statements are available,
without charge, upon request by calling (617) 330-7500 or by visiting GMO's
website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Shares of 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
7
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 of the underlying funds.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by certain underlying
funds in which the Fund invests be valued using fair value prices supplied
by an independent pricing service to the extent that such prices are
available.
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. See Schedule of
Investments for the open repurchase agreement as of February 29, 2004.
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.
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. During the years ended February 29, 2004 and
8
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
February 28, 2003, the tax basis of distributions paid from ordinary income
were $6,221,558 and $1,700,368, respectively and long-term capital gains
were $272,878 and $0, respectively.
At February 29, 2004, the components of distributable earnings on a tax
basis consisted of $2,477,800 of undistributed ordinary income. These
temporary differences between book and tax basis distributable earnings are
primarily due to wash sale transactions.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET UNDISTRIBUTED NET
INVESTMENT INCOME REALIZED GAIN PAID-IN CAPITAL
------------------ ----------------- ---------------
$ 462,600 $ (462,599) $ (1)
</Table>
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 and redemption
fees on Fund shares. The Fund's purchase premium and redemption fee are
approximately equal to the weighted average of the purchase premiums and
redemptions fees, if any, of the underlying funds in which the Fund was
invested as of June 30, 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
9
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 year ended February 29, 2004, the Fund received $119,831
in purchase premiums and $817 in redemption fees. 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 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.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives 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, transfer taxes and expenses indirectly incurred
by investments in the underlying funds).
The Fund incurs fees and expenses indirectly as a shareholder in the
underlying funds. For the year ended February 29, 2004, shareholder service
fees incurred indirectly by the Fund were .113% of the Fund's average daily
net assets, indirect operating expenses (excluding shareholder service fees
and investment-related expenses) were .505% of the Fund's average daily net
assets, and indirect investment-related
10
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 year ended February 29, 2004 was $2,309. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 2004, aggregated
$109,624,081 and $21,850,999, respectively.
At February 29, 2004, 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
-------------- ---------------- ---------------- ---------------
$ 186,358,073 $ 36,825,576 $ (305,626) $ 36,519,950
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 38.4% 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. At February 29, 2004, less than 0.0% of the
Fund was held by one related party.
11
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------ --------------------------
CLASS III: SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- -------------
Shares sold 9,966,233 $ 90,922,217 6,144,908 $ 47,976,365
Shares issued to shareholders
in reinvestment of
distributions 486,125 4,942,065 63,094 494,347
Shares repurchased (540,674) (5,335,132) (226,927) (1,888,718)
--------- ------------ ---------- -------------
Net increase 9,911,684 $ 90,529,150 5,981,075 $ 46,581,994
========= ============ ========== =============
</Table>
8. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the year ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
--------------------------------------------------------------------------------------------------------------------------
GMO Currency Hedged
International Equity Fund,
Class III $ 2,110,264 $ 4,126,181 $ 700,885 $ -- $ 6,912,619
GMO Emerging Countries Fund,
Class III 2,084,414 258,970 50,567 55,830 3,990,530
GMO Emerging Country Debt
Fund, Class III 2,852,115 777,702 3,888,480 33,693 --
GMO Emerging Country Debt
Fund, Class IV -- 5,311,132 -- 344,128 5,198,822
GMO Emerging Markets Fund,
Class III 8,239,843 3,990,950 15,656,053 68,458 --
GMO Emerging Markets Fund,
Class VI -- 23,942,487 1,100,000 379,170 30,519,082
GMO Global Hedged Equity
Fund, Class III 970,501 1,887,528 317 -- 2,949,824
GMO Growth Fund, Class III 83,290 9,405 18 853 122,313
GMO Inflation Indexed Bond
Fund, Class III 734,460 1,450,821 300,125 49,381 1,939,255
</Table>
12
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
------------------------------------------------------------------------------------------------------------------------------
GMO International Growth
Fund, Class III $ 6,223,412 $ 8,860,396 $ 1,098,068 $ 187,683 $ 18,288,002
GMO International Intrinsic
Value Fund, Class III 10,221,407 2,940,753 15,937,250 86,177 --
GMO International Intrinsic
Value Fund, Class IV -- 20,275,521 1,731,000 479,458 22,594,881
GMO International Small
Companies Fund, Class III 6,070,007 5,998,008 1,378,825 188,782 17,155,051
GMO Real Estate Fund, Class
III 3,258,711 4,738,224 16,012 210,321 10,007,887
GMO Short-Duration
Investment Fund, Class III 140,287 1,993 -- 1,993 143,423
GMO Small Cap Value Fund,
Class III 3,896,664 2,827,867 1,185 80,623 9,718,278
GMO SPV I, LLC 2,808 -- -- -- 2,102
GMO U.S. Core Fund, Class III 32,009,271 14,462,836 53,207,628 406,701 --
GMO U.S. Core Fund, Class VI -- 81,544,534 13,450,000 398,208 79,309,935
GMO U.S. Quality Equity
Fund, Class IV -- 12,800,000 -- -- 12,755,200
GMO Value Fund, Class III 837,084 84,419 232 22,101 1,262,676
--------------- --------------- --------------- --------------- ---------------
Totals $ 79,734,538 $ 196,289,727 $ 108,516,645 $ 2,993,560 $ 222,869,880
=============== =============== =============== =============== ===============
</Table>
13
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly in all material respects, the financial position of GMO
Global (U.S.+) Equity Allocation Fund (the "Fund") (a series of GMO Trust)
at February 29, 2004, and the results of its operations, the changes in its
net assets and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 29, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
14
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
$2,248,543 from short-term capital gains,
$ 272,878 from long-term capital gains, all of which was subject to the 20%
rate gains category.
For taxable, non-corporate shareholders, 50.11% of the Fund's income and
short-term capital gains represents qualified dividend income subject to
the 15% rate category.
For corporate shareholders, 6.85% of the Fund's income and short-term
capital gains qualified for the dividends-received deduction.
15
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ---------------- ------------- --------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard
University.
Donald W. Trustee Since Advisory
Glazer, Esq. December 2000 Counsel, Goodwin 41 None
c/o GMO Trust Procter LLP;
40 Rowes Wharf Secretary and
Boston, MA 02110 Consultant,
DOB: 07/26/1944 Provant, Inc.
(provider of
performance
improvement
training
services and
products)(1998 -
present);
Consultant -
Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
16
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ---------------- --------------- ----------------- ---------------- ------------- --------------
R. Jeremy Chairman of Since September Chairman, 41 None
Grantham(3) the Board of 1985. Grantham,
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the
purpose of electing Trustees and until his successor is elected and
qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
17
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ --------------------- ---------------------- -------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van Otterloo
40 Rowes Wharf Secretary since March & Co. LLC (June 1999 -
Boston, MA 02110 2001. present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
18
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of the Asset
Allocation Team within the Quantitative Division at Grantham, Mayo, Van Otterloo
& Co. LLC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
Since its inception on July 23, 2003, the GMO Benchmark-Free Allocation Fund
returned +25.9% for the period ended February 29, 2004, as compared to +1.1% for
the CPI Index and +22.6% for the MSCI AC World Index. During the period, the
Fund was exposed to a range of asset classes through its investment in
underlying GMO mutual funds.
Implementation was positive, as the underlying GMO mutual funds outperformed
their respective benchmarks by approximately 1.6%.
Asset allocation contributed +23.2% and +1.7% when measured against the CPI
Index and MSCI AC World Index, respectively. The Fund's allocation to
international small companies (the S&P/Citigroup EMI World ex-US Index rose
36.5%) and emerging equities (the MSCI Emerging Markets Index rose 40.4%) drove
the outperformance.
THE VIEWS EXPRESSED HEREIN ARE EXCLUSIVELY THOSE OF GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC MANAGEMENT AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE.
THEY ARE NOT MEANT AS INVESTMENT ADVICE.
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
BENCHMARK-FREE ALLOCATION FUND
As Of: 2/29/2004
<Table>
<Caption>
GMO BENCHMARK-FREE ALLOCATION FUND CPI INDEX MSCI WORLD INDEX
7/23/2003 4,981,500 5,000,000 5,000,000
9/30/2003 5,365,075 5,032,160 5,162,105
12/31/2003 5,975,740 5,032,160 5,898,365
2/29/2004 6,249,640 5,053,920 6,093,365
</Table>
AVERAGE ANNUAL RETURNS
INCEPTION 7/23/2003
<Table>
<Caption>
1YR 5YR 10YR(ITD)
N/A N/A 24.99
</Table>
Performance shown is net of all fees after reimbursement from the manager.
Returns and net asset values of fund investments will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
reimbursed during the periods shown and do not include the effect of taxes on
distributions and redemptions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 37 bp on the purchase and 37 bp on the redemption.
Transaction fees are retained by the Fund to cover trading costs. Past
performance is not indicative of future performance. Information is unaudited.
Current performance of the Fund may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained by
visiting www.gmo.com.
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
3,298,206 GMO Currency Hedged International Bond Fund, Class III 30,211,567
4,080,219 GMO Emerging Country Debt Fund, Class IV 42,883,100
3,052,164 GMO Emerging Markets Fund, Class VI 48,102,097
4,985,629 GMO Inflation Indexed Bond Fund, Class III 59,927,259
690,439 GMO International Intrinsic Value Fund, Class IV 16,784,562
5,241,605 GMO International Small Companies Fund, Class III 89,579,023
-------------
TOTAL MUTUAL FUNDS (COST $262,623,009) 287,487,608
-------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
31,784 Citigroup Global Markets, Repurchase Agreement, dated
02/27/04, due 03/01/04, with a maturity value of $31,785,
and an effective yield of 0.65%, collateralized by a U.S.
Treasury Note with a rate of 0.915%, maturity date of
5/20/04, and a market value, including accrued interest
of $32,423. 31,784
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $31,784) 31,784
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $262,654,793) 287,519,392
Other Assets and Liabilities (net) -- (0.0%) (29,032)
-------------
TOTAL NET ASSETS -- 100.0% $ 287,490,360
=============
</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 -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in unaffiliated issuers, at value (cost $31,784) (Note 2) $ 31,784
Investments in affiliated issuers, at value (cost $262,623,009) (Notes 2 and 8) 287,487,608
Receivable for expenses reimbursed by Manager (Note 3) 24,690
-------------
Total assets 287,544,082
-------------
LIABILITIES:
Payable to affiliate for (Note 3):
Trustees fee 454
Accrued expenses 53,268
-------------
Total liabilities 53,722
-------------
NET ASSETS $ 287,490,360
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 260,162,633
Accumulated net realized gain 2,463,128
Net unrealized appreciation 24,864,599
-------------
$ 287,490,360
=============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 287,490,360
=============
SHARES OUTSTANDING:
Class III 11,842,067
=============
NET ASSET VALUE PER SHARE:
Class III $ 24.28
=============
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS
PERIOD FROM JULY 23, 2003 (COMMENCEMENT OF OPERATIONS) THROUGH FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated issuers (Note 8) $ 4,866,751
Interest 8,798
-------------
Total income 4,875,549
-------------
EXPENSES:
Custodian and transfer agent fees 11,817
Audit and tax fees 18,837
Legal fees 2,210
Trustees fees and related expenses (Note 3) 1,625
Registration fees 32,942
Miscellaneous 2,093
-------------
Total expenses 69,524
Fees and expenses reimbursed by Manager (Note 3) (67,899)
-------------
Net expenses 1,625
-------------
Net investment income 4,873,924
-------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments in affiliated issuers 2,306,914
Realized gains distributions from affiliated issuers 2,734,944
-------------
Net realized gain on investments 5,041,858
-------------
Change in net unrealized appreciation (depreciation) on investments 24,864,599
-------------
Net realized and unrealized gain 29,906,457
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 34,780,381
=============
</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 FEBRUARY 29, 2004
----------------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,873,924
Net realized gain 5,041,858
Change in net unrealized appreciation (depreciation) 24,864,599
-------------
Net increase in net assets from operations 34,780,381
-------------
Distributions to shareholders from:
Net investment income
Class III (6,471,134)
-------------
Net realized gains
Class III (981,520)
-------------
(7,452,654)
-------------
Net share transactions (Note 7):
Class III 260,162,633
-------------
Increase in net assets resulting from net share transactions 260,162,633
-------------
Total increase in net assets 287,490,360
NET ASSETS:
Beginning of period --
-------------
End of period $ 287,490,360
=============
</Table>
See accompanying notes to the financial statements.
4
<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
FEBRUARY 29, 2004
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.00
---------
Income from investment operations:
Net investment income (a) 0.61
Net realized and unrealized gain 4.53
---------
Total from investment operations 5.14
---------
Less distributions to shareholders:
From net investment income (0.75)
From net realized gains (0.11)
---------
Total distributions (0.86)
---------
NET ASSET VALUE, END OF PERIOD $ 24.28
=========
TOTAL RETURN (b) 25.92%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 287,490
Net expenses to average daily net assets (c) (d) 0.00%*
Net investment income to average daily net assets (a) 5.05%*
Portfolio turnover rate 24%**
Fees and expenses reimbursed by the Manager to average daily net assets: 0.07%*
Purchase and redemption fees consisted of the following per share amounts: $ 0.13
</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 which are borne by the shareholders.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 3.
(d) Net expenses to average daily net assets was less than 0.01%.
* 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
FEBRUARY 29, 2004
1. ORGANIZATION
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" and 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. The
financial statements of the underlying funds should be read in conjunction
with the Fund's financial statements. These financial statements are
available, without charge, upon request by calling (617)330-7500 or by
visiting GMO's website at www.gmo.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Shares of 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 of the
underlying funds.
6
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 of the underlying funds. At February
29, 2004, the total value of the securities represented 4.8% of net assets.
Effective on or about April 19, 2004, new fair value pricing procedures
approved by the Trustees were implemented which, among other things,
generally require that foreign equity securities held by certain underlying
funds in which the Fund invests be valued using fair value prices supplied
by an independent pricing service to the extent that such prices are
available.
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. See Schedule of Investments
for the open repurchase agreement as of February 29, 2004.
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.
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 BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. During the period ended February 29, 2004, the tax basis of
distributions paid from ordinary income was $7,452,654. As of February 29,
2004, the components of distributable earnings on a tax basis consisted of
$1,319,115 and $1,144,013 of undistributed ordinary income and
undistributed long-term capital gains, respectively.
The following reclassification represents the amount necessary to report
the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 29, 2004. This reclassification has
no impact on net investment income, realized gain/loss or the net asset
value of the Fund and is primarily attributable to certain differences in
the computation of distributable income and capital gains under U.S.
federal tax rules versus U.S. GAAP. The financial highlights exclude these
adjustments.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET NET
INVESTMENT INCOME REALIZED GAIN
----------------------- -----------------
$ 1,597,210 $ (1,597,210)
</Table>
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
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. 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
8
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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 February 29, 2004, the Fund received $937,144
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 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.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives 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, transfer taxes and expenses indirectly incurred
by investments in the underlying funds).
The Fund incurs fees and expenses indirectly as a shareholder in the
underlying funds. For the period ended February 29, 2004, shareholder
service fees incurred indirectly by the Fund were .126% (annualized) of the
Fund's average daily net assets, indirect operating expenses (excluding
shareholder service fees and investment-related expenses) were .482%
(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
.048% (annualized) of the Fund's average daily net assets.
9
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the period ended February 29, 2004 was $1,053. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
As of February 29, 2004, substantially all of the Fund's shares were held
by accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the period ended February 29, 2004, aggregated
$293,229,885 and $32,913,790, respectively.
At February 29, 2004, 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
----------------- ----------------- ----------------- ---------------
$ 262,654,793 $ 26,081,668 $ (1,217,069) $ 24,864,599
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 43.2% 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. At February 29, 2004, 1.23% of the Fund was
held by six related parties.
10
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
PERIOD FROM JULY 23, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
-----------------------------
CLASS III SHARES AMOUNT
---------- -------------
Shares sold 11,543,302 $ 253,282,088
Shares issued to shareholders in reinvestment of distributions 298,765 6,880,545
Shares repurchased -- --
---------- -------------
Net increase 11,842,067 $ 260,162,633
========== =============
</Table>
11
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
8. INVESTMENTS IN AFFILIATED ISSUERS
A summary of the Fund's transactions in the securities of these issuers
during the period ended February 29, 2004, is set forth below:
<Table>
<Caption>
VALUE,
BEGINNING SALES DIVIDEND VALUE, END
AFFILIATE OF PERIOD PURCHASES PROCEEDS INCOME OF PERIOD
-----------------------------------------------------------------------------------------------------------------------
GMO Currency Hedged
International Bond Fund, Class III $ -- $ 29,528,168 $ -- $ -- $ 30,211,567
GMO Emerging Country Debt
Fund, Class III -- 7,597,040 7,850,784 -- --
GMO Emerging Country Debt
Fund, Class IV -- 44,100,169 -- 2,090,026 42,883,100
GMO Emerging Markets Fund,
Class III -- 10,455,856 11,055,695 -- --
GMO Emerging Markets Fund,
Class VI -- 39,572,245 62,000 463,803 48,102,097
GMO Inflation Indexed Bond
Fund, Class III -- 82,308,151 24,500,000 1,543,465 59,927,259
GMO International Intrinsic
Value Fund, Class III -- 4,977,632 5,007,024 -- --
GMO International Intrinsic
Value Fund, Class IV -- 14,831,604 -- 218,330 16,784,562
GMO International Small
Companies Fund, Class III -- 76,230,353 100,000 505,058 89,579,023
GMO Real Estate Fund,
Class III -- 7,542,170 8,251,790 46,069 --
-------------- -------------- -------------- -------------- --------------
Totals $ -- $ 317,143,388 $ 56,827,293 $ 4,866,751 $ 287,487,608
============== ============== ============== ============== ==============
</Table>
12
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO BENCHMARK-FREE ALLOCATION FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Benchmark-Free Allocation Fund
(the "Fund") (a series of GMO Trust) at February 29, 2004, and the results of
its operations, the changes in its net assets and the financial highlights for
the period presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit, which included confirmation of securities at February
29, 2004 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
13
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED FEBRUARY 29, 2004
The Fund's distributions to shareholders included:
For taxable, non-corporate shareholders, 14.62% of the Fund's income and
short-term capital gains represents qualified dividend income subject to
the 15% rate category.
14
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
POSITION(S) TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ ------------- ----------------- ---------------------- -------------- -------------
Jay O. Light Trustee Since May 1996 Professor of
c/o GMO Trust Business 41 *(2)
40 Rowes Wharf Administration
Boston, MA 02110 and Senior
DOB: 10/03/1941 Associate Dean,
Harvard University.
Donald W. Trustee Since December Advisory Counsel,
Glazer, Esq. 2000 Goodwin Procter LLP; 41 None
c/o GMO Trust Secretary and
40 Rowes Wharf Consultant, Provant,
Boston, MA 02110 Inc. (provider of
DOB: 07/26/1944 performance
improvement training
services and products)
(1998 - present);
Consultant - Business
and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
15
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
POSITION(S) TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, HELD WITH AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ------------------ ------------- ----------------- ---------------------- ------------- -------------
R. Jeremy Chairman of Since September Chairman,
Grantham(3) the Board of 1985. Grantham, 41 None
c/o GMO Trust Trustees President from Mayo, Van
40 Rowes Wharf February 2002 - Otterloo & Co.
Boston, MA 02110 October 2002; LLC
DOB: 10/06/1938 President
Quantitative from
September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
16
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ----------------------- ---------------------- ------------------------ ------------------------------
Scott Eston President and Chief President and Chief Chief Financial Officer
c/o GMO Trust Executive Officer Executive Officer (1997-present), Chief
40 Rowes Wharf since October 2002; Operating Officer (2000 -
Boston, MA 02110 Vice President from present) and Member,
DOB: 01/20/1956 August 1998 - October Grantham, Mayo, Van Otterloo
2002. & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Member, Grantham, Mayo, Van
c/o GMO Trust Officer and Officer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 2000;
Boston, MA 02110 Treasurer since
DOB: 04/25/1957 February 1998.
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo
40 Rowes Wharf & Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since General Counsel, Anti-Money
c/o GMO Trust Clerk February 1997; Clerk Laundering Reporting Officer
40 Rowes Wharf since March 2001 - (July 2002 - February 2003)
Boston, MA 02110 present and May 1999 and Member, Grantham, Mayo,
DOB: 07/20/1965 - August 1999. Van Otterloo & Co. LLC.
Elaine M. Hartnett, Esq. Vice President and Vice President since Associate General Counsel,
c/o GMO Trust Secretary August 1999; Grantham, Mayo, Van Otterloo
40 Rowes Wharf Secretary since March & Co. LLC (June 1999 -
Boston, MA 02110 2001. present); Associate/Junior
DOB: 02/18/1945 Partner, Hale and Dorr LLP
(1991 - 1999).
Julie Perniola Vice President and Since February 2003. Anti-Money Laundering
c/o GMO Trust Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and
Boston, MA 02110 Compliance Officer Compliance Officer, Grantham,
DOB: 10/07/1970 Mayo, Van Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since Member, Grantham, Mayo, Van
c/o GMO Trust February 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
17
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 2004
<Page>
For a free copy of the Fund's proxy voting guidelines visit our website at
www.gmo.com or visit the Securities and Exchange Commission's website at
www.sec.gov.
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
COMMON STOCKS -- 91.0%
AUTOMOTIVE -- 5.0%
14,000 Genuine Parts Co. 486,220
60,000 Harley-Davidson, Inc. 3,187,200
71,600 Johnson Controls, Inc. 4,175,712
-------------
7,849,132
-------------
CONSTRUCTION -- 0.8%
28,400 D.R. Horton, Inc. 902,836
7,800 Jacobs Engineering Group, Inc. * 344,214
-------------
1,247,050
-------------
CONSUMER GOODS -- 3.5%
26,000 Jones Apparel Group, Inc. 969,800
36,200 Kimberly Clark Corp. 2,341,416
8,300 Liz Claiborne, Inc. 306,270
1,700 Mohawk Industries, Inc. * 141,610
7,300 Procter & Gamble Co. 748,323
21,700 VF Corp. 974,981
-------------
5,482,400
-------------
FINANCIALS -- 6.8%
57,100 Allstate Corp. (The) 2,605,473
26,600 AMBAC Financial Group, Inc. 2,080,120
26,370 Fidelity National Financial, Inc. 1,031,331
26,500 Jefferson Pilot Corp. 1,416,160
29,200 MGIC Investment Corp. 1,932,456
29,100 Torchmark Corp. 1,516,692
-------------
10,582,232
-------------
FOOD & BEVERAGES -- 3.6%
109,800 PepsiCo Inc 5,698,620
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
HEALTH CARE -- 30.3%
181,200 Abbott Laboratories 7,755,360
95,700 Bristol-Myers Squibb Co. 2,662,374
22,800 Cardinal Health, Inc. 1,487,244
36,000 Guidant Corp. 2,453,040
10,000 Health Management Associates, Inc.-Class A 222,900
161,600 Johnson & Johnson 8,711,856
75,400 Medtronic Inc 3,536,260
159,400 Merck & Co., Inc. 7,663,952
258,900 Pfizer, Inc. 9,488,685
88,400 Wyeth 3,491,800
-------------
47,473,471
-------------
MANUFACTURING -- 6.6%
39,600 3M Co. 3,089,592
26,500 American Standard Cos., Inc. * 2,887,440
47,600 United Technologies Corp. 4,384,436
-------------
10,361,468
-------------
PRIMARY PROCESSING -- 0.4%
16,700 Sherwin-Williams Co. (The) 584,500
-------------
RETAIL STORES -- 16.9%
18,200 Abercrombie & Fitch Co.-Class A * 573,846
58,400 Albertson's, Inc. 1,444,816
40,100 Bed Bath & Beyond, Inc. * 1,639,288
18,500 Dollar Tree Stores, Inc. * 571,650
237,400 Home Depot, Inc. 8,619,994
46,300 Lowe's Cos., Inc. 2,592,800
29,100 Ross Stores, Inc. 932,655
105,100 Safeway, Inc. * 2,403,637
31,900 Supervalu, Inc. 902,770
11,800 Target Corp. 518,728
104,500 Wal-Mart Stores, Inc. 6,224,020
-------------
26,424,204
-------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
SERVICES -- 0.4%
13,600 Outback Steakhouse, Inc. 658,104
-------------
TECHNOLOGY -- 15.5%
73,100 Cisco Systems, Inc. * 1,688,610
258,000 Dell, Inc. * 8,423,700
94,300 First Data Corp. 3,864,414
22,200 Lexmark International, Inc. * 1,826,838
322,600 Microsoft Corp. 8,548,900
-------------
24,352,462
-------------
UTILITY -- 1.2%
68,100 BellSouth Corp. 1,876,836
-------------
TOTAL COMMON STOCKS (COST $143,084,896) 142,590,479
-------------
SHORT-TERM INVESTMENTS -- 3.2%
REPURCHASE AGREEMENTS -- 3.2%
2,524,912 Citigroup Global Markets Repurchase Agreement, dated
2/27/04, due 3/01/04, with a maturity value of $2,525,049,
and an effective yield of 0.65%, collateralized by a U.S.
Treasury Bill with a rate of 0.915%, maturity date of
05/20/04, and a market value, including accrued interest
of $2,575,664. 2,524,913
2,524,912 Morgan Stanley Repurchase Agreement, dated 2/27/04, due
3/01/04, with a maturity value of $2,525,060, and an
effective yield of 0.70%, collateralized by a U.S.
Treasury Bond with a rate of 8.875%, maturity date of
8/15/17, and a market value, including accrued interest
of $2,575,664. 2,524,911
-------------
5,049,824
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,049,824) 5,049,824
-------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 2004
<Table>
<Caption>
DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 94.2%
(Cost $148,134,720) 147,640,303
Other Assets and Liabilities (net) -- 5.8% 9,160,273
-------------
TOTAL NET ASSETS -- 100.0% $ 156,800,576
=============
</Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
See accompanying notes to the financial statements.
4
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 29, 2004
<Table>
ASSETS:
Investments, at value (cost $148,134,720) (Note 2) $ 147,640,303
Cash 93,995,446
Cash on deposit at brokers (Note 2) 48,000
Receivable for investments sold 3,551,485
Receivable for Fund shares sold 9,000,000
Dividends and interest receivable 50,265
Receivable for variation margin on open futures contracts (Notes 2 and 8) 45,250
Receivable for expenses reimbursed by Manager (Note 3) 54,705
---------------
Total assets 254,385,454
---------------
LIABILITIES:
Payable for investments purchased 97,522,175
Payable to affiliate for (Note 3):
Management fee 11,330
Shareholder service fee 3,816
Trustees fee 21
Accrued expenses 47,536
---------------
Total liabilities 97,584,878
---------------
NET ASSETS $ 156,800,576
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 157,300,000
Accumulated undistributed net investment income 35,218
Accumulated net realized loss (39,125)
Net unrealized depreciation (495,517)
---------------
$ 156,800,576
===============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 18,965,971
===============
Class IV shares $ 137,834,605
===============
SHARES OUTSTANDING:
Class III 951,581
===============
Class IV 6,915,000
===============
NET ASSET VALUE PER SHARE:
Class III $ 19.93
===============
Class IV $ 19.93
===============
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 6, 2004 (COMMENCEMENT OF OPERATIONS) THROUGH
FEBRUARY 29, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 49,981
Interest 425
----------
Total income 50,406
----------
EXPENSES:
Management fee (Note 3) 11,330
Shareholder service fee (Note 3) - Class III 705
Shareholder service fee (Note 3) - Class IV 3,111
Custodian and transfer agent fees 1,155
Audit and tax fees 45,003
Legal fees 126
Trustees fees and related expenses (Note 3) 42
Registration fees 7,413
Miscellaneous 1,008
----------
Total expenses 69,893
Fees and expenses reimbursed by Manager (Note 3) (54,705)
----------
Net expenses 15,188
----------
Net investment income 35,218
----------
REALIZED AND UNREALIZED LOSS:
Net realized loss on investments (39,125)
----------
Change in net unrealized appreciation (depreciation) on:
Investments (494,417)
Open futures contracts (1,100)
----------
Net unrealized loss (495,517)
----------
Net realized and unrealized loss (534,642)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (499,424)
==========
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
PERIOD FROM FEBRUARY 6, 2004
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
----------------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 35,218
Net realized loss (39,125)
Change in net unrealized appreciation (depreciation) (495,517)
--------------
Net decrease in net assets from operations (499,424)
--------------
Net share transactions (Note 7):
Class III 19,000,000
Class IV 138,300,000
--------------
Increase in net assets resulting from net share transactions 157,300,000
--------------
Total increase in net assets 156,800,576
NET ASSETS:
Beginning of period --
--------------
End of period (including accumulated undistributed net
investment income of $35,218) $ 156,800,576
==============
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
PERIOD FROM
FEBRUARY 6, 2004
(COMMENCEMENT
OF OPERATIONS) THROUGH
FEBRUARY 29, 2004
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.00
--------
Income from investment operations:
Net investment income 0.01:
Net realized and unrealized loss (0.08)
--------
Total from investment operations (0.07)
--------
NET ASSET VALUE, END OF PERIOD $ 19.93
========
TOTAL RETURN (0.35)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 18,966
Net expenses to average daily net assets 0.47%*
Net investment income to average daily net assets 1.22%*
Portfolio turnover rate 2%**
Fees and expenses reimbursed by the Manager to average daily net assets: 1.59%*
</Table>
* Annualized.
** Not Annualized.
: Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
8
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
PERIOD FROM
FEBRUARY 6, 2004
(COMMENCEMENT
OF OPERATIONS) THROUGH
FEBRUARY 29, 2004
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.00
----------
Income from investment operations:
Net investment income 0.01:
Net realized and unrealized loss (0.08)
----------
Total from investment operations (0.07)
----------
NET ASSET VALUE, END OF PERIOD $ 19.93
==========
TOTAL RETURN (0.35)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 137,835
Net expenses to average daily net assets 0.44%*
Net investment income to average daily net assets 0.99%*
Portfolio turnover rate 2%**
Fees and expenses reimbursed by the Manager to average daily net assets: 1.59%*
</Table>
* Annualized.
** Not Annualized.
: Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
9
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. ORGANIZATION
GMO U.S. Quality Equity Fund (the "Fund"), which commenced operations on
February 6, 2004, 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 primarily through investment in U.S.
equity securities. The Fund's benchmark is the S&P 500 Index.
For the period from February 6, 2004 (commencement of operations) to
February 29, 2004, 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are 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.
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
10
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
accordance with the initial margin requirements of the broker or exchange.
In addition, the Fund maintains cash or securities in an amount that at
least equals the net amount payable in the event the Fund must deliver the
full amount of the contracts. Futures contracts are marked to market daily
and an appropriate payable or receivable for the change in value
("variation margin") is recorded by the Fund. The payable or receivable is
liquidated on the following business day. Gains or losses are recognized
but not considered realized until the contracts expire or are closed.
Futures contracts involve, to varying degrees, risk of loss in excess of
the variation margin disclosed in the Statement of Assets and Liabilities.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract can vary from the
previous day's settlement price, thereby effectively preventing liquidation
of unfavorable positions. Losses may arise from the changes in the value of
the underlying instrument, if the Fund is unable to liquidate a futures
position due to an illiquid secondary market for the contracts or the
imposition of price limits, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 8 for all open futures contracts as of February 29, 2004.
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. 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 on swap contracts 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 February 29, 2004, the Fund held no open swap agreements.
11
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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. See Schedule of
Investments for open repurchase agreements as of February 29, 2004.
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
February 29, 2004, 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.
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. As of February 29, 2004, the components of distributable
earnings on a tax basis consisted of $35,218 of undistributed ordinary
income.
The Fund elected to defer to March 1, 2004 post-October losses of $40,225.
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 U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
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.
3. 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 of each class at the annual rate of .15% for
Class III shares and .105% 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 .33% of the average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent Trustees
during the period from February 6, 2004 (commencement of operations) to
February 29, 2004 was $21. No remuneration is paid to any Trustee or
officer who is affiliated with the Manager.
As of February 29, 2004, substantially all the Fund's shares were held by
accounts for which the Manager has investment discretion.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the period from February 6, 2004 (commencement
of operations) to February 29, 2004, aggregated $146,675,505 and
$3,551,485, respectively.
13
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
At February 29, 2004, 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
---------------- ---------------- ---------------- --------------
$ 148,134,720 $ 814,202 $ (1,308,619) $ (494,417)
</Table>
5. GUARANTEES
In the normal course of business the Fund enters into contracts that
contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against the Fund that have not yet occurred. Based on experience,
management is of the view that the risk of loss in connection with these
potential indemnification obligations is remote; however, there can be no
assurance that material liabilities related to such obligations will not
arise in the future that could adversely impact the business of the Fund.
6. PRINCIPAL SHAREHOLDERS
At February 29, 2004, 79.8% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. One of the shareholders is another fund of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
7. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
PERIOD FROM FEBRUARY 6, 2004
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
-----------------------------
CLASS III: SHARES AMOUNT
------------- -------------
Shares sold 951,581 $ 19,000,000
Shares issued to shareholders in reinvestment of distributions -- --
Shares repurchased -- --
------------- -------------
Net increase 951,581 $ 19,000,000
============= =============
</Table>
14
<Page>
GMO U.S. QUALITY EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 29, 2004
<Table>
<Caption>
PERIOD FROM FEBRUARY 6, 2004
(COMMENCEMENT OF OPERATIONS)
THROUGH FEBRUARY 29, 2004
-----------------------------
CLASS IV: SHARES AMOUNT
------------- -------------
Shares sold 6,915,000 $ 138,300,000
Shares issued to shareholders in reinvestment of distributions -- --
Shares repurchased -- --
------------- -------------
Net increase 6,915,000 $ 138,300,000
============= =============
</Table>
8. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 2004 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF CONTRACT NET UNREALIZED
CONTRACTS TYPE EXPIRATION DATE VALUE DEPRECIATION
----------- ------------------------------ --------------- ------------- --------------
Buys
41 S&P 500 March 2004 $ 11,732,150 $ (1,100)
==============
</Table>
At February 29, 2004, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
15
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO U.S. QUALITY EQUITY FUND
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
U.S. Quality Equity Fund (the "Fund") (a series of GMO Trust) at February
29, 2004, and the results of its operations, the changes in its net assets
and the financial highlights for the period from February 6, 2004
(commencement of operations) to February 29, 2004, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in
accordance with auditing standards generally accepted in the United States
of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 22, 2004
16
<Page>
TRUSTEES AND OFFICERS (UNAUDITED)
The following tables list the Trust's Trustees and officers; their address and
date of birth ("DOB"); their position with the Trust; the length of time holding
that position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies. The Trust's Statement of
Additional Information includes additional information about the Trust's
trustees and is available, without charge, upon request by writing GMO, c/o GMO
Trust, 40 Rowes Wharf, Boston, MA 02110.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------- --------------- ----------------- ------------------------------ ------------- --------------
Jay O. Light Trustee Since May Professor of Business 41 *(2)
c/o GMO Trust 1996 Administration and Senior
40 Rowes Wharf Associate Dean, Harvard
Boston, MA University.
02110
DOB: 10/03/1941
Donald W. Trustee Since Advisory Counsel, Goodwin 41 None
Glazer, Esq. December 2000 Procter LLP; Secretary and
c/o GMO Trust Consultant, Provant, Inc.
40 Rowes Wharf (provider of performance
Boston, MA improvement training services
02110 and products)(1998 - present);
DOB: 07/26/1944 Consultant - Business and Law.
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(2) Mr. Light is a director of Harvard Management Company, Inc. and Security
Capital European Realty. Neither of these companies has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act and neither of these companies is a
registered investment company.
17
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
PRINCIPAL FUND OTHER
TERM OF OFFICE(1) OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD BY
AND DOB HELD WITH TRUST TIME SERVED YEARS TRUSTEE TRUSTEE
- --------------- --------------- ----------------- ------------------------------ ------------- --------------
R. Jeremy Chairman of Since September Chairman, Grantham, Mayo, Van 41 None
Grantham(3) the Board of 1985. President Otterloo & Co. LLC
c/o GMO Trust Trustees from February
40 Rowes Wharf 2002 - October
Boston, MA 2002; President
02110 Quantitative from
DOB: 10/06/1938 September 1985 -
February 2002
</Table>
(1) Each Trustee is elected to serve until the next meeting held for the purpose
of electing Trustees and until his successor is elected and qualified.
(3) Trustee is deemed to be an "interested person" of the Trust and Grantham,
Mayo, Van Otterloo & Co. LLC, as defined by the Investment Company Act of
1940, as amended.
18
<Page>
PRINCIPAL OFFICERS:
<Table>
<Caption>
TERM OF OFFICE(4)
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
DOB WITH TRUST TIME SERVED DURING PAST FIVE YEARS
- ------------------------ ------------------- ------------------------------ ------------------------------
Scott Eston President and Chief President and Chief Executive Chief Financial Officer
c/o GMO Trust Executive Officer Officer since October 2002; (1997-present), Chief
40 Rowes Wharf Vice President from August Operating Officer (2000 -
Boston, MA 02110 1998 - October 2002. present) and Member, Grantham,
DOB: 01/20/1956 Mayo, Van Otterloo & Co. LLC.
Susan Randall Harbert Chief Financial Chief Financial Officer since Member, Grantham, Mayo, Van
c/o GMO Trust Officer and February 2000; Treasurer since Otterloo & Co. LLC.
40 Rowes Wharf Treasurer February 1998.
Boston, MA 02110
DOB: 04/25/1957
Brent Arvidson Assistant Treasurer Since September 1998. Senior Fund Administrator,
c/o GMO Trust Grantham, Mayo, Van Otterloo &
40 Rowes Wharf Co. LLC.
Boston, MA 02110
DOB: 06/26/1969
William R. Royer, Esq. Vice President and Vice President since February General Counsel, Anti-Money
c/o GMO Trust Clerk 1997; Clerk since March 2001 - Laundering Reporting Officer
40 Rowes Wharf present and May 1999 - August (July 2002 - February 2003)
Boston, MA 02110 1999. and Member, Grantham, Mayo,
DOB: 07/20/1965 Van Otterloo & Co. LLC.
Elaine M. Hartnett, Vice President and Vice President since August Associate General Counsel,
Esq. Secretary 1999; Secretary since March Grantham, Mayo, Van Otterloo &
c/o GMO Trust 2001. Co. LLC (June 1999 - present);
40 Rowes Wharf Associate/Junior Partner, Hale
Boston, MA 02110 and Dorr LLP (1991 - 1999).
DOB: 02/18/1945
Julie Perniola Vice President Since February 2003. Anti-Money Laundering
c/o GMO Trust and Anti-Money Reporting Officer (February
40 Rowes Wharf Laundering 2003 - present) and Compliance
Boston, MA 02110 Compliance Officer Officer, Grantham, Mayo, Van
DOB: 10/07/1970 Otterloo & Co. LLC.
William L. Nemerever Vice President Vice President since February Member, Grantham, Mayo, Van
c/o GMO Trust 2004. Otterloo & Co. LLC.
40 Rowes Wharf
Boston, MA 02110
DOB: 11/05/1946
</Table>
(4) Officers are elected to hold such office until their successor is elected
and qualified to carry out the duties and responsibilities of their office,
or until he or she resigns or is removed from office.
19
<Page>
ITEM 2. CODE OF ETHICS.
As of February 29, 2004, the Registrant has adopted a Code of Ethics
that applies to the Principal Executive Officer and Principal Financial
Officer pursuant to the Sarbanes-Oxley Act of 2002. For the year ended
February 29, 2004, there were no amendments to a provision of the Code
of Ethics nor were there any waivers granted from a provision of the
Code of Ethics. A copy of the Registrant's Code of Ethics is filed with
this Form N-CSR under item 11 (a).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board of Trustees has determined that the Registrant
does not have an "audit committee financial expert" (as such term has
been defined by the Securities and Exchange Commission in regulations
implementing Section 407 of the Sarbanes-Oxley Act of 2002) serving on
its audit committee. The Registrant's Board believes that, although
none of its members individually meets all required elements of the
definition of an "audit committee financial expert", the members of the
Registrant's audit committee collectively possess the knowledge and
experience necessary to execute all of the audit committee's functions,
duties and powers.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES: The aggregate fees billed to the Registrant for
professional services rendered by its independent auditors,
PricewaterhouseCoopers LLP for the audit of the Registrant's annual
financial statements for 2004 and 2003 were $1,334,834 and
$1,131,500, respectively.
(b) AUDIT-RELATED FEES: The aggregate fees billed to the Registrant
in 2004 and 2003 for audit-related services rendered by
PricewaterhouseCoopers LLP were $0 and $250, respectively.
(c) TAX FEES: The aggregate fees billed to the Registrant in 2004
and 2003 for professional services rendered by
PricewaterhouseCoopers LLP for tax compliance, tax advice, and
tax planning, including the preparation of Form 1120 RIC,
Form 8613 and review of excise tax distribution calculations
were $631,843 and $561,212, respectively.
(d) ALL OTHER FEES: No such fees were billed by
PricewaterhouseCoopers LLP to the Registrant in 2004 or 2003.
(e) (1) The Registrant's audit committee has adopted an Audit and
Non-Audit Services Pre-Approval Policy that provides for
pre-approval of all audit and non-audit services to be provided
on behalf of the Registrant or a service affiliate by the
independent accountant before the independent accountant is engaged
by the Registrant or service affiliate, as the case may be.
(e) (2) None.
(f) Not applicable.
(g) NON-AUDIT FEES: The aggregate fees billed to the Registrant in
2004 and 2003 for non-audit services rendered to the Registrant,
the Registrant's Investment Advisor, and any entity controlling,
controlled, or under common control with the Advisor that
provided ongoing services to the Registrant were $115,100 and
$86,950, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable to this filing.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
<Page>
ITEM 8. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to this filing.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Registrant's Principal Executive Officer and Principal
Financial Officer concluded that the Registrant's disclosure controls
and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940) were effective as of a date within 90 days prior
to the filing date of this report (the "Evaluation Date"), based on
their evaluation of the effectiveness of the Registrant's disclosure
controls and procedures as of the Evaluation Date.
(b) (1) After reviewing the Registrant's existing policies and
procedures relating to the documentation of the timing of receipt and
processing of transactions in Fund shares, and in anticipation of
requirements which are not yet to take effect and which will require
the Registrant and all other registered investment companies to have
"internal controls over financial reporting", the Registrant has
implemented certain enhancements in its controls relating to the
processing of transactions in Fund shares.
(b)(2) In the period, the Registrant's manager eliminated procedures
in place to reconcile all securities and securities' valuations to the
records maintained by the Registrant's accounting agent with respect
to GMO Foreign Fund and GMO Foreign Small Companies Fund. The
Registrant's manager also instituted an oversight function providing a
more selective analysis that evaluates only those factors identified by
the procedures as material to the calculation of daily net asset values
of GMO Foreign Fund and GMO Foreign Small Companies Fund.
The Registrant expresses no view as to whether the changes described in
(b)(1) and (b)(2) are material. The Registrant does not believe any
controls or procedures can provide absolute assurance of financial
reporting accuracy.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics Described in Item 2 is attached.
(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) Certification 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 May 7, 2004
-----------
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 May 7, 2004
-----------
By (Signature and Title): /s/ Susan Randall Harbert
-----------------------------------------------------
Susan Randall Harbert, Chief Financial Officer
Date May 7, 2004
-----------