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Gmo Trust – ‘N-30D’ for 2/28/98

As of:  Friday, 5/8/98   ·   For:  2/28/98   ·   Accession #:  950109-98-3053   ·   File #:  811-04347

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/08/98  Gmo Trust                         N-30D       2/28/98    1:1.6M                                   Donnelley R R & S… 01/FA

Annual or Semi-Annual Report Mailed to Shareholders   —   Rule 30d-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-30D       Annual Reports                                       883   3.45M 


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO Asia Fund (A Series of GMO Trust)                                           

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 at February 28, 1998,
the results of its operations, the changes in its net assets and the financial  
highlights for the period from February 18, 1998 (commencement of operations) to
February 28, 1998, in conformity with generally accepted accounting principles. 
These financial statements and financial highlights (hereafter referred to as   
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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
28, 1998 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not       
received, provides a reasonable basis for the opinion expressed above.          

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 20, 1998                                                                  


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                                [Download Table]


   Shares        Description                                           Value ($)    
------------------------------------------------------------------------------------
                                                                                    
                 STOCK AND EQUIVALENTS - 64.7%                                      
                 China - 5.2%                                                       
       898,000   First Tractor Co *                                         516,125 
       415,250   Guangdong Kelon Elec Holding Class H                       463,922 
     1,097,000   Qingling Motor Co Ltd Class H                              439,225 
       157,000   Shanghai Industrial Holdings                               685,386 
                                                                       -------------
                                                                          2,104,658 
                                                                       -------------

                 Indonesia - 4.2%                                                   
       791,000   Astra Agro Lestari *                                       308,356 
       172,000   International Nickel                                       194,350 
       609,000   PT Daya Guna Samudera                                      423,203 
       889,500   Tambang Timah Persero (Foreign Registered)                 758,839 
                                                                       -------------
                                                                          1,684,748 
                                                                       -------------
                 Korea - 11.3%                                                      
         8,610   Dae Duck Electronics                                       680,153 
        35,000   Hyundai Heavy Industries                                   955,909 
       123,940   LG Electronics Preferred (Non Voting)                      569,228 
         3,700   Medison Co Ltd *                                           240,171 
         9,250   Pohang Iron & Steel                                        554,558 
        38,500   Saehan Percision                                           610,625 
        56,160   Samsung Display Devices Preferred                          914,792 
                                                                       -------------
                                                                          4,525,436 
                                                                       -------------
                 Malaysia - 5.4%                                                    
       231,000   Golden Hope Plantations Berhad                             308,000 
       305,000   Kumpulan Guthrie Berhad                                    215,782 
       232,000   Malaysian International Ship (Alien Market)                429,279 
        62,000   Rothmans of Pall Mall Berhad                               552,517 
       214,000   Sime Darby Berhad                                          279,510 
       533,000   Tan Chong Motor Holdings Berhad                            378,539 
                                                                       -------------
                                                                          2,163,627 
                                                                       -------------
                 Phillippines - 10.1%                                               
     7,812,000   Aboitiz Equity Ventures Inc *                              434,653 
     2,261,000   Cosmos Bottling Corp                                       300,333 
     7,181,000   Digital Telecommunications *                               413,942 
     7,185,700   DMCI Holdings Inc *                                        435,824 
       718,000   Ionics Circuits Inc *                                      395,890 
        85,000   Manila Electric Class B                                    253,509 
       821,800   Music Corp *                                               319,246 
        46,750   Philippine Long Distance Telephone                       1,259,555 
     6,322,000   Solid Group Inc                                            244,007 
                                                                       -------------
                                                                          4,056,959 
                                                                       -------------
                 Singapore - 12.7%                                                  
        16,750   Creative Technology Ltd *                                  398,859 
        81,000   Development Bank of Singapore (Foreign Registered)         634,608 

              See accompanying notes to the financial statements.              1


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Shares        Description                                                      Value ($)       
--------------------------------------------------------------------------------------------------
                                                                                                  
                 Singapore - continued                                                            
        69,000   Natsteel Electronics *                                                   124,294 
       482,000   Natsteel Ltd                                                             666,058 
       103,000   Overseas Chinese Banking (Foreign Registered)                            613,171 
       165,000   Overseas Union Bank Ltd (Foreign Registered)                             620,915 
       113,000   Singapore Airlines Ltd (Foreign Registered)                              836,521 
        56,000   Singapore Press Holdings (Foreign Registered)                            801,481 
       105,000   Venture Manufacturing                                                    401,604 
                                                                                  ----------------
                                                                                        5,097,511 
                                                                                  ----------------
                 Thailand - 15.8%                                                                 
        12,000   Advanced Info Service Public Co Ltd                                       91,323 
       144,700   Advanced Info Service Public Co Ltd (Foreign Registered)               1,101,197 
        81,600   BEC World Public Co Ltd                                                  477,104 
        73,900   BEC World Public Co Ltd (Foreign Registered)                             432,084 
       635,000   Cogeneration Public Co (Foreign Registered)                              662,993 
        77,300   Delta Electronics Public Co Ltd (Foreign Registered)                   1,276,974 
        90,700   Electricity Generating Public Co Ltd (Foreign Registered)                237,798 
       435,000   International Broadcasting Plc *                                         363,038 
       100,300   KCE Electronics Plc (Foreign Registered)                                 744,687 
       450,087   Land & House Public Co Ltd (Foreign Registered)                          279,346 
       104,876   Shinawatra Computer Public Co Ltd (Foreign Registered)                   676,462 
                                                                                  ----------------
                                                                                        6,343,006 
                                                                                  ----------------

                 TOTAL STOCK AND EQUIVALENTS (Cost $25,563,408)                        25,975,945 
                                                                                  ----------------

     Par Value   SHORT-TERM INVESTMENTS - 44.6%                                                   
                 Cash Equivalents - 44.6%                                                         
 $  17,900,000   First National Bank of Chicago Time Deposit, 5.60%, due 3/2/98        17,900,000 
                                                                                  ----------------

                 TOTAL SHORT-TERM INVESTMENTS (Cost $17,900,000)                       17,900,000 
                                                                                  ----------------

                 TOTAL INVESTMENTS - 109.3%                                                       
                 (Cost $43,463,408)                                                    43,875,945 

                 Other Assets and Liabilities (net) -  -9.3%                           (3,715,060)
                                                                                  ----------------

                 TOTAL NET ASSETS - 100.0%                                       $     40,160,885 
                                                                                  ================

                 Notes to the Schedule of Investments:                                            

                 *    Non-income producing security. A dividend has not been                      
                      declared for the twelve months ended February 28, 1998.                     

2             See accompanying notes to the financial statements.               


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               
--------------------------------------------------------------------------------

              At February 28, 1998, industry sector diversification of the
Fund's equity investments was as follows:     

Industry Sector (Unaudited)                   

           Electronic Equipment                               22.2 %
         Telecommunications                                 14.0
         Communications                                     11.0
         Metals and Mining                                   7.6
         Banking                                             7.2
         Food and Beverage                                   5.9
         Machinery                                           5.7
         Transportation                                      4.9
         Utilities                                           4.4
         Automotive                                          3.2
         Construction                                        2.8
         Consumer Goods                                      2.6
         Financial Services                                  2.6
         Real Estate                                         1.2
         Miscellaneous                                       4.7
                                                         ---------
                                                             100.0 %

              See accompanying notes to the financial statements.              3


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Assets and Liabilities - February 28, 1998                                       
--------------------------------------------------------------------------------------------- 
                                                                                              
Assets:                                                                                       
   Investments, at value (cost $43,463,408) (Note 1)                         $     43,875,945 
   Foreign currency, at value (cost $493,095) (Note 1)                                514,497 
   Cash                                                                                 9,581 
   Receivable for investments sold                                                    246,472 
   Receivable for Fund shares sold                                                 10,000,000 
   Interest receivable                                                                  5,569 
   Receivable for expenses waived or borne by Manager (Note 2)                         13,543 
                                                                               ---------------
      Total assets                                                                 54,665,607 
                                                                               ---------------
Liabilities:                                                                                  
   Payable for investments purchased                                               14,483,094 
   Payable to affiliate for (Note 2):                                                         
      Management fee                                                                    3,209 
      Shareholder service fee                                                             481 
   Accrued expenses                                                                    17,938 
                                                                               ---------------
      Total liabilities                                                            14,504,722 
                                                                               ---------------
Net assets                                                                   $     40,160,885 
                                                                               ===============

Net assets consist of:                                                                        
   Paid-in capital                                                           $     39,654,636 
   Accumulated undistributed net investment income                                    110,171 
   Accumulated net realized loss                                                      (17,997)
   Net unrealized appreciation                                                        414,075 
                                                                               ---------------
                                                                             $     40,160,885 
                                                                               ===============
Net assets attributable to Class III Shares                                  $     40,160,885 
                                                                               ===============
Shares outstanding - Class III                                                      3,845,283 
                                                                               ===============
Net asset value per share - Class III                                        $          10.44 
                                                                               ===============


4                See accompanying notes to the financial statements.            


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Operations -                                                       
Period from February 18, 1998 (commencement of operations) to February 28,
1998                                                                      
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]


Investment income:                                                                          
                                                                                            
     Interest                                                           $            17,279 
                                                                          ------------------
         Total income                                                                17,279 
                                                                          ------------------

Expenses:                                                                                   
     Management fee (Note 2)                                                          3,209 
     Audit fees                                                                      11,997 
     Custodian fees                                                                   5,004 
     Transfer agent fees                                                                693 
     Legal fees                                                                          90 
     Miscellaneous                                                                      153 
     Fees waived or borne by Manager (Note 2)                                       (13,543)
                                                                          ------------------
                                                                                      7,603 
     Shareholder service fee - Class III (Note 2)                                       481 
                                                                          ------------------

         Net expenses                                                                 8,084 
                                                                          ------------------

            Net investment income                                                     9,195 
                                                                          ------------------
Realized and unrealized gain (loss):                                                        
          Net realized gain (loss) on:                                                      
            Investments                                                             (17,999)
            Foreign currency and foreign currency related                                   
              transactions                                                          100,978 
                                                                          ------------------
                Net realized gain                                                    82,979 
                                                                          ------------------

         Change in net unrealized appreciation (depreciation) on:                           
            Investments                                                             412,537 
            Foreign currency and foreign currency related transactions                1,538 
                                                                          ------------------
                Net unrealized gain                                                 414,075 
                                                                          ------------------
         Net realized and unrealized gain                                           497,054 
                                                                          ------------------
Net increase in net assets resulting from operations                    $           506,249 
                                                                          ==================

                See accompanying notes to the financial statements.            5


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                            Period from February 18, 1998
                                                             (commencement of operations)
                                                                 to February 28, 1998    
                                                            -----------------------------
                                                                                         
Increase (decrease) in net assets:                                                       
Operations:                                                                              
     Net investment income                                 $                      9,195  
     Net realized gain                                                           82,979  
     Change in net unrealized appreciation                                      414,075  
                                                            -----------------------------

     Net increase in net assets resulting from operations                       506,249  
                                                            -----------------------------

Net share transactions - Class III (Note 5)                                  39,654,636  
                                                            -----------------------------

     Total increase in net assets                                            40,160,885  

Net assets:                                                                              
     Beginning of period                                                              -  
                                                            -----------------------------

     End of period (including accumulated undistributed                                  
         net investment income of $110,171)                $                 40,160,885  
                                                            =============================

6             See accompanying notes to the financial statements.               


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                               Period from February 18, 1998
                                                                (commencement of operations)
                                                                  to February 28, 1998      
                                                                ------------------------    
                                                                                            
Net asset value, beginning of period                           $                 10.00      
                                                                ------------------------    
Income (loss) from investment operations:                                                   
 Net investment income                                                            0.01(b)   
 Net realized and unrealized gain                                                 0.43      
                                                                ------------------------    

  Total from investment operations                                                0.44      
                                                                ------------------------    

Net asset value, end of period                                 $                 10.44      
                                                                ========================    

Total Return (a)                                                                  4.40%     

Ratios/Supplemental Data:                                                                   

      Net assets, end of period (000's)                        $                40,161      
      Net expenses to average daily net assets                                    2.52%*    
      Net investment income to average daily net assets                           2.86%*    
      Portfolio turnover rate                                                     1.48%     
      Average broker commission rate per equity share (c)      $                0.0036      
      Fees and expenses voluntarily waived or borne by the                                  
         Manager consisted of the following per share amount:  $                  0.01      

*    Annualized                                                                 

(a)  Calculation excludes subscription and redemption fees. The total return    
would have been lower had certain expenses not been waived during the 
period shown.                                                         

(b)  Computed using average shares outstanding throughout the period.           

(c)  The average broker commission rate will vary depending on the markets in   
which trades are executed.                                            

               See accompanying notes to the financial statements.             7


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
------------------------------------------------------------------------------  
1.   Significant accounting policies                                            

GMO Asia Fund (the "Fund"), which commenced operations on February 18,
    1998, 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
into classes.                                                         

 The Fund seeks long-term capital appreciation through investment in and
     exposure to equity and equity-related securities of issuers in countries in
Asia.                                                                 

   The Fund offers four classes of shares: Class I, Class II, Class III, and
    Class IV. The principal economic difference among the classes of shares is
    the level of shareholder service fee 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 with GMO, as more fully  
     outlined in the Trust's prospectus. At February 28, 1998, Class III was the
only active class of shares of the Fund.                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

8                                                                               


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       
--------------------------------------------------------------------------------
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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for 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. 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.                                 

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
differing treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

                                                                               9


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                Accumulated                                                                                            
             Undistributed Net                    Accumulated Net Realized                                             
             Investment Income                          Gain/(Loss)                           Paid-in Capital          
---------------------------------------  --------------------------------------  --------------------------------------

                                                                                                                       
               $100,976                               $(100,976)                                   -                   

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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 1.20% of the amount   
  invested. In the case of cash redemptions, the fee is .40% of the amount
redeemed. 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. Purchase premiums
   are included as part of each class' "shares sold" and redemption fees are
included as part of each class' "shares repurchased", respectively, as
summarized in Note 5. For the period ended February 28, 1998, the Fund
    received $475,856 in purchase premiums and no redemption fees. 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 and the
possible imposition of currency exchange blockages 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.                                                              

10                                                                              


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       
--------------------------------------------------------------------------------
2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of 1.00% of
   average daily net assets. In addition, 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
.28% for Class I shares, .22% for Class II shares, .15% for Class III 
shares, and .105% for Class IV shares.                                

  GMO has agreed to waive a portion of its fee until further notice to the
  extent that the Fund's annual expenses (including the management fee but
  excluding custody fees, brokerage commissions, certain other transaction
     costs (including stamp duties and transfer taxes), shareholder service fees
and extraordinary expenses) exceed .81% of average daily net assets.  

    The Manager has entered into a Consulting Agreement with Dancing Elephant,
  Ltd. (the "Consultant") with respect to the management of the portfolio.
    Payments made by the Manager to the Consultant will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.       

For the period ended February 28, 1998, the Fund incurred no Trustees'
fees.                                                                 

3.   Purchase and sales of securities                                           

Cost of purchases and proceeds from sales of securities, excluding    
   short-term investments, for the period ended February 28, 1998 aggregated
$25,827,963 and $246,556, respectively.                               

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                                                        [Enlarge/Download Table]

                                Gross Unrealized              Gross Unrealized              Net Unrealized        
     Aggregate Cost               Appreciation                  Depreciation                 Appreciation         
-------------------------  ----------------------------  ---------------------------  ----------------------------
                                                                                                                  
      $43,463,654                   $696,844                      $284,553                     $412,291           

4.   Principal shareholders                                                     

   At February 28, 1998, 88% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's      
outstanding shares.                                                   

                                                                              11


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       
--------------------------------------------------------------------------------
5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
 shares, including purchase premiums and redemption fees received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]

                                                       Period from February 18, 1998       
                                                        (commencement of operations)       
                                                              to February 28, 1998         
                                                  -----------------------------------------
Class III:                                             Shares                Amount        
                                                  -----------------    --------------------
                                                                                           
Shares sold                                          3,845,283       $     39,654,636      
Shares issued to shareholders in reinvestment of                                           
  distributions                                          -                      -          
Shares repurchased                                       -                      -          
                                                  -----------------    --------------------
Net increase                                         3,845,283       $     39,654,636      
                                                  =================    ====================

12                                                                              


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GMO Asia Fund                                                                   
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           
--------------------------------------------------------------------------------
The Fund has elected to defer to March 1, 1998 post-October losses of $17,753.  

                                                                              13


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO International Core Fund (A Series of GMO Trust)                             

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 Core Fund at     
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers and the      
application of alternative auditing procedures where confirmations from brokers 
were not received, provide a reasonable basis for the opinion expressed above.  

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

STOCK AND EQUIVALENTS - 96.0%           
Australia - 5.4%                        
           7,341   Adelaide Brighton Ltd                                 6,251
          75,400   Amalgamated Holdings Ltd                            316,416
         415,000   Amcor Ltd                                         1,812,227
       3,198,875   Australia and New Zealand Banking Group Ltd      22,010,259
          23,500   Australian Gas & Light                              187,310
         546,134   Australian National Industries Ltd                  465,067
       3,873,567   Boral Ltd                                         9,394,368
         385,100   Broken Hill Proprietary Ltd                       3,804,066
       1,131,740   Burns Philp & Co Ltd                                185,039
         241,769   Caltex Australia Ltd                                774,114
         180,350   Capcount Property Trust                             125,321
         301,000   Capital Property Trust                              490,084
         421,800   Capral Aluminum Ltd                                 890,789
          92,500   Coca-Cola Amatil Ltd                                797,148
       3,363,187   Coles Myer Ltd                                   17,458,724
         171,700   Comalco Ltd                                         753,291
         255,687   Commonwealth Bank of Australia                    3,178,909
         528,162   Consolidated Rutile Ltd *                           208,690
         101,149   Cortecs Plc *                                       299,749
          20,500   Coventry Group Ltd                                   82,397
         107,900   CRA Ltd                                           1,417,213
          42,400   CSL Ltd                                             327,556
       4,030,696   CSR Ltd                                          13,372,590
         637,700   Cultus Petroleum *                                1,138,215
         331,600   Email Ltd                                           745,478
          54,082   Energy Resources of Australia Class A               160,269
         418,331   Foodland Associated                               3,149,117
       2,955,972   Fosters Brewing Group Ltd                         6,544,707
          51,090   G E Crane Holdings Ltd                              426,362
           7,600   Gandel Retail Trust                                   6,006
       1,036,428   General Property Trust Units                      2,033,472
       4,060,131   Goodman Fielder Ltd                               7,025,549
         350,107   Hardie (James) Industries Ltd                     1,087,607
         110,300   Incitec Ltd                                         404,414
         223,000   Jupiters Ltd                                        437,526
          92,500   KLZ Ltd                                             126,031
          45,600   Macquarie Bank Ltd                                  428,697
          95,380   Metal Manufactures Ltd                              142,951
       3,433,779   MIM Holdings Ltd                                  1,918,195
         250,588   Mirvac Ltd                                          401,176
          37,694   Mount Leyshon Gold Mines                             38,519
         846,170   National Australia Bank Ltd                      11,702,002
          91,000   National Food Ltd                                   171,103
         418,650   National Mutual Property Trust                      362,211

           See accompanying notes to the financial statements.                 1


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Australia - continued                   
       5,748,507   News Corp Ltd                                    36,616,193
       1,505,911   Normandy Mining Ltd                               1,497,817
         303,639   North Broken Hill Peko Ltd                          824,934
          97,100   Oil Search Ltd                                      188,526
       1,469,260   Pacific Dunlop Ltd                                2,602,427
         323,100   Pasminco Ltd                                        359,002
       4,973,770   Pioneer International Ltd                        14,400,618
         121,421   PMP Communications Ltd                              253,944
         147,300   Portman Mining Ltd                                  235,818
       1,818,579   Qantas Airways Ltd                                3,109,656
         231,082   QCT Resources Ltd                                   197,883
         147,607   Rothmans Holdings Ltd                               892,949
       1,558,992   Santos Ltd                                        5,995,347
       1,513,239   Schroders Property                                2,742,178
         228,069   Sea World Property Trust                            180,232
          75,300   Seven Network Ltd                                   270,341
         145,640   Simsmetal Ltd                                       828,464
         172,500   Southcorp Holdings Ltd                              639,285
         484,400   Sydney Harbour Casinos Preferred *                  468,596
         111,684   Ticor Ltd *                                          66,955
          18,199   W H Soul Pattison & Co Ltd                          371,942
         243,348   Walker Corp                                         149,203
         117,900   Westfarmers Ltd                                   1,138,929
       1,847,108   Westfield Trust Units                             4,001,529
         692,691   Westpac Banking Corp                              4,803,899
         149,000   Westpac Property Trust                              193,877
         241,500   Woodside Petroleum Ltd                            1,487,278
                                                                   -------------
                                                                   201,325,007
                                                                   -------------
Austria - 2.1%                          
4,004   Allgemeine Baugesellschaft AG Preferred         
                   7.00%                                               119,165
          57,077   Austrian Airlines *                               1,434,949
          81,148   Bank Austria AG Preferred *                       5,325,890
          34,193   Bank Austria AG (Participating Certificate)       2,016,520
         107,516   Bank Austria AG *                                 7,358,769
           2,608   Bau Holdings AG                                     153,602
          31,724   Bau Holdings AG Preferred 2.42% (Non Voting)      1,510,643
          47,397   Brau Union AG                                     2,784,085
          13,732   EA-Generali AG                                    4,497,676
           1,599   EA-Generali AG Preferred 6.00%                      303,064
          26,029   EVN Energie-Versorgung Niederoesterreich AG       3,657,213
           6,937   Interunfall Versicherung AG                       1,062,157
             338   Mayr-Melnhof Karton AG (Bearer)                      19,589
          40,756   OEMV AG                                           4,938,013
          21,231   Oesterreichische Brau Beteiligungs AG             1,243,777
         131,571   Oesterreichische Elektrizitaetswirtschafts AG    13,833,905

2             See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Austria - continued                     
         153,919   Oesterreichische Laenderbank AG                  10,427,463
39,886   Oesterreichische Laenderbank AG Preferred        
                   2.34% (Non Voting)                                2,720,877
         134,470   Radex-Heraklith AG                                5,402,728
           3,029   Strabag Oesterreich AG                              153,013
         269,783   Voest-Alpine Stahl AG                            10,621,694
              39   Wiener Allianz Versicherungs AG                       4,597
                                                                   -------------
                                                                    79,589,389
                                                                   -------------
Canada - 3.8%                           
         115,319   Abitibi Consolidated Inc                          1,644,925
         118,900   Anderson Exploration Ltd *                        1,403,591
          52,000   Avenor Inc                                        1,101,641
          80,900   BC Telecom Inc                                    2,742,806
         317,704   BCE Inc                                          11,273,620
          55,400   Biochem Pharma Inc *                              1,245,687
             600   Bombardier Inc Class A                               13,006
         259,300   Bombardier Inc Class B                            5,575,365
          49,800   Canadian Hotel Inc                                3,093,363
         181,500   Canadian Tire Corp Ltd Class A                    4,342,532
          70,000   Canfor Corp                                         501,704
         167,511   Cominco Ltd                                       2,824,905
          70,200   Cott Corp                                           601,792
         505,200   Dofasco Inc                                       8,856,930
         411,118   Domtar Inc                                        3,134,336
         132,500   Donohue Inc Class A                               2,662,755
          75,400   Edperbrascan Corp Class A Ltd (Voting Shares)     1,425,191
           1,500   Extendicare (Voting Shares) *                        16,759
         184,707   Fletcher Challenge Ltd Class A                    2,465,961
         263,002   Gulf Canada Resources Ltd *                       1,543,103
          58,700   Hollinger Inc                                       598,075
          72,510   Hudsons Bay Co                                    1,401,135
         184,500   Imasco Ltd                                        7,020,114
          82,707   Imperial Oil Ltd                                  4,878,792
         171,100   Inco Ltd                                          2,975,600
         234,000   Inmet Mining Ltd *                                  830,341
         105,235   Laidlaw Inc                                       1,534,361
         424,319   Macmillan Bloedel Ltd                             5,351,879
          32,200   Magna International Class A                       1,940,168
          59,100   MDS Inc Class B                                   1,287,356
         417,000   Methanex Corp *                                   3,398,939
          90,500   Molson Co Ltd Class A                             1,624,758
         162,400   Moore Corporation Ltd                             2,533,310
         111,700   Newbridge Networks Corp *                         2,617,570
         231,004   Norcen Energy Resource                            3,205,796
         504,100   Nova Corp of Alberta                              5,561,164
         117,100   Nova Scotia Power Inc                             1,563,363

              See accompanying notes to the financial statements.              3


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Canada - continued                      
          25,500   Potash Corp of Saskatchewan                       2,280,065
         124,300   Provigo Inc *                                       816,643
          58,200   Quebecor Inc Class B                              1,128,707
          49,500   Ranger Oil Ltd                                      318,255
87,800   Rogers Cantel Mobile Communications              
                   Class B *                                           817,447
         140,400   Seagram Ltd                                       5,327,337
          47,300   Suncor Energy Inc                                 1,736,588
         113,906   Teck Corp Class B                                 1,636,776
         151,700   Telus Corp                                        3,816,084
          53,900   Thomson Corp                                      1,613,421
         224,800   Transalta Corp                                    3,783,129
         262,000   Transcanada Pipelines Ltd                         5,881,952
          83,401   United Dominion Industries Ltd                    2,391,012
         198,900   Westcoast Energy Inc                              5,031,374
          10,900   Weston (George) Ltd                                 919,088
                                                                   -------------
                                                                   142,290,571
                                                                   -------------
Finland - 0.4%                          
          69,000   Amer Group Class A *                              1,377,420
           7,800   Cultor OY Class 1                                   465,710
         662,500   Enso OY Class R                                   5,987,424
          21,000   Finnair Class A                                     190,552
          25,838   Instrumentarium OY Class A                        1,453,601
          28,800   Kesko OY                                            470,392
          37,900   Metra AB Class A                                    990,436
           8,000   Metra AB Class B                                    202,530
         113,200   Partek OY                                         1,931,075
         217,071   Rautaruukki OY                                    1,819,988
           2,400   Stockmann AB Class A                                198,610
          87,100   Valmet OY                                         1,307,219
                                                                   -------------
                                                                    16,394,957
                                                                   -------------
France - 9.1%                           
          32,259   Accor SA                                          7,448,562
          13,507   Air Liquide L Shares                              2,182,681
          67,221   Alcatel Alsthom Cie Generale d'Electricite SA     8,743,118
         223,091   Assurances Generales De France (Bearer)          12,108,482
         364,843   Banque Nationale de Paris                        22,049,058
             280   Bongrain                                            126,452
           7,480   Bouygues                                          1,049,049
           2,779   Canal Plus                                          585,533
          11,745   Ciments Francais                                    605,453
           9,432   Club Mediterranee SA Rights 3/11/98 *                13,708
           9,432   Club Mediterranee SA *                              700,130
11,808   Compagnie Generale d'Industrie et de             
                   Participations                                    5,078,647
         110,669   Credit Commercial de France                       8,180,337

4             See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

France - continued                      
          34,257   Credit Local de France SA                         4,371,259
         121,293   Credit Lyonnais *                                 8,864,045
          26,382   Credit National                                   1,603,045
         188,650   Elf Aquitaine SA                                 21,469,713
          71,422   Elf Sanofi SA                                     8,093,144
          77,038   Eridania Beghin-Say SA                           13,739,503
         387,500   Euro Disney SCA (Bearer) *                          563,185
       1,096,728   Eurotunnel SA Units (Bearer) *                    1,044,632
       1,096,728   Eurotunnel SA Warrants 12/31/01 & 10/31/03 *        198,120
         304,218   Financiere de Paribas SA                         28,926,752
              35   Fromageries Bel La Vache                             26,020
         204,729   GAN (Group Assurances National) *                 5,039,845
           1,539   Gaz Et Eaux                                         657,125
          83,347   Generale Des Eaux                                13,112,686
          24,647   Generale Des Eaux Warrants 5/2/2001 *                24,691
          70,060   Groupe Danone                                    14,151,791
         238,794   Lafarge Coppee SA                                17,619,599
          27,055   Lyonnaise Des Eaux                                3,567,790
          80,620   Michelin SA Class B                               4,991,377
          36,366   Nord-Est                                            722,632
          40,500   Pernod-Ricard                                     2,647,124
         101,482   Peugeot SA                                       14,449,217
           3,120   Pinault Printemps Redoute                         2,045,414
         111,810   Renault SA *                                      3,892,716
         595,768   Rhone Poulenc SA Class A                         27,453,710
          67,636   Saint-Gobain                                      9,474,649
          63,360   Seita                                             2,767,789
          61,920   SGS Thomson Microelectronics *                    4,743,717
          15,826   Societe Eurafrance                                7,368,183
         153,800   Societe Generale Paris                           23,186,501
          43,059   Sommer Allibert                                   1,678,730
         105,241   SPIE Batignolles                                  6,550,288
           6,880   Synthelabo                                          960,381
           8,090   Technip SA (Campagnie Francaise)                    914,057
          69,883   Thomson CSF                                       2,410,055
          57,130   Total SA                                          6,267,248
         206,720   Usinor Sacilor                                    3,101,182
          15,082   Vallourec                                         1,039,275
          58,635   Worms et Compagnie SA                             3,659,121
                                                                   -------------
                                                                   342,267,521
                                                                   -------------
Germany - 6.2%                          
          52,750   Adidas Salomon AG                                 8,313,266
         154,795   AGIV AG *                                         3,326,632
          16,650   Axa Colonia Konzern AG                            2,018,460

              See accompanying notes to the financial statements.              5


N-30D23rd Page of 883TOC1stPreviousNext↓BottomJust 23rd

GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Germany - continued                     
          35,300   Bankgesellschaft Berlin AG                          749,864
         335,300   BASF AG                                          12,142,673
         301,800   Bayer AG                                         12,830,346
           4,400   Bayerische Hypotheken und Wechsel - Bank AG         204,513
             850   Bayerische Motorenwerke AG                          851,054
         310,100   Bayerische Vereinsbank                           19,206,635
         153,140   Berliner Kraft & Licht AG Class A                 6,750,902
           1,350   Brau und Brunnen *                                  121,628
         319,966   Continental AG                                    7,687,294
           2,936   Deutsche Babcock & Wilcox *                         161,785
         155,250   Douglas Holdings AG                               5,492,244
           5,890   Draegerwerk AG Preferred                            121,386
          37,828   FAG Kugelfischer                                    517,992
34,050   Fresenius Medical Care AG Preferred .82%         
                   (Non Voting)                                      6,998,567
          11,000   Friedrich Krupp AG                                1,982,091
           9,350   Gerresheimer Glas AG                                132,927
           4,187   Hamburgische Electricitaets-Werke AG              1,091,308
          71,155   Heidelberg Port-Zement                            5,242,278
         165,350   Henkel KGAA Preferred                            10,724,174
          28,250   Hochtief AG                                         994,724
         231,163   Klockner Humboldt Deutz *                         1,872,487
           2,614   Klockner-Werke AG *                                 178,324
       1,072,500   Lufthansa AG *                                   20,625,568
          13,100   MAN AG                                            3,933,429
           7,172   Metallgesellschaft *                                145,831
          41,400   Phoenix AG                                          866,896
           7,016   Porsche AG Preferred .12% (Non Voting)           12,255,528
          11,050   Preussag AG                                       3,574,239
           6,250   Puma AG Preferred                                   126,567
         134,100   RWE Preferred                                     6,292,115
           4,600   SAP AG Preferred                                  1,899,314
         132,209   Schering AG                                      14,847,331
          18,700   Schwarz Pharma AG                                 1,525,059
          14,300   SGL Carbon AG                                     1,709,933
         220,900   Siemens AG                                       13,657,518
         212,542   SKW Trostberg AG                                  7,261,388
             950   Strabag Bau AG *                                     65,960
           1,950   Suedzucker AG                                       913,349
          10,700   Thyssen AG                                        2,328,971
         213,000   Veba AG                                          14,366,276
          27,650   Viag AG                                          14,977,242
           1,924   Villeroy and Boch AG *                              285,194
                                                                   -------------
                                                                   231,371,262
                                                                   -------------

6             See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Hong Kong - 5.5%                        
      15,484,000   Allied Properties Ltd                             1,499,903
       7,128,500   Amoy Properties Ltd                               6,030,568
         328,000   ASM Pacific Technology                              258,418
      10,243,000   Cathay Pacific Airways Ltd                        8,731,521
       3,552,500   Century City International                          628,599
         206,725   Century City International Warrants 12/31/98 *        4,619
         206,725   Century City International Warrants 12/31/99 *        2,884
         224,000   Champion Technology Holdings                         25,749
       1,241,600   Champion Technology Holdings Warrants 6/30/98 *      12,829
       4,932,000   Cheung Kong Holdings                             34,557,443
       6,132,000   China Overseas Land & Investment Ltd              1,861,182
       1,042,122   Chinese Estates Holdings Ltd                        360,049
       3,411,000   CLP Holdings Limited                             17,578,160
       2,982,000   CP Pokphand Co                                      577,720
          52,400   Dah Sing Financial Services                         143,478
         868,300   Dao Heng Bank                                     2,489,669
             225   Denway Investment Warrants 11/30/99 *                     2
         529,766   Dickson Concept International Ltd                   916,870
       3,501,300   Elec & Eltek International Holdings Ltd           1,006,186
         293,200   Gold Peak Industries Ltd Warrants 8/6/00 *           20,828
         909,000   Gold Peak Industry                                  363,952
       2,402,509   Great Eagle Holdings Ltd                          3,537,437
         749,901   Great Eagle Holdings Ltd Warrants 11/30/98 *         63,924
       1,452,700   Guoco Group                                       3,696,247
       6,803,700   Hang Lung Development Co Ltd                      9,973,780
         193,200   Hang Seng Bank                                    1,827,820
          75,000   Harbour Centre Development Ltd                       61,995
      11,846,000   Henderson Investment Ltd                          9,944,979
       1,804,000   Henderson Land Development Co Ltd                 9,413,187
         292,000   HKCB Bank Holding Co Ltd                            162,170
       1,753,608   HKR International Ltd                             1,313,649
       1,216,000   Hong Kong Aircraft Engineering Co Ltd             2,599,264
       5,421,300   Hong Kong Electric Holdings Ltd                  19,255,505
         723,700   Hong Kong Ferry Co Ltd                              747,769
         354,000   Hong Kong & Shanghai Hotels                         304,049
          52,000   Hung Hing Printing Group Ltd                         23,339
         653,000   Hysan Development Co Ltd                          1,244,010
2,600   Innovative International Holding Warrants       
                   8/31/99 *                                                49
         292,000   International Bank of Asia                          121,627
         166,857   International Bank of Asia Rights 3/20/98 *          29,094
         299,000   K Wah International Holdings Ltd                     45,183
          47,600   Kowloon Motor Bus Co Ltd                             94,370
       3,277,622   Kumagai Gumi Ltd                                  2,222,475
         642,700   Lai Sun Garment International Ltd                   348,639

              See accompanying notes to the financial statements.              7


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Hong Kong - continued                   
         585,855   Lai Sun Hotel International Warrants 4/30/99 *        3,254
         431,322   Leading Spirit Conrowa Electric *                    91,919
         716,000   Liu Chong Hing Bank Ltd                           1,077,352
       1,242,000   Liu Chong Hing Investment Ltd                     1,066,748
       2,078,462   Mandarin Oriental                                 1,735,516
         451,000   Mingly Corp                                          80,385
       1,348,800   New Asia Realty & Trust A Shares                  2,717,634
       1,653,467   New World Development Co Ltd                      6,086,382
         559,000   Oriental Press Group                                144,398
         729,000   Oriental Press Group Warrants 10/2/98 *               1,695
       3,372,000   Paul Y - ITC Construction Holdings Ltd              365,835
         107,000   Realty Development Corp Ltd Class A                 258,431
      33,642,371   Regal Hotels International Ltd                    5,257,639
         334,000   Semi Tech (Global) Co Ltd                            38,825
         444,000   Shanghai Petrochemical Co Class H                    73,403
         274,000   Shangri La Asia                                     245,954
       1,195,000   Shaw Brothers Ltd                                   744,705
          75,000   Shell Co Manufacturing Warrants 11/3/99 *               746
         450,000   Shell Electric Co Ltd                                65,676
       6,409,000   Shun Tak Holdings Ltd                             1,597,594
       8,031,000   South China Morning Post Ltd                      5,808,666
       1,245,000   Sun Hung Kai Properties Ltd                       9,326,445
       1,185,600   Sun Hung Kai Properties Warrants 2/18/00 *           26,644
         621,000   Swire Pacific Ltd Class A                         3,737,630
       3,357,500   Swire Pacific Ltd Class B                         3,382,435
         628,907   Tai Cheung Holdings Ltd                             215,254
         392,000   Tem Fat Hing Fung                                    40,504
          48,000   Texwinca Holdings Ltd                                 5,890
          57,000   Union Bank of Hong Kong                              79,877
          32,000   VTech Holdings Ltd                                  111,592
       2,057,000   Wharf Holdings Ltd                                4,330,526
       8,770,800   Wheelock & Co Ltd                                10,138,671
         145,304   Wing Lung Bank                                      639,957
          81,550   Winsor Properties Holdings Ltd                       78,996
       1,699,000   Yizheng Chemical Fibre Co                           318,185
       1,136,200   Yue Yuen Industrial Holdings                      2,186,552
                                                                   -------------
                                                                   206,183,105
                                                                   -------------
Italy - 5.7%                            
         210,315   Alitalia Linee Aeree *                            1,821,723
         197,000   Alleanza Assicurazioni SPA                        2,438,487
         859,500   Assicurazioni Generali SPA                       24,544,106
         855,250   Assicurazioni Generali SPA Rights 3/10/98 *       1,758,820
2,029,222   Autostrade Concessioni e Costruzioni SPA            
                   Class B Preferred 6.39%                           7,597,746
         955,000   Banca Commerciale Italiana SPA                    4,360,194

8             See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Italy - continued                       
       3,803,857   Banca di Roma *                                   5,250,511
         729,263   Banca Fideuram SPA                                4,631,632
         149,000   Banca Intesa SPA                                    682,363
          80,400   Banca Popolare di Bergamo Credit                  1,702,847
         448,000   Banca Popolare di Milano                          3,842,969
         199,200   Banca Toscana                                       667,358
       1,448,650   Banco di Napoli di Risp *                         2,112,927
         495,000   Bulgari SPA                                       2,876,862
         279,300   Cartiere Burgo SPA                                1,897,170
         715,500   Cementir SPA                                        839,671
         880,843   COFIDE SPA *                                        558,695
         209,000   Cogefar Impresit Costruzioni Generali SPA *         200,889
         154,250   Comau Finanziaria SPA                               555,988
       1,547,500   Credito Italiano                                  5,941,113
       1,517,000   Credito Italiano (Non Convertible)                4,637,173
       2,151,700   Dalmine SPA *                                       646,911
          94,000   Edison SPA                                          642,443
          33,150   Ericsson SPA                                      1,769,161
         313,600   Falck Acciaierie and Ferriere Lombarde            2,218,657
       1,540,200   Fiat SPA                                          5,413,875
       1,876,700   Fiat SPA Preferred                                3,681,141
       2,984,720   Fiat SPA (Non Convertible)                        6,246,487
         742,500   Finmeccanica SPA *                                  621,983
         588,000   Grassetto SPA (c) *                                       3
       3,564,570   HPI SPA *                                         2,671,261
         285,400   IFI Istituto Finanziario Preferred                5,534,315
         386,000   IFIL Finanziaria di Partecipazioni SPA            1,650,172
688,850   IFIL Finanziaria di Partecipazioni SPA            
                   (Non Convertible)                                 1,782,322
       1,017,000   Industriali Riunite SPA (Non Convertible) *         726,327
       1,156,100   Industriali Riunite SPA *                         1,469,797
           3,600   Industrie Natuzzi SPA ADR                            87,525
         813,000   Istituto Bancario San Paolo                       9,540,920
         550,250   Istituto Mobilaire Italiano                       7,672,043
       4,474,792   Istituto Nazionale Delle Assicurazioni           12,153,169
450,650   Italcementi Fabbriche Riunite Cemento SPA         
                   (Non Convertible)                                 2,090,248
          38,200   Italmobiliare SPA                                 1,195,451
          20,200   Luxottica Group Sponsored ADR                     1,550,350
         869,940   Magneti Marelli SPA                               1,900,844
         440,000   Mediobanca SPA                                    4,499,707
         167,500   Mondadori Editore                                 1,806,561
       8,284,798   Montedison SPA                                    8,551,243
       1,901,400   Montedison SPA (Non Convertible)                  1,433,395
         987,067   Montefibre SPA                                      808,099
         878,593   Parmalat Finanziaria SPA                          1,443,496
         591,975   Pirelli and Co                                    1,404,305

              See accompanying notes to the financial statements.              9


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Italy - continued                       
         195,500   RAS SPA                                           2,305,211
         156,700   Reno de Medici SPA *                                446,601
105,800   Rinascente per l'Esercizio di Grandi              
                   Magazzini SPA Preferred 5.59%                       416,826
96,300   Rinascente per l'Esercizio di Grandi             
                   Magazzini SPA (Non Convertible)                     478,957
           2,000   SAFILO SPA                                           52,921
           2,500   Saipem SPA                                           15,060
         254,000   Sirti SPA                                         1,477,627
       2,483,272   SMI (Societa Metallurgica Italy) *                1,783,232
           5,000   Sopaf SPA *                                           4,429
         187,536   Stefanel SPA *                                      487,324
       4,272,500   Telecom Italia Mobile SPA                        19,542,548
       2,811,269   Telecom Italia Mobile SPA (Non Convertible)       8,247,883
       1,348,263   Telecom Italia SPA (Non Convertible)              6,543,722
          33,500   Toro Assicurazioni                                  605,619
                                                                   -------------
                                                                   212,539,415
                                                                   -------------
Japan - 14.0%                           
           4,000   Aiwa Co                                             113,354
         299,000   Amada Co Ltd                                      1,401,156
          31,000   Anritsu Corp                                        314,098
         960,000   Aoki Corp *                                         889,100
          43,900   Aoki International                                  316,575
          66,600   Aoyama Trading                                    1,444,502
          28,000   Arabian Oil Co Ltd                                  531,940
         202,000   Asahi Breweries Ltd                               2,702,288
          34,000   Asahi Denka Kogyo                                   177,361
         135,000   Asahi Glass Co Ltd                                  811,090
           9,000   Asatsu Inc                                          187,366
         148,000   Atsugi Nylon Industrial                             281,168
          77,000   Bandai Co                                         1,145,888
         144,000   Banyu Pharmaceutical Co Ltd                       1,880,788
          78,000   Best Denki Co Ltd                                   472,334
          68,000   Brother Industries Ltd                              185,166
         185,000   Canon Sales Co Inc                                2,489,512
         246,000   Casio Computer Co                                 2,025,172
         217,000   Chubu Electric Power Co Inc                       3,469,801
          32,000   Chudenko Corp                                       871,369
         334,000   Chugai Pharmaceutical Co Ltd                      2,125,671
          87,200   Chugoku Electric Power Co Inc                     1,263,168
         279,000   Citizen Watch Co                                  2,020,779
         801,000   Cosmo Oil Co Ltd                                  1,838,756
         224,200   CSK Corp                                          5,412,887
         813,000   Daicel Chemical Industries Ltd                    1,801,947
         180,000   Daiichi Seiyaku Co Ltd                            2,464,973
          56,000   Daimaru Inc                                         175,097

10            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Japan - continued                       
         245,000   Dainippon Pharmaceutical Co Ltd                   1,111,256
         293,000   Dainippon Printing Co Ltd                         4,986,543
         293,000   Dainippon Screen Manufacturing Co Ltd             1,704,702
          50,000   Daio Paper Corp                                     315,839
          71,000   Daishowa Paper Manufacturing *                      414,771
         184,800   Daito Trust Construction Co Ltd                   1,638,376
         120,000   Daiwa House Industry Co Ltd                         938,494
         426,000   Daiwa Securities Co Ltd                           2,100,831
         326,000   Denso Corp                                        6,657,801
           1,070   East Japan Railway Co                             5,056,519
         181,000   Eisai Co Ltd                                      3,166,390
         231,000   Ezaki Glico Co Ltd                                1,444,550
          35,300   Familymart                                        1,377,575
         141,100   Fanuc Co                                          5,137,814
         801,000   Fuji Heavy Industries Ltd                         3,005,414
         312,400   Fuji Photo Film Co Ltd                           12,240,798
         187,000   Fujisawa Pharmaceutical Co Ltd                    1,879,918
         177,000   Fukuyama Transporting Co Ltd                        868,677
         117,000   Furukawa Co Ltd                                     229,684
         243,000   Gakken Co Ltd                                       605,913
         279,000   General Sekiyu (KK)                               1,382,522
          87,000   Green Cross Corp                                    249,988
         110,000   Gunze Ltd                                           311,723
         512,000   Hankyu Corp                                       2,387,145
         238,000   Haseko Corp *                                       218,539
         107,000   Heiwa Corp                                        1,177,313
         269,000   Hino Motors                                         849,608
          31,000   Hitachi Chemical Co                                 192,876
       1,956,300   Hitachi Ltd                                      14,680,380
          92,000   Hitachi Maxell Ltd                                1,704,108
         455,000   Hitachi Metals Ltd                                2,070,965
         147,700   Hokkaido Electric Power                           2,127,871
          73,000   Hokuetsu Paper Mills                                383,116
          33,100   Hokuriku Electric Power                             482,102
         142,000   Honda Motor Co Ltd                                4,912,056
         220,000   House Foods Corp                                  3,082,403
          33,000   Hoya Corp                                           875,089
           6,000   Hyogo Bank (c)                                            -
         222,000   INAX Corp                                           931,370
         149,000   Intec Inc                                         1,037,917
         499,000   Itochu Corp                                       1,481,240
          95,000   Itoham Foods Inc                                    425,631
         180,000   Ito-Yokado                                        9,831,394
          60,000   Japan Airport Terminal Co Ltd                       403,230
          27,000   Japan Aviation Electronics                          125,885

              See accompanying notes to the financial statements.             11


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Japan - continued                       
         945,000   Japan Energy Co Ltd                               1,309,071
         116,000   Japan Radio Co                                      740,093
         608,000   Japan Synthetic Rubber Co Ltd                     3,162,004
           2,440   Japan Tobacco Inc                                17,943,165
         242,000   JGC Corp                                            626,407
         149,000   Joshin Denki Co Ltd                                 459,986
          30,000   Kaken Pharmaceutical Co Ltd                         109,950
         333,000   Kamigumi Co Ltd                                   1,520,945
         186,000   Kandenko Co                                       1,295,654
         120,000   Kanebo Ltd *                                        136,785
         355,000   Kaneka Corp                                       2,023,272
         284,000   Kankaku Securities Co Ltd *                         278,762
         310,100   Kansai Electric Power                             5,326,660
         226,000   Kao Corp                                          3,059,131
          67,000   Katokichi Co Ltd                                    891,000
         186,000   Kawasaki Kisen *                                    298,884
         554,000   Keio Teito Electric Railway Co Ltd                2,245,294
          20,000   Keisei Electric Railway                              78,999
         346,000   Kikkoman Corp                                     2,188,348
         126,000   Kinden Corp                                       1,685,585
         552,000   Kirin Brewery Co Ltd                              4,806,459
         113,000   Kissei Pharmaceutical Co Ltd                      1,771,076
          27,000   Kokusai Denshin Denwa                             1,132,748
         173,000   Kokusai Electric                                  1,602,232
          23,000   Kokusai Kogyo Co Ltd                                111,605
          19,000   Kokuyo Co Ltd                                       332,383
         401,000   Konica Corp                                       2,098,164
         180,000   Koyo Seiko Co Ltd                                   891,950
         345,000   Kubota Corp                                         994,063
         426,000   Kurabo Industries Ltd                               738,494
         140,000   Kyocera Corp                                      7,535,819
         442,000   Kyowa Hakko Kogyo Co Ltd                          2,165,741
         262,800   Kyushu Electric Power Co Inc                      3,827,689
         120,000   Kyushu Matsushita Electric                        1,234,861
          96,000   Lion Corp                                           348,041
             500   Long Term Credit Bank of Japan                        1,354
          31,900   Mabuchi Motor Co                                  1,704,465
         278,000   Maeda Corp                                          981,461
         133,000   Maeda Road Construction                             787,493
          27,000   Makino Milling Machine Co Ltd                       190,216
         113,000   Makita Corp                                       1,305,945
         121,000   Marudai Food Co Ltd                                 335,233
          26,000   Maruichi Steel Tube                                 345,761
         103,000   Matsushita Communications                         3,375,445
          47,000   Meidensha Corp                                      146,956

12            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Japan - continued                       
          71,000   Meiji Milk Products                                 213,568
         322,000   Meiji Seika Kaisha Ltd                            1,236,207
          50,000   Mercian Corp                                        200,269
         249,000   Minolta Co Ltd                                    1,497,981
       1,178,000   Mitsubishi Electric Corp                          3,580,717
         408,000   Mitsubishi Gas Chemical Co Inc                    1,337,070
         900,000   Mitsubishi Oil Co Ltd                             1,866,540
         155,000   Mitsubishi Paper Mills Ltd                          332,502
         310,000   Mitsubishi Steel Manufacturing *                    478,509
          67,000   Mitsubishi Warehouse & Transportation Co Ltd        758,411
         145,000   Mitsui Marine & Fire Insurance Co                   808,042
           1,000   Mitsui Mining Co Ltd *                                1,211
         545,000   Mitsui Petrochemical Industries Ltd               1,531,505
          57,000   Mori Seiki Co Ltd                                   690,335
          27,000   MOS Food Services                                   374,020
          80,000   Murata Manufacturing Co Ltd                       2,539,381
          71,000   Nagase & Co                                         275,390
          26,000   Nagoya Railroad Co Ltd                               91,380
          16,400   Namco Ltd                                           395,947
           8,000   Nankai Electric Railway Co Ltd                       36,096
         126,000   National House Industrial                         1,186,891
         818,000   NEC Corp                                          9,129,898
         470,000   New Japan Securities Co Ltd *                       665,954
         539,000   New Oji Paper Co Ltd                              2,901,290
         160,000   NGK Spark Plug Co                                 1,156,337
         100,000   Nichicon Corp                                     1,052,798
         249,000   Nichii Co Ltd                                     1,929,637
         401,000   Nichirei                                          1,015,752
         114,000   Nihon Cement Co Ltd                                 275,232
          16,000   Nihon Unisys Ltd                                     85,617
         899,000   Nikko Securities                                  3,551,025
          40,000   Nikon Corp                                          389,456
         137,400   Nintendo Co Ltd                                  12,616,481
          74,000   Nippon Chemi-Con Corp                               240,165
          68,000   Nippon Flour Mills Co Ltd                           169,556
          60,000   Nippon Hodo Co                                      286,393
          50,000   Nippon Kayaku Co Ltd                                235,099
          87,000   Nippon Light Metal                                  139,112
         253,000   Nippon Meat Packers Inc                           3,324,468
       2,489,000   Nippon Oil Co Ltd                                 8,984,279
          72,000   Nippon Paint Co                                     151,033
         313,000   Nippon Paper Industries                           1,593,121
          53,000   Nippon Shokubai Corp                                310,457
         150,000   Nippon Suisan Kaisha Ltd *                          248,160

              See accompanying notes to the financial statements.             13


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Japan - continued                       
           4,830   Nippon Telegraph & Telephone                     44,350,511
          11,400   Nippon Television Network                         3,447,162
          56,000   Nippon Zeon Ltd                                     161,798
         259,000   Nishimatsu Construction                           1,334,671
         193,000   Nisshin Oil Mills Ltd                               534,711
         427,000   Nisshinbo Industries Inc                          2,484,327
       1,004,000   Nissho Iwai Corp                                  2,861,078
          53,000   Nissin Food Products Co Ltd                       1,103,380
          30,000   Nitto Denko Corp                                    474,947
          68,000   NOF Corp                                            162,020
         258,000   Nomura Securities Co Ltd                          3,553,550
         501,000   Oki Electric Industry                             1,292,852
         124,000   Okumura Corp                                        550,653
         180,000   Olympus Optical Co Ltd                            1,416,291
         388,000   Omron Corp                                        6,265,495
         133,000   Ono Pharmaceutical Co Ltd                         3,063,643
         237,000   Onward Kashiyama Co Ltd                           3,376,870
          22,000   Orix Corp                                         1,602,153
         213,000   Pioneer Electronics Corp                          3,759,915
         150,000   Q.P. Corp                                           986,702
         850,000   Renown Inc *                                        888,150
          73,800   Rinnai Corp                                       1,197,578
          27,000   Rohm Co Ltd                                       2,671,574
         140,000   Royal Co Ltd                                      2,116,679
          54,000   Ryosan Co                                           897,649
         247,000   Sagami Railway Co Ltd                               703,871
         144,000   Sanden Corp                                         770,553
         133,000   Sankyo Co Ltd                                     3,568,986
         113,000   Sanwa Shutter Corp                                  693,224
         200,000   Sapporo Breweries Ltd                               902,398
          66,500   Secom Co Ltd                                      4,142,761
         264,000   Seino Transportation Co Ltd                       1,575,683
         222,000   Sekisui House Ltd                                 1,748,516
         212,300   Shikoku Electric Power                            3,108,961
         233,000   Shin-Etsu Chemical Co Ltd                         5,127,365
         543,000   Shionogi and Co Ltd                               2,811,066
         301,000   Shiseido Co Ltd                                   3,788,411
          14,000   Shochiku Co                                          78,904
       1,393,000   Showa Denko                                       1,874,535
         377,000   Showa Shell Sekiyu                                2,563,469
         112,000   Skylark Co Ltd                                    1,250,059
         386,000   Snow Brand Milk Products Co Ltd                   1,341,360
         308,000   Stanley Electric Co Ltd                           1,065,432
          90,000   Sumitomo Bakelite Co Ltd                            575,635
       1,813,000   Sumitomo Corp                                    12,600,443

14            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Japan - continued                       
         369,000   Sumitomo Heavy Industries Ltd                     1,314,415
         148,000   Sumitomo Marine & Fire Insurance Co                 931,370
         188,000   Sumitomo Osaka Cement Co Ltd                        322,932
         151,000   Taisho Pharmaceutical Co Ltd                      3,549,988
         166,000   Taiyo Yuden Co Ltd                                1,773,925
         161,000   Takara Standard Co                                1,033,571
         449,000   Takeda Chemical Industries Ltd                   12,439,642
         172,000   Takuma Corp                                       1,511,280
         340,000   Tanabe Seiyaku Co Ltd                             1,937,782
          68,000   TDK Corp                                          5,194,332
         798,000   Teikoku Oil Co Ltd                                2,646,735
          71,000   Toei Co Ltd                                         316,417
         270,100   Tohoku Electric Power Co Inc                      3,934,014
         348,000   Tokio Marine & Fire Insurance Co                  3,939,207
          93,000   Tokuyama Corp                                       293,731
          41,000   Tokyo Broadcasting System Inc                       529,011
         352,000   Tokyo Construction Co Ltd                           431,885
         336,000   Tokyo Electric Co Ltd                             1,103,776
          70,000   Tokyo Electron                                    2,515,634
         182,000   Tokyo Ink Manufacturing Co Ltd                      466,777
         348,000   Tokyo Steel Manufacturing Co                      1,597,720
          46,000   Tokyo Style Co Ltd                                  473,363
          91,000   Tokyu Department Store Co Ltd                       175,042
         151,000   Tomen Corp                                          204,393
       1,058,000   Toshiba Corp                                      4,740,188
         166,000   Toyo Suisan Kaisha                                1,222,038
         930,000   Toyobo Co Ltd                                     1,560,674
         269,000   Toyota Motor Corp                                 7,431,410
           5,000   Trans Cosmos                                        105,676
         120,000   Tsumura and Co                                      626,929
          59,000   Uniden Corp                                         621,151
          48,000   Ushio Inc                                           379,577
         126,000   Victor Co of Japan Ltd                            1,117,074
         126,000   Wacoal Corp                                       1,316,552
         249,000   Yakult Honsha Co Ltd                              1,685,229
         120,000   Yamaha Corp                                       1,329,850
         142,000   Yamaha Motor Co                                     914,969
         182,000   Yamanouchi Pharmaceutical Co Ltd                  4,422,861
         328,000   Yamato Transport Co Ltd                           4,128,236
         200,000   Yamazaki Baking Co Ltd                            2,248,080
          64,000   Yasuda Fire & Marine Insurance Co                   364,252
          88,000   Yodogawa Steel Works                                452,782
         179,000   Yoshitomi Pharmaceutical Industries Ltd             949,339
                                                                   -------------
                                                                   524,148,383
                                                                   -------------

              See accompanying notes to the financial statements.             15


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Malaysia - 2.2%                         
         287,000   Aluminum Co of Malaysia                              93,714
         958,000   Amalgamated Steel Mills Berhad                      247,646
       1,033,000   AMMB Holdings Berhad                              1,276,142
          11,000   Arab Malaysian Development Berhad                     3,263
       1,301,000   Arab Malaysian Finance (Foreign Registered)         626,604
           8,000   Ayer Hitam Tin Dredging *                             2,525
         841,000   Berjaya Leisure Berhad                              814,683
       1,357,300   Berjaya Sports Toto                               3,804,133
         108,000   Carlsberg Brew Malaysia                             423,184
         862,000   Cement Industries of Malaysia Berhad                701,328
       1,155,800   Edaran Otomobil Berhad                            2,516,027
         605,000   Ekran Berhad                                        242,000
         312,200   Esso Berhad                                         378,888
          71,400   Faber Group Berhad *                                 19,429
         211,000   Genting Berhad                                      700,463
         515,000   Golden Hope Plantations Berhad                      686,667
          60,000   Guinness Anchor Berhad                               94,694
       1,045,000   Highlands and Lowlands Berhad                     1,154,476
         314,400   Hong Leong Industries Berhad                        354,181
       2,957,000   Hong Leong Properties Berhad                      1,037,967
          95,600   IGB Corp Berhad                                      40,841
       1,611,000   IOI Corporation Berhad                            1,367,706
          49,000   Jaya Tiasa Holdings Berhad                           82,000
         199,000   Johan Holdings Berhad                                67,146
       1,010,000   Kedah Cement Berhad                                 373,769
       1,414,058   Kuala Lumpur Kepong Berhad                        3,279,986
       2,368,000   Kumpulan Guthrie Berhad                           1,675,320
         367,000   Magnum Corp Berhad                                  309,578
       1,461,750   Malayan Cement Berhad                               855,173
       1,174,000   Malayan United Industries Berhad                    319,456
         439,500   Malayawata Steel                                    191,347
         945,000   Malaysia Mining Corp Berhad                         594,633
         985,000   Malaysian Airline Systems                         1,136,435
       2,189,600   Malaysian International Ship                      4,051,505
         187,000   Malaysian Oxygen Berhad                             539,374
         493,000   Malaysian Pacific Industries                      1,475,646
       2,079,333   Malaysian Resources Corp                          1,408,854
          72,710   Matsushita Electric                                 251,270
       5,398,000   MBF Capital Berhad                                2,570,476
         762,000   MBF Holdings Berhad                                 175,208
          76,000   Nestle Malaysia                                     409,469
         431,000   New Straits Times                                   668,490
       2,099,600   Oriental Holdings Berhad                          4,284,898
          46,000   OYL Industries Berhad                               165,224

16            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Malaysia - continued                    
       1,819,600   Pan Malaysia Cement                                 663,473
         858,500   Perlis Plantations                                1,424,993
           4,000   Pernas International Hotel & Property                 1,371
       3,708,000   Perusahaan Otomobil                               7,012,408
         103,000   Petaling Garden Berhad                               75,673
         609,600   Petronas Dagangan Berhad                            713,273
       1,392,000   Petronas Gas Berhad                               3,863,510
              39   Public Bank Berhad                                       23
       1,051,000   Rashid Hussain Berhad                             1,658,721
       3,101,000   Renong Berhad                                     1,468,229
         285,000   Resorts World Berhad                                620,408
       3,438,000   RHB Capital Berhad                                3,255,576
         493,000   RJ Reynolds Berhad                                  959,170
         303,000   Rothmans of Pall Mall Berhad                      2,700,204
       1,574,000   Sarawak Enterprises Corp                            878,014
         629,400   Shell Refinery Co                                 1,130,351
          36,540   Silverstone *                                         9,943
         204,000   Sime Darby                                          104,075
       3,252,000   Sime Darby Berhad                                 4,247,510
          48,000   Sime UEP Properties Berhad                           45,714
       1,691,000   TA Enterprise Berhad                                644,190
       4,337,000   Tan Chong Motor Holdings Berhad                   3,080,155
         566,000   Telekom Malaysia Berhad                           1,925,170
       1,462,000   UMW Holdings Berhad                               1,909,551
         104,000   Uniphone Telecommunications                          30,563
         234,000   Westmont Industries Berhad                           56,669
         998,500   YTL Corp                                          1,725,299
                                                                   -------------
                                                                    81,676,054
                                                                   -------------
New Zealand - 0.0%                      
           8,491   Trans Tasman Properties                               3,487
                                                                   -------------

Norway - 0.7%                           
           3,874   Leif Hoegh and Co AS                                 60,908
         625,490   Norsk Hydro AS                                   27,353,489
                                                                   -------------
                                                                    27,414,397
                                                                   -------------
Portugal - 0.7%                         
         109,888   Banco Commercial Portugues (Registered)           3,644,304
62,093   Banco Espirito Santo e Commercial de Lisboa      
                   (Registered)                                      2,522,753
          42,173   Banco Totta & Acores (Registered)                 1,170,054
          55,857   BPI-SGPS SA (Registered)                          2,005,146
          60,155   Cimpor Cimentos De Portugal SA (Registered)       1,741,793
         254,490   Electricidade De Portugal *                       5,396,467
          19,903   Est Jeronimo Martins Filho Admin                    687,374
          64,713   Portucel Industrial Empresa                         491,081
         133,802   Portugal Telecom SA                               7,021,175
          28,028   Sonae Investimentos                               1,261,829
                                                                   -------------
                                                                    25,941,976
                                                                   -------------

              See accompanying notes to the financial statements.             17


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- continued                                            
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Singapore - 3.1%                        
101,959   Asia Food & Properties Ltd Warrants               
                   7/12/02 *                                            14,274
         924,461   Asia Food & Properties Ltd *                        244,982
       2,102,000   City Developments                                 9,530,969
         111,000   Comfort Group                                        53,754
         319,950   Creative Technology Ltd *                         7,618,797
         203,000   Cycle & Carriage Ltd                                901,666
       1,759,096   DBS Land Ltd                                      2,723,832
1,787,000   Development Bank of Singapore                       
                   (Foreign Registered)                             14,000,555
       1,127,309   First Capital Corp Ltd                            1,140,522
       3,259,037   Hai Sun Hup Group Ltd                             1,326,937
       1,065,203   Haw Paw Brothers International Ltd                1,222,256
139,475   Haw Paw Brothers International Ltd Warrants       
                   7/18/2001 *                                          42,161
         781,000   Highlands and Lowlands Berhad                       843,152
       1,273,104   Hotel Properties Ltd                                824,651
       2,756,221   Jardine Matheson Holdings Ltd                    12,899,114
       5,491,911   Jardine Strategic Holdings Ltd                   15,651,946
403,324   Jardine Strategic Holdings Ltd Warrants           
                   5/02/98 *                                            16,133
         115,000   Keppel Bank Ltd                                     162,461
       1,405,200   Lum Chang Holdings Ltd                              524,458
         288,000   Marco Polo Developments Ltd                         394,423
         477,600   Metro Holdings Ltd                                  654,085
       1,620,000   Natsteel Ltd                                      2,238,618
       2,950,556   Neptune Orient Lines Ltd                          1,383,358
         211,000   Overseas Chinese Banking (Foreign Registered)     1,256,107
         575,000   Overseas Union Bank Ltd (Foreign Registered)      2,163,788
         333,000   Parkway Holdings Ltd                                714,892
         341,508   Prima Ltd                                           648,886
         527,308   Robinson and Co Ltd                               1,902,993
         247,699   Shangri-La Hotel Ltd                                409,521
       2,440,000   Singapore Airlines Ltd (Foreign Registered)      18,062,924
492,000   Singapore Press Holdings                          
                   (Foreign Registered)                              7,041,579
         996,000   Singapore Telecom                                 2,039,926
       2,199,168   Straits Trading Co Ltd                            2,414,879
         423,000   Times Publishing Ltd                                835,040
         226,000   United Engineers                                    179,852
       6,493,960   United Industrial Corp Ltd                        2,624,025
         546,900   Wearne Brothers Ltd                                 671,395
                                                                   -------------
                                                                   115,378,911
                                                                   -------------
Spain - 3.5%                            
          21,430   Acerinox SA                                       3,218,361
           3,100   Azucarera de Espana SA                              175,113
         658,637   Banco Bilbao Vizcaya SA                          30,063,423
         216,808   Banco Central Hispano (Registered)                6,735,878
         170,000   Banco Popular Espanol                            15,088,790

18            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

Spain - continued                       
           3,320   Cristaleria Espanola SA                             266,221
         156,300   Dragados & Construcciones SA                      4,262,312
       1,508,856   FENOSA SA                                        18,711,911
          62,600   Fomento de Construcciones y Contratas SA          2,682,596
         658,660   Repsol SA                                        29,337,452
         587,943   Telefonica de Espana SA                          20,194,257
                                                                   -------------
                                                                   130,736,314
                                                                   -------------
Sweden - 3.8%                           
         177,392   Assi Doman                                        4,364,786
         552,600   Avesta Sheffield AB                               3,450,989
          58,000   Bilspedition AB Class B *                           296,288
         107,005   Celsius Industrier AB Class B                     1,978,010
         257,020   Electrolux AB Class B                            19,582,109
          92,288   Esselte AB Class A                                1,740,544
           5,800   Esselte AB Class B                                  118,443
           2,200   Euroc Industri AB Class A                            87,930
          27,782   Industrivarden AB Class A                         1,773,157
          11,524   Industrivarden AB Class C (Bearer)                  713,917
         141,100   Kinnevik Investment Class B                       2,669,945
         153,170   Marieberg Tidnings AB Class A                     3,539,225
         652,400   Mo Och Domsjo AB Class B                         18,985,961
           2,300   Modern Times Group AB *                              17,523
         542,246   Skanska AB Class B                               24,517,018
          43,600   SKF AB Class B                                      901,254
         235,500   Ssab Swedish Steel Class A                        4,412,095
          48,800   Ssab Swedish Steel Class B                          914,269
         404,542   Stena Line AB Class B *                           1,379,396
       1,216,500   Stora Kopparberg Bergslags Class A               17,701,120
         297,850   Stora Kopparberg Bergslags Class B                4,296,772
         751,072   Svenska Cellulosa Class B                        17,073,229
          12,000   Svenska Kullagerfabriken AB                         235,312
         336,500   Trelleborg AB Class B                             4,749,263
         107,750   Volvo AB Class A                                  2,866,551
         210,800   Volvo AB Class B                                  5,700,215
                                                                   -------------
                                                                   144,065,321
                                                                   -------------
Switzerland - 5.3%                      
         194,200   CS Holdings (Registered)                         35,066,094
             320   Jelmoli (Bearer)                                    313,546
             200   Jelmoli (Registered)                                 39,248
          43,515   Nestle AG (Registered)                           76,201,656
          26,607   Novartis AG (Registered)                         48,532,937
           1,155   Roche Holdings (Participating Certificate)       13,520,646
           1,600   Saurer Group Holdings (Registered) *              1,611,338
           2,110   Swiss Reinsurance (Bearer)                        4,446,872
          33,200   Zurich Reinsurance                               18,097,574
                                                                   -------------
                                                                   197,829,911
                                                                   -------------

              See accompanying notes to the financial statements.             19


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

United Kingdom - 24.5%                  
       1,060,100   Abbey National                                   21,730,910
         885,780   AMEC                                              2,023,581
         197,256   Amstrad Plc                                         123,417
         778,600   Anglian Water Plc                                10,768,505
         240,130   Arcadia Group *                                   1,950,179
       1,239,200   Arjo Wiggins Appleton Plc                         3,346,162
       1,036,162   ASDA Group                                        3,433,390
         285,246   Associated British Foods                          2,977,629
         320,000   Bank of Scotland                                  3,648,644
       1,059,880   Barclays Plc                                     31,551,271
         985,030   Barratt Development                               4,557,404
         938,482   Bass Plc *                                       15,730,244
       1,851,500   BAT Industries                                   18,473,878
       1,077,400   Beazer Holmes Plc                                 3,734,142
       3,546,592   BG Plc *                                         17,795,766
         765,600   Blue Circle Industries                            4,478,128
       2,267,903   British Airways Plc                              21,284,383
         350,500   British Energy Plc *                              2,585,400
       2,281,200   British Steel Plc                                 5,474,364
       1,177,600   British Telecom Plc                              11,866,181
         988,469   BTR                                               2,624,367
         264,400   Cable & Wireless                                  2,890,622
       3,387,293   Coats Viyella                                     4,629,058
         270,000   Dalgety Plc                                       1,511,487
       1,498,353   Dawson International                              1,282,860
         480,260   Debenhams Plc *                                   3,305,327
         478,200   Electrocomponents Plc                             3,661,207
       1,380,294   Elementis Plc                                     2,886,271
       1,547,382   English China Clays Plc                           6,216,545
         812,300   Enterprise Oil                                    7,509,793
       2,311,000   Eurotunnel SA Units (Registered) *                2,244,986
       2,311,000   Eurotunnel SA Warrants 12/31/01 & 10/31/03 *        304,405
          83,620   GKN Plc *                                         2,022,524
         354,400   Great Portland Estates Plc                        1,709,712
         822,035   Greenalls Group Plc                               5,610,177
         217,900   Hammerson Plc                                     1,804,625
       1,905,423   Hillsdown Holdings                                4,988,274
         276,485   Hyder Plc                                         4,270,081
         210,670   Imperial Chemical Industries Plc                  3,845,034
         162,700   Kingfisher                                        2,806,101
         215,273   Kwik Save Group                                   1,219,298
       6,160,950   Ladbroke Group                                   31,040,653
          74,946   Laing (John)                                        387,472
         265,900   Land Securities                                   4,980,024
       4,574,650   Lasmo                                            20,807,520

20            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

United Kingdom - continued              
         423,125   Legal & General Group                             4,744,359
       3,880,448   Lloyds TSB Group                                 58,396,901
       4,533,642   Lonrho                                            7,016,763
         294,260   Meggitt                                             760,664
         541,500   MEPC Ord                                          5,331,647
         433,600   Meyer International                               2,705,766
       1,834,180   Mirror Group Plc                                  5,133,962
       4,016,490   National Power                                   41,629,784
         366,300   Next                                              4,996,791
       1,768,500   Northern Foods Plc                                7,891,074
       1,281,100   Orange Plc *                                      7,271,919
       1,607,500   Peninsular & Oriental Steam Navigation Co        20,710,809
       4,847,532   Pilkington                                        9,098,866
       1,450,374   Powergen                                         20,262,526
          89,930   Provident Financial Plc *                         1,458,487
         332,500   Prudential Corp                                   4,987,372
         591,400   Railtrack Group Plc                               9,007,096
       1,619,900   Rentokil Plc                                      7,994,828
       1,709,500   Reuters Group Plc *                              17,211,840
         402,810   RMC Group                                         6,141,479
         182,700   Royal Bank of Scotland Group *                    2,827,666
         652,700   Sainsbury (J)                                     5,032,134
          97,080   Schroders                                         3,668,379
       1,396,200   Scottish Hydro-Electric Plc                      12,522,949
       2,609,398   Scottish Power Plc                               22,255,216
       7,203,600   Sears                                             6,226,882
         842,600   Sedgwick Group                                    2,054,236
         849,982   Severn Trent Plc                                 13,085,282
       2,828,224   Signet Group Plc *                                1,816,102
      41,903,056   Signet Group *                                           69
         963,867   Simon Engineering                                   785,568
         231,800   Slough Estates                                    1,536,176
       4,630,638   Smithkline Beecham Plc                           57,945,026
         712,200   Smiths Industries Plc                            10,659,273
       2,089,845   Southern Electric Plc                            17,634,765
       1,532,847   Storehouse Plc                                    6,536,726
       3,709,375   T & N                                            15,451,939
       7,599,880   Tarmac                                           12,575,768
       2,396,200   Taylor Woodrow Plc                                7,969,593
         679,500   Thames Water                                      9,890,163
       1,345,800   TI Group Plc                                     11,633,263
       2,964,740   Unilever Plc                                     26,847,944
       2,083,775   United Biscuits                                   9,194,907
       2,473,750   United Utilities                                 33,235,920

              See accompanying notes to the financial statements.             21


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

     Shares      Description                                     Value ($)
--------------------------------------------------------------------------------

United Kingdom - continued              
         449,010   Viglen Technology Plc *                             251,360
         723,310   Viglen Technology Plc Entitlement Letters*                -
       2,984,170   Vodafone Group Plc                               26,532,554
         738,100   Waste Management International *                  2,187,507
         700,979   Wessex Water Plc                                  5,597,685
         966,510   Whitbread Plc Class A                            15,595,315
       2,885,100   Wimpey (George)                                   5,842,890
       1,332,432   Yorkshire Water                                  11,254,447
                                                                 ---------------
                                                                   913,492,638
                                                                 ---------------

TOTAL STOCK AND EQUIVALENTS             
                   (Cost $3,409,853,876)                         3,592,648,619
                                                                 ---------------

INVESTMENT FUNDS - 0.0%                 
Australia - 0.0%                        
       1,078,000   Advance Property Fund                             1,255,803
          47,400   Franked Income Fund                                 164,685
                                                                 ---------------
                                                                     1,420,488
                                                                 ---------------
Netherlands - 0.0%                      
          30,300   Schroders International Property Fund                55,733
                                                                 ---------------

                   TOTAL INVESTMENT FUNDS (Cost $1,359,880)          1,476,221
                                                                 ---------------
Shares/                                                         
Par Value    DEBT OBLIGATIONS - 0.1%                              
United Kingdom - 0.1%                   
GBP   1,178,995   Viglen Technology Plc Floating Rate Note,                 
                   6.75% due 9/1/2000                                1,941,215
GBP     311,023   Viglen Technology Plc Floating Rate Note,                 
                   6.99% due 1/1/2001                                  512,099
                                                                 ---------------
                                                                     2,453,314
                                                                 ---------------

                   TOTAL DEBT OBLIGATIONS (Cost $1,334,817)          2,453,314
                                                                 ---------------

SHORT-TERM INVESTMENTS - 8.1%           
Cash Equivalents - 6.1%                 
$  89,300,000   Republic Bank of New York Time Deposit,                 
                   5.63% due 3/2/98                                 89,300,000
     140,604,073   The Boston Global Investment Trust (b)          140,604,073
                                                                 ---------------
                                                                   229,904,073
                                                                   -------------
U.S. Government - 2.0%                  
   $  76,500,000   U.S. Treasury Bill, 5.39% due 1/7/99 (a)         73,109,711
                                                                 ---------------

TOTAL SHORT-TERM INVESTMENTS            
                   (Cost $303,078,319)                             303,013,784
                                                                 ---------------

22            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

TOTAL INVESTMENTS - 104.2%                    
                (Cost $3,715,626,892)                            3,899,591,938

                 Other Assets and Liabilities (net) -  (4.2%)      (157,629,676)
                                                                 ---------------

                TOTAL NET ASSETS - 100.0%                     $  3,741,962,262
                                                                 ===============

Notes to the Schedule of Investments:         

ADR American Depositary Receipt               

              (a)  All or a portion of this security is held as collateral
for open futures contracts.         

                 (b)  Represents investment of security lending collateral (Note
1).                                 

(c)  Bankrupt issuer.                         

              *    Non-income producing security.  A dividend has not been
                   declared for the twelve months ended February 28, 1998.

              See accompanying notes to the financial statements.             23


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

              At February 28, 1998, industry sector diversification of the
Fund's equity investments was as follows:     

Industry Sector (Unaudited)                   

Banking                              13.0%    
Utilities                             7.9     
Consumer Goods                        7.7     
Services                              6.4     
Conglomerates                         5.1     
Construction                          4.9     
Telecommunications                    4.8     
Oil and Gas                           4.6     
Health Care                           4.5     
Chemicals                             4.4     
Transportation                        3.8     
Real Estate                           3.6     
Electronic Equipment                  3.4     
Insurance                             3.0     
Paper and Allied Products             2.7     
Food and Beverage                     2.6     
Retail Trade                          2.6     
Machinery                             2.5     
Automotive                            2.5     
Metals and Mining                     2.1     
Communications                        1.9     
Financial Services                    0.9     
Textiles                              0.5     
Aerospace                             0.4     
Computers                             0.1     
Miscellaneous                         4.1     
                             -------
                                100.0%
                             =======

24            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Assets and Liabilities - February 28, 1998                                         
----------------------------------------------------------------------------------------------- 
                                                                                                
Assets:                                                                                         
    Investments, at value (cost $3,715,626,892) (Note 1)                        $ 3,899,591,938 
    Foreign currency, at value (cost $10,709,447) (Note 1)                           10,742,505 
    Cash                                                                                 94,724 
    Receivable for Fund shares sold                                                     264,666 
    Receivable for investments sold                                                      49,802 
    Dividends and interest receivable                                                 4,307,818 
    Foreign withholding taxes receivable                                              4,397,359 
    Receivable for open swap contracts (Notes 1 and 5)                               38,660,933 
    Receivable for open forward foreign currency contracts (Notes 1 and 5)           45,150,762 
    Receivable for expenses waived or borne by Manager (Note 2)                         435,216 
                                                                                 -------------- 
       Total assets                                                               4,003,695,723 
                                                                                 -------------- 

Liabilities:                                                                                    
    Payable upon return of securities loaned (Note 1)                               140,604,073 
    Payable for investments purchased                                                   151,889 
    Payable for variation margin on open futures contracts (Notes 1 and 5)            1,519,527 
    Payable for open forward foreign currency contracts (Notes 1 and 5)              95,692,374 
    Payable for Fund shares repurchased                                              20,071,223 
    Payable to affiliate for (Note 2):                                                          
       Management fee                                                                 2,133,200 
       Shareholder service fee                                                          395,181 
    Accrued expenses                                                                  1,165,994 
                                                                                 -------------- 
       Total liabilities                                                            261,733,461 
                                                                                 -------------- 

Net assets                                                                      $ 3,741,962,262 
                                                                                 ============== 
Net assets consist of:                                                                          
    Paid-in capital                                                             $ 3,503,831,089 
    Distributions in excess of net investment income                                (13,664,487)
    Accumulated undistributed net realized gain                                      64,940,672 
    Net unrealized appreciation                                                     186,854,988 
                                                                                 -------------- 

                                                                                $ 3,741,962,262 
                                                                                 ============== 
Net assets attributable to:                                                                     
    Class II Shares                                                             $    12,500,387 
                                                                                 ============== 
    Class III Shares                                                            $ 3,046,509,668 
                                                                                 ============== 
    Class IV Shares                                                             $   682,952,207 
                                                                                 ============== 

Shares outstanding:                                                                             
    Class II                                                                            539,724 
                                                                                 ============== 
    Class III                                                                       131,331,157 
                                                                                 ============== 
    Class IV                                                                         29,449,788 
                                                                                 ============== 

Net asset value per share:                                                                      
    Class II                                                                    $         23.16 
                                                                                 ============== 
    Class III                                                                   $         23.20 
                                                                                 ============== 
    Class IV                                                                    $         23.19 
                                                                                 ============== 

              See accompanying notes to the financial statements.             25


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Operations - Year Ended February 28, 1998                                            
--------------------------------------------------------------------------------------------------
                                                                                                  
Investment income:                                                                                
    Dividends (net of foreign tax expense of $11,084,792)                   $         104,434,383 
    Interest (including securities lending income of $1,904,825)                       11,578,563 
                                                                              --------------------
       Total income                                                                   116,012,946 
                                                                              --------------------
Expenses:                                                                                         
    Management fee (Note 2)                                                            30,572,502 
    Custodian fees                                                                      3,224,655 
    Legal fees                                                                             81,307 
    Audit fees                                                                             74,159 
    Transfer agent fees                                                                    63,554 
    Trustees fee (Note 2)                                                                  37,252 
    Registration fees                                                                      17,000 
    Stamp duties and transfer taxes                                                         5,523 
    Miscellaneous                                                                          34,983 
    Fees waived or borne by Manager (Note 2)                                          (12,093,211)
                                                                              --------------------
                                                                                       22,017,724 
    Shareholder service fee (Note 2)                                                              
       Class I                                                                              7,600 
       Class II                                                                            74,548 
       Class III                                                                        5,925,551 
       Class IV                                                                            80,453 
                                                                              --------------------

       Net expenses                                                                    28,105,876 
                                                                              --------------------

         Net investment income                                                         87,907,070 
                                                                              --------------------

Realized and unrealized gain (loss):                                                              
       Net realized gain (loss) on:                                                               
         Investments                                                                  369,594,289 
         Closed futures contracts                                                      64,189,567 
         Closed swap contracts                                                         55,168,217 
         Foreign currency, forward contracts and foreign                                          
            currency related transactions                                             (46,206,918)
                                                                              --------------------
            Net realized gain                                                         442,745,155 
                                                                              --------------------

       Change in net unrealized appreciation (depreciation) on:                                   
         Investments                                                                 (110,021,917)
         Open futures contracts                                                        18,232,787 
         Open swap contracts                                                           16,068,733 
         Foreign currency, forward contracts and foreign                                          
            currency related transactions                                             (22,245,129)
                                                                              --------------------
            Net unrealized loss                                                       (97,965,526)
                                                                              --------------------
       Net realized and unrealized gain                                               344,779,629 
                                                                              --------------------
Net increase in net assets resulting from operations                        $         432,686,699 
                                                                              ====================

26          See accompanying notes to the financial statements.                 


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                                 Year Ended        Year Ended    
                                                             February 28, 1998  February 28, 1997
                                                             -----------------  -----------------
                                                                                                 
Increase (decrease) in net assets:                                                               
Operations:                                                                                      
    Net investment income                                     $    87,907,070   $   103,049,778  
    Net realized gain                                             442,745,155       231,885,655  
    Change in net unrealized appreciation (depreciation)          (97,965,526)      (42,361,514) 
                                                              ---------------   ---------------  

    Net increase in net assets resulting from                                                    
       operations                                                 432,686,699       292,573,919  
                                                              ---------------   ---------------  

Distributions to shareholders from:                                                              
    Net investment income                                                                        
       Class I                                                       (104,457)           (2,078) 
       Class II                                                    (1,185,156)         (231,954) 
       Class III                                                 (115,540,157)      (56,618,907) 
                                                              ---------------   ---------------  
       Total distributions from net investment income            (116,829,770)      (56,852,939) 
                                                              ---------------   ---------------  

    Net realized gains                                                                           
       Class I                                                       (411,274)           (8,575) 
       Class II                                                    (4,695,006)         (932,158) 
       Class III                                                 (446,289,351)     (264,270,135) 
                                                              ---------------   ---------------  
       Total distributions from net realized gains               (451,395,631)     (265,210,868) 
                                                              ---------------   ---------------  

Net share transactions: (Note 4)                                                                 
       Class I                                                        261,289           206,837  
       Class II                                                    (8,131,121)       25,522,151  
       Class III                                                 (974,400,627)     (275,828,032) 
       Class IV                                                   601,324,132         -          
                                                              ---------------   ---------------  
    Decrease in net assets from net fund share transactions      (380,946,327)     (250,099,044) 
                                                              ---------------   ---------------  

    Total decrease in net assets                                 (516,485,029)     (279,588,932) 

Net assets:                                                                                      
    Beginning of period                                         4,258,447,291     4,538,036,223  
                                                              ---------------   ---------------  

    End of period (including distributions in excess of                                          
       net investment income of $13,664,487 and                                                  
       accumulated undistributed net investment                                                  
       income of $9,222,649, respectively)                    $ 3,741,962,262   $ 4,258,447,291  
                                                              ===============   ===============  

              See accompanying notes to the financial statements.             27


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                                      Period from September 10, 1996
                                                           Period from March 1, 1997   (commencement of operations) 
                                                              to January 9, 1998           to February 28, 1997     
                                                             --------------------          --------------------     
                                                                                                                    
Net asset value, beginning of period                        $              24.36          $              24.17      
                                                             --------------------          --------------------     

Income (loss) from investment operations:                                                                           
  Net investment income                                                     0.47(d)                       0.14      
  Net realized and unrealized gain (loss)                                  (0.58)                         1.38      
                                                             --------------------          --------------------     

    Total from investment operations                                       (0.11)                         1.52      
                                                             --------------------          --------------------     

Less distributions to shareholders:                                                                                 
  From net investment income                                               (0.74)                        (0.26)     
  From net realized gains                                                  (2.92)                        (1.07)     
                                                             --------------------          --------------------     

    Total distributions                                                    (3.66)                        (1.33)     
                                                             --------------------          --------------------     

Net asset value, end of period                              $              20.59(e)       $              24.36      
                                                             ====================          ====================     

Total Return (a)                                                          (0.83%)                        6.38%      

Ratios/Supplemental Data:                                                                                           

         Net assets, end of period (000's)                  $                 --          $                208      
         Net expenses to average                                                                                    
              daily net assets                                             0.82% *                        0.85 *(b) 
         Net investment income to average                                                                           
              daily net assets                                             2.22% *                       1.12% *    
         Portfolio turnover rate                                             68%                           97%      
         Average broker commission rate (c)                 $             0.0077          $             0.0062      
         Fees and expenses voluntarily waived or borne by                                                           
              the Manager consisted of the following per                                                            
              share amounts:                                $               0.06          $               0.04      


*    Annualized                                                                 

(a)  Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  

(b)  Includes stamp duties and transfer taxes not waived or borne by the        
Manager, which approximates .03% of average daily net assets.         

(c)  The average broker commission rate will vary depending on the markets in   
which trades are executed.                                            

(d)  Computed using average shares outstanding throughout the period.           

(e)  All Class I shares of the fund were exchanged for Class II shares on       
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                      

28            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                               Period from September 26, 1996
                                                               Year Ended       (commencement of operations) 
                                                           February 28, 1998        to February 28, 1997     
                                                           -----------------        --------------------     
                                                                                                             
Net asset value, beginning of period                       $          24.36           $          24.60       
                                                            ----------------           ----------------      

Income (loss) from investment operations:                                                                    
  Net investment income                                                0.52 (d)                   0.14       
  Net realized and unrealized gain                                     1.94                       0.96       
                                                            ----------------           ----------------      

    Total from investment operations                                   2.46                       1.10       
                                                            ----------------           ----------------      

Less distributions to shareholders:                                                                          
  From net investment income                                          (0.74)                     (0.27)      
  From net realized gains                                             (2.92)                     (1.07)      
                                                            ----------------           ----------------      

    Total distributions                                               (3.66)                     (1.34)      
                                                            ----------------           ----------------      

Net asset value, end of period                             $          23.16           $          24.36       
                                                            ================           ================      

Total Return (a)                                                     11.60%                      4.51%       

Ratios/Supplemental Data:                                                                                    

         Net assets, end of period (000's)                 $         12,500           $         25,302       
         Net expenses to average                                                                             
              daily net assets                                        0.76%                      0.80% *(b)  
         Net investment income to average                                                                    
              daily net assets                                        2.14%                      0.98% *     
         Portfolio turnover rate                                        68%                        97%       
         Average broker commission rate (c)                $         0.0077           $         0.0062       
         Fees and expenses voluntarily waived or borne by                                                    
              the Manager consisted of the following per                                                     
              share amounts:                               $           0.07           $           0.05       


*    Annualized                                                                 

(a)  Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  

(b)  Includes stamp duties and transfer taxes not waived or borne by the        
Manager, which approximates .04% of average daily net assets.         

(c)  The average broker commission rate will vary depending on the markets in   
which trades are executed.                                            

(d)  Computed using average shares outstanding throughout the period.           

              See accompanying notes to the financial statements.             29


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                               Year Ended February 28/29,                           
                                                         ---------------------------------------------------------------------------
                                                              1998          1997              1996           1995          1994     
                                                         ------------   -----------      ------------   ------------    ----------- 
                                                                                                                                    
Net asset value, beginning of period                  $      24.37   $     24.62      $      22.32   $      25.56    $     18.51    
                                                      ------------   -----------      ------------   ------------    -----------    

Income (loss) from investment operations:                                                                                           
  Net investment income                                       0.54 (d)      0.59              0.36           0.27           0.29    
  Net realized and unrealized gain (loss)                     1.96          1.02              3.09          (1.57)          7.44    
                                                      ------------   -----------      ------------   ------------    -----------    

    Total from investment operations                          2.50          1.61              3.45          (1.30)          7.73    
                                                      ------------   -----------      ------------   ------------    -----------    

Less distributions to shareholders:                                                                                                 
  From net investment income                                 (0.75)        (0.33)            (0.39)         (0.35)         (0.27)   
  From net realized gains                                    (2.92)        (1.53)            (0.76)         (1.59)         (0.41)   
                                                      ------------   -----------      ------------   ------------    -----------    

    Total distributions                                      (3.67)        (1.86)            (1.15)         (1.94)         (0.68)   
                                                      ------------   -----------      ------------   ------------    -----------    

Net asset value, end of period                        $      23.20   $     24.37      $      24.62   $      22.32    $     25.56    
                                                      ============   ===========      ============   ============    ===========    

Total Return (a)                                            11.71%         6.72%            15.72%         (5.31%)        42.10%    

Ratios/Supplemental Data:                                                                                                           

      Net assets, end of period (000's)               $  3,046,510   $ 4,232,937      $  4,538,036   $  2,591,646    $ 2,286,431    
      Net expenses to average                                                                                                       
        daily net assets                                     0.69%         0.71% (b)         0.71% (b)      0.70%          0.71% (b)
      Net investment income to average                                                                                              
        daily net assets                                     2.19%         2.34%             1.93%          1.48%          1.48%    
      Portfolio turnover rate                                  68%           97%               14%            53%            23%    
      Average broker commission rate (c)              $     0.0077   $    0.0062               N/A            N/A            N/A    
      Fees and expenses voluntarily waived or borne by                                                                              
        the Manager consisted of the following per                                                                                  
        share amounts:                                $       0.07   $      0.06      $       0.03   $       0.03    $      0.03    


(a)  Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  

(b)  Includes stamp duties and transfer taxes not waived or borne by the        
Manager, which approximates .02% of average daily net assets.         

(c)  For fiscal years beginning on or after September 1, 1995, a fund is        
 required to disclose its average commission rate per share for security
     trades on which commissions are charged. The average broker commission rate
will vary depending on the markets in which trades are executed.      

(d)  Computed using average shares outstanding throughout the period.           

30            See accompanying notes to the financial statements.               


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class IV share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                   Period from January 9, 1998
                                                    (commencement of operations)
                                                    to February 28, 1998
                                                    ----------------------

Net asset value, beginning of period                           $       20.61    
                                                            ------------

Income from investment operations:                                              
  Net investment income                                                 0.02 (c)
Net realized and unrealized gain                                      2.56  
                                                            ------------

Total from investment operations                                    2.58
                                                            ------------

Net asset value, end of period                                 $       23.19    
                                                            ============

Total Return (a)                                                      12.52%    

Ratios/Supplemental Data:                                                       

 Net assets, end of period (000's)                         $     682,952
Net expenses to average                                               
         daily net assets                                            0.63% *
Net investment income to average                                      
         daily net assets                                            0.68% *
 Portfolio turnover rate                                             68%
 Average broker commission rate (b)                        $      0.0077
Fees and expenses voluntarily waived or borne by                      
the Manager consisted of the following per                
       share amount:                                       $        0.01

*      Annualized                                                               
(a)    Calculation excludes purchase premiums. The total return would have been 
 lower had certain expenses not been waived during the period shown.
(b)    The average broker commission rate will vary depending on the markets in 
which trades are executed.                                        
(c)    Computed using average shares outstanding throughout the period.         

              See accompanying notes to the financial statements.             31


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

GMO International 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 into classes.                                   

  The Fund seeks maximum total return through investment in a portfolio of
common stocks of non-U.S. issuers.                                    

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
as those shares.                                                      

    Effective January 9, 1998, Class I shares ceased operations and all shares
     were exchanged for Class II shares. Additionally, Class IV shares commenced
operations on January 9, 1998.                                        

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

32                                                                              


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
   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.                                                      

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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     
   The Fund may purchase and sell stock index futures contracts. Stock index
   futures contracts represent commitments for future delivery of cash based
 upon the level of a specified index of equity securities at a specified
 price at a given date. The Fund may use futures contracts to manage its
exposure to the stock and currency 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 obligations in
    accordance with the initial margin requirements of the broker or exchange.
    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 subsequently settled. Gains or losses
  are recognized but not considered realized until the contracts expire or
    are closed. Futures contracts involve, to varying degrees, risk of loss in
 excess of the variation margin disclosed in the Statement of Assets and
   Liabilities. Losses may arise from changes in the value of the underlying
    instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures    
  contracts are valued at the settlement price established each day by the
 board of trade or exchange on which they are traded. See Note 5 for all
open futures contracts as of February 28, 1998.                       

                                                                              33


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts                                            
The Fund may enter into forward 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 the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the  
    currencies the Fund has committed to buy or sell is shown under Note 5 and
  represents the currency exposure the Fund has acquired or hedged through
currency contracts as of February 28, 1998.                           

Swap agreements                                                       
    The Fund may invest in swap agreements. 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 swap agreements to manage its exposure
  to the equity markets. The Fund enters 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 based on a notional amount. To the
extent that 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. Total return swaps are marked to market daily
based upon quotations from market makers and the change, if any, is   
recorded as unrealized gain or loss in the Statement of Operations.   
     Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and 
    market risk in excess of the amounts recognized on the Statement of Assets
     and Liabilities. Such risks involve the possibility that there is no liquid
  market for these agreements, that the counterparty to the agreements may
default on its obligation to perform or that there may be unfavorable 
changes in the price of the security or index underlying these        
 transactions. See Note 5 for a summary of the open swap agreement as of
February 28, 1998.                                                    

34                                                                              


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $131,279,631 collateralized by cash in the amount of  
$140,604,073, which was invested in a short-term instrument.          

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for federal income or
     excise tax is necessary. Taxes on foreign interest and dividend income have
   been withheld in accordance with the applicable country's tax treaty with
     the United States. 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.                                 

Distributions to shareholders                                         
   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, if any, 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. The Fund declares separate dividends from net
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
  differing treatments for foreign currency and passive foreign investment
 company transactions and redemptions in-kind. Gains resulting from such
in-kind transactions amounted to $1,754,151.                          

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

                                                                              35


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Distributions in                Accumulated                             
Excess of Net               Undistributed Net                         
 Investment Income               Realized Gain               Paid-in Capital
------------------------       -----------------------       -------------------

   $6,035,564                    ($7,751,716)                 $1,716,152

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the 
   ex-dividend date. Interest income is recorded on the accrual basis and is
 adjusted for the accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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 .60% of the amount    
    invested. Prior to June 1, 1996, the premium on cash purchases was .75% of
    the amount invested. All purchase premiums are paid to and are recorded by
the Fund as paid-in capital. These fees are allocated relative to each
class' net assets on the share transaction date. Purchase premiums are
    included as part of each class' "shares sold" as summarized in Note 4. For
    the year ended February 28, 1998, the Fund received $1,253,729 in purchase
premiums. There is no premium for cash redemptions or reinvested      
 distributions. Normally, no purchase premium is charged with respect to
    in-kind purchases of Fund shares. A purchase premium of up to 0.10% may be
charged on certain in-kind transactions.                              

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 and the
possible imposition of currency exchange blockages or other foreign   
governmental laws or restrictions. In addition, the securities of some
foreign companies and                                                 

36                                                                              


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
securities markets are less liquid and at times more volatile than    
securities of comparable U.S. companies and U.S. securities markets.  

2.   Fees and other transactions with affiliates                                
GMO earns a management fee paid monthly at the annual rate of .75% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, .15%
for Class III shares, and .09% for Class IV shares.                   

  GMO has agreed to waive a portion of its fee until further notice to the
  extent that the Fund's annual expenses (including the management fee but
     excluding brokerage commissions, certain other transaction costs (including
stamp duties and transfer taxes), shareholder service fees and        
   extraordinary expenses) exceed .54% of average daily net assets. Prior to
  June 1, 1996, a similar waiver existed for fees exceeding .69%; thus the
  net annual expense ratio after the waiver for a Class III shareholder is
unchanged.                                                            

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $37,252. No     
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchase and sales of securities                                           

Cost of purchases and proceeds from sales of securities, excluding    
 short-term investments, for the year ended February 28, 1998 aggregated
$2,648,648,497 and $3,425,987,739, respectively.                      

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                       Gross Unrealized    Gross Unrealized   Net Unrealized
    Aggregate Cost      Appreciation        Depreciation      Appreciation
   ------------------  -----------------   ----------------  ---------------

    $3,747,223,350      $576,726,579        $424,357,991      $152,368,588

                                                                              37


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
4.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]


                                                                                 Period from September 10, 1996      
                                       Period from March 1, 1997                  (commencement of operations)       
                                          to January 9, 1998                            to February 28, 1997         
                              --------------------------------------------  -----------------------------------------
 Class I:                           Shares                 Amount                Shares                Amount        
                              -------------------   ----------------------  -----------------    --------------------
                                                                                                                     
Shares sold                              129,549    $           3,082,734              8,196     $           198,184 

Shares issued to                                                                                                     
shareholders in reinvestment                                                                                         
of distributions                          23,945                  515,731                440                  10,653 
Shares repurchased                      (162,048)              (3,337,176)               (82)                 (2,000)
                              -------------------   ----------------------  -----------------    --------------------
Net increase (decrease)                   (8,554)   $             261,289              8,554     $           206,837 
                              ===================   ======================  =================    ====================



                                                                                 Period from September 26,1996       
                                              Year Ended                          (commencement of operations)       
                                           February 28, 1998                           to February 28, 1997          
                              --------------------------------------------  -----------------------------------------
 Class II:                          Shares                 Amount                Shares                Amount        
                              -------------------   ----------------------  -----------------    --------------------
                                                                                                                     
Shares sold                              763,855    $          18,068,147            990,710     $        24,358,040 
Shares issued to                                                                                                     
shareholders in reinvestment                                                                                         
of distributions                         274,162                5,880,162             48,104               1,164,111 
Shares repurchased                    (1,537,107)             (32,079,430)                 -                       - 
                              -------------------   ----------------------  -----------------    --------------------
Net increase (decrease)                 (499,090)   $          (8,131,121)         1,038,814     $        25,522,151 
                              ===================   ======================  =================    ====================


38                                                                              


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Share transactions - continued                                                  

                                                        [Enlarge/Download Table]


                                    Year Ended                                   Year Ended                
                                 February 28, 1998                           February 28, 1997             
                    --------------------------------------------  -----------------------------------------
Class III:                Shares                 Amount                Shares                Amount        
                    -------------------   ----------------------  -----------------    --------------------
                                                                                                           
Shares sold                 19,930,602    $         489,010,908         26,694,331     $       662,148,445 
Shares issued to                                                                                           
shareholders in                                                                                            
reinvestment of                                                                                            
distributions               23,749,073              513,606,936         12,151,121             296,116,351 
Shares repurchased         (86,021,674)          (1,977,018,471)       (49,513,521)         (1,234,092,828)
                    -------------------   ----------------------  -----------------    --------------------
Net decrease               (42,341,999)   $        (974,400,627)       (10,668,069)    $      (275,828,032)
                    ===================   ======================  =================    ====================


                                       Period from January 9, 1998
                                      (commencement of operations)
                                      to February 28, 1998
                                      ----------------------------------
Class IV:                                Shares           Amount    
                                      ---------------   ----------------
Shares sold                              32,918,242    $   678,472,578
Shares issued to shareholders in                                      
reinvestment of distributions                -                 -      
 Shares repurchased                       (3,468,454)       (77,148,446)
                                      ---------------   ----------------
Net increase                             29,449,788    $   601,324,132
                                      ===============   ================

                                                                              39


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

5.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]

                                                                                                Net Unrealized   
  Settlement                                       Units of                                      Appreciation    
     Date             Deliver/Receive              Currency                  Value              (Depreciation)   
---------------  --------------------------  ---------------------    --------------------    -------------------
                                                                                                                 
Buys                                                                                                             
3/6/98                      ATS                     1,109,395,622   $          86,903,000   $        (3,257,106) 
7/16/98                     ATS                       814,379,622              64,261,251               (48,284) 
4/17/98                     AUD                        70,914,834              48,353,280            (1,093,895) 
3/6/98                      BEF                     8,198,259,690             218,889,639            (7,768,501) 
7/16/98                     BEF                     5,473,244,600             147,217,295              (188,024) 
4/17/98                     CAD                       104,838,494              73,744,046              (893,275) 
3/6/98                      CHF                       336,557,083             229,416,319            (1,816,875) 
7/16/98                     CHF                        62,138,265              43,080,520              (179,202) 
3/6/98                      DEM                        74,570,800              41,098,974               132,084  
3/6/98                      ESP                    43,474,433,004             282,293,657           (10,732,995) 
7/16/98                     ESP                    28,237,964,122             184,203,683              (583,792) 
3/6/98                      FIM                       447,945,328              81,307,860            (3,824,649) 
7/16/98                     FIM                       276,365,486              50,564,528              (166,291) 
3/6/98                      FRF                     1,905,304,317             312,952,552            (3,059,920) 
7/16/98                     FRF                     1,274,568,068             210,958,335              (966,088) 
3/6/98                      GBP                       297,445,095             489,671,961              (990,794) 
3/6/98                      HKD                       830,535,241             107,273,506                31,562  
4/17/98                     HKD                     2,162,664,330             279,021,960             6,363,811  
3/6/98                      IEP                       100,108,983             136,495,323           (10,773,255) 
7/16/98                     IEP                        90,083,920             122,748,350              (394,337) 
3/6/98                      ITL                    85,754,523,590              47,920,329            (1,384,908) 
7/16/98                     ITL                    17,265,523,590               9,646,069                11,398  
3/6/98                      NLG                       138,589,117              67,720,753            (2,917,191) 
7/16/98                     NLG                       118,562,117              58,397,432                47,998  


40                                                                              


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                              
Buys - continued                                            

                                                        [Enlarge/Download Table]


                                                                                               Net Unrealized   
  Settlement                                       Units of                                     Appreciation    
     Date             Deliver/Receive              Currency                 Value              (Depreciation)   
---------------  --------------------------  ---------------------    -------------------    -------------------
                                                                                                                

3/6/98                      NOK                     3,383,031,427   $        447,028,865   $       (22,113,509) 
7/16/98                     NOK                     1,637,773,351            217,718,800               227,398  
3/6/98                      SEK                     2,110,650,263            263,645,084            (7,929,343) 
7/16/98                     SEK                       279,372,222             35,034,294                58,783  
                                                                                             -------------------
                                                                                           $       (74,209,200) 
                                                                                             ===================

Sales                                                                                                           
3/6/98                      ATS                     1,109,395,622             86,903,000               495,487  
4/17/98                     AUD                       357,462,351            243,735,704             5,452,754  
3/6/98                      BEF                     8,198,259,690            218,889,639             2,645,206  
7/16/98                     BEF                     2,424,591,090             65,215,748               206,866  
4/17/98                     CAD                        25,179,800             17,711,627              (211,627) 
3/6/98                      CHF                       336,557,083            229,416,319             5,631,178  
7/16/98                     CHF                       182,522,091            126,542,744              (316,384) 
3/6/98                      DEM                        74,570,800             41,098,974             1,211,608  
7/16/98                     DEM                       101,647,300             56,457,784              (171,769) 
3/6/98                      ESP                    43,474,433,004            282,293,657             3,731,513  
7/16/98                     ESP                     5,924,089,600             38,644,398               356,314  
3/6/98                      FIM                       447,945,328             81,307,860               968,014  
3/6/98                      FRF                     1,905,304,317            312,952,552             3,447,546  
7/16/98                     FRF                        26,761,500              4,429,392                42,037  
3/6/98                      GBP                       297,445,095            489,671,961              (664,569) 
7/16/98                     GBP                       146,066,073            238,876,091              (145,096) 
3/6/98                      HKD                       830,535,241            107,273,506            (4,516,285) 
4/17/98                     HKD                     3,486,389,077            449,805,871            (8,354,795) 
3/6/98                      IEP                       100,108,983            136,495,323             1,708,074  
7/16/98                     IEP                        10,025,063             13,660,150               174,436  
3/6/98                      ITL                    85,754,523,590             47,920,329              (161,773) 
4/17/98                     JPY                     4,883,874,760             38,918,438             1,613,562  
3/6/98                      NLG                       138,589,117             67,720,753                61,942  

                                                                              41


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                          
Sales - continued                                               

                                                        [Enlarge/Download Table]


                                                                                             Net Unrealized   
  Settlement                                       Units of                                   Appreciation    
     Date             Deliver/Receive              Currency                Value             (Depreciation)   
---------------  --------------------------  ---------------------   -------------------   -------------------
                                                                                                              
3/6/98                      NOK                     3,383,031,427   $       447,028,865   $         8,228,088 
7/16/98                     NOK                       535,097,917            71,133,699               292,381 
3/6/98                      SEK                     2,110,650,263           263,645,084             2,010,722 
7/16/98                     SEK                       285,445,484            35,795,904              (67,842) 
                                                                                           -------------------
                                                                                          $        23,667,588 
                                                                                           ===================

Currency Abbreviations:                                           

ATS          Austrian Schilling          GBP        British Pound 
  AUD          Australian Dollar           HKD        Hong Kong Dollar
BEF          Belgian Franc               IEP        Irish Pound   
CAD          Canadian Dollar             ITL        Italian Lira  
CHF          Swiss Franc                 JPY        Japanese Yen  
     DEM          German Mark                 NLG        Netherlands Guilder
  ESP          Spanish Peseta              NOK        Norwegian Kroner
FIM          Finnish Markka              SEK        Swedish Krona 
FRF          French Franc                                         

42                                                                              


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Futures contracts                                                               

                                                        [Enlarge/Download Table]

                                                                                             Net Unrealized    
   Number of                                                                                  Appreciation     
   Contracts       Type                      Expiration Date         Contract Value          (Depreciation)    
-----------------  ---------------------  ----------------------   --------------------   ---------------------
                                                                                                               
Buys                                                                                                           
             691   DAX                    March 1998              $        179,208,789   $          19,458,500 
           1,449   MIB 30                 March 1998                       235,198,826              38,537,032 
             249   TSE 35                 March 1998                        33,496,856               2,229,389 
                                                                                          ---------------------
                                                                                         $          60,224,921 
                                                                                          =====================

Sales                                                                                                          
           2,934   ALL ORDS               March 1998              $        134,918,240   $         (7,046,524) 
           1,193   FTSE 100 ID            March 1998                       283,887,203            (25,208,008) 
             994   HANG SENG              March 1998                        74,140,781             (6,577,712) 
             174   IBEX                   March 1998                        10,111,353               (831,876) 
             358   MATIF CAC 40           March 1998                        40,354,921             (5,243,825) 
             143   TOPIX                  March 1998                        14,443,758               (272,818) 
              79   OMX STOCK              March 1998                         2,711,481                (67,742) 
                                                                                          ---------------------
                                                                                         $        (45,248,505) 
                                                                                          =====================

At February 28, 1998 the Fund has cash and/or securities to cover any 
margin requirements on open futures contracts.                        

                                                                              43


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Swap agreement                                                        

                                                        [Enlarge/Download Table]


        Notional            Expiration                                                               Unrealized      
        Amount                 Date                           Description                           Appreciation     
------------------------  --------------- -----------------------------------------------------  --------------------
                                                                                                                     
        CHF 241,069,567       8/6/98      Agreement with Swiss Bank Corporation dated 8/6/97                         
                                          to receive (pay) the notional amount multiplied by                         
                                          the return on the Swiss Market Index (including                            
                                          dividends) and to pay the notional amount                                  
                                          multiplied by 6 month CHF LIBOR adjusted by a                              
                                          specified spread.                                      $        38,660,933 
                                                                                                 ====================


44                                                                              


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------
For the fiscal year ended February 28, 1998, all the Fund's distributions are   
from investment company taxable income, except that the Fund has designated     
60.25% as net capital gain dividends.                                           

                                                                              45


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GMO International Core Fund                                                     
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
fifteen years.                                                                  

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

The Class III shares of the GMO International Core Fund returned 11.7% for the  
fiscal year ended February 28, 1998 as compared to 15.5% for EAFE and 18.9% for 
the GMO EAFE-Lite Index. Consistent with the Fund's investment objective and    
policies, the Fund was invested substantially in common stocks throughout the   
period.                                                                         

Effect of country weights (local currency terms)                                

Overseas markets were mixed during the fiscal year. Although a strong bull      
market prevailed in Europe, the investment climate was difficult for investors  
in the Far East. Poor economic conditions in Japan combined with the fallout    
from the Asian currency crisis caused most stock markets in the Pacific Rim to  
fall significantly. Hedging currency exposure back to the strong-performing U.S.
dollar added to the absolute performance of the Fund.                           

Within Europe, ten of the fourteen EAFE markets returned in excess of 30% for   
the year, led by strong performance of the largest international blue chip      
companies. On the other hand, small European stocks performed poorly throughout 
the region.                                                                     

Weakness in the Pacific Rim countries offset the strong performance of the      
European markets. Many of the Pacific Rim countries represented in the index    
(Japan, Malaysia, Hong Kong and Singapore) were significantly affected by the   
debt crisis in the Asian markets. Weakening currencies further depressed returns
for dollar-based investors. In the crisis environment pervading these markets,  
both large and small stocks performed poorly in absolute terms, however, smaller
stocks were more drastically affected by the turn of events.                    

Country selection contributed negatively to the Fund's performance for the year,
primarily in some of the Asian countries where the Fund had slight overweights  
in the latter part of the year. In Europe, where the Fund was underweight in    
many of the expensive markets, including the Netherlands, Switzerland, and the  
United Kingdom, performance was also negatively affected. These decisions were  
somewhat offset by the Fund's overweighting of the Italian market, which was one
of the best performing EAFE markets for the year, as well as by underweighting  
Japan.                                                                          

Relative to EAFE, country selection added value, primarily due to the Fund's    
underweight in Japan.                                                           


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Effect of currency weights                                                      

The dollar strengthened versus every currency in the EAFE-Lite benchmark during 
the year with the exception of the Swiss franc and the pound sterling. Currency 
allocation contributed negatively to performance through the Fund's             
underweighting of the strong-performing Swiss and British currencies and through
its modest overweights in some of the Asian currencies (Malaysia and Singapore).
The Fund benefited from underweighting the Dutch guilder and Australian dollar. 
The Fund was modestly hedged back to the U.S. dollar during the year, which     
added value as well.                                                            

Effect of stock selection                                                       

Stock selection was negative for the year as the Fund's value orientation was   
not rewarded in a market environment that favored the largest, growth-oriented  
international stocks. This trend was perhaps best exemplified by the remarkable 
spread between large and small stocks in the U.K., where the largest 20% of the 
market outperformed the smallest 20% by a margin of twenty-seven percentage     
points (27%). As a group, the largest multinational stocks are very expensive   
relative to their historical levels, and the Fund maintained a significant      
underweight in these stocks during the year. Our bias in favor of smaller, less 
expensive companies, was not rewarded.                                          

Portfolio structure and outlook                                                 

Country selection. The International Core Fund remains underweight in Japan. The
Fund holds no weight in the Netherlands and we have increased our underweight in
the U.K. as the market (and the British pound) appear expensive on all of our   
valuation measures. The Fund's largest overweight positions are in Italy and    
Canada.                                                                         

Currency Selection. Among currencies, the Fund is slightly underweight in the   
European currencies and holds a larger underweight in the Asian/Pacific Rim     
currencies. The Fund's largest underweights are the Dutch guilder, Swiss Franc, 
Deutsche mark and pound sterling. The Fund continues to emphasize the Canadian  
dollar, Norwegian krone, Spanish peseta and French franc.                       

Stock selection. Small stocks in EAFE are now cheaper than they have been in    
more than twenty years. Value stocks are also very attractive in many European  
markets, following the strong run over the last several years in multinational  
companies. While small stocks also appear attractive in a number of the Pacific 
Rim countries, we are somewhat more cautious about their outlook given their    
higher risk of bankruptcy in what will likely be a difficult economic           
environment. Overall, the Fund remains about 20% overweight in smaller stocks   
and 20% underweight in large, multinational stocks.                             

The Fund is very well positioned to outperform the benchmark over the next three
years. Although the restructuring craze in Europe may well provide support for  
large companies in the short term, we believe large cap companies (whose        
valuations are historically high) are susceptible to earnings disappointments,  
and eventually, shrinking profit margins. We expect value and small stocks to do
well in many countries over the next several years.                             

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management.  They are not meant as investment advice.                   


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International Core Fund                                                         

Comparison of Change in Value of a $10,000 Investment in  
GMO International Core Fund Class III Shares and the MSCI EAFE Index  
As of February 28, 1998 

------------------------------------------
Average Annual Total Return 
------------------------------------------
                             Since
1 Year    5 Year   10 Year   Inception
------------------------------------------
Class                                  9/26/96        
II     10.9%      n/a       n/a        11.0%        
------------------------------------------
Class                                                 
III    11.0%     13.0%     11.7%        n/a         
------------------------------------------
Class                                  1/9/98         
IV      n/a       n/a       n/a        11.8%        
------------------------------------------

[LINE GRAPH APPEARS HERE] 

Date      GMO International Core Fund   MSCI EAFE Index 

2/29/88                $9,940                $10,000    
2/28/89               $12,720                $12,083    
2/28/90               $14,459                $11,695    
2/28/91               $15,992                $11,426    
2/29/92               $15,992                $10,578    
2/28/93               $16,224                $10,141    
2/28/94               $23,042                $14,114    
2/28/95               $21,819                $13,488    
2/29/96               $25,249                $15,760    
2/28/97               $26,945                $16,271    
2/28/98               $30,101                $18,788    

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Performance for    
Class IV and Class II shares may vary due to different shareholder service fees.
Past performance is not indicative of future performance. Information is        
unaudited.                                                                      


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO Japan Fund (A Series of GMO Trust)                                          

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 Japan Fund at February 28,     
1998, the results of its operations for the year then ended, the changes in its 
net assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and   
financial highlights (hereafter referred to as "financial statements") are the  
responsibility of the Trust'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 generally accepted      
auditing standards 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 28, 1998 by       
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide 
a reasonable basis for the opinion expressed above.                             

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 20, 1998                                                                  


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                       Value ($)
--------------------------------------------------------------------------------

STOCK AND EQUIVALENTS - 97.6%               
Automotive - 4.6%                           
       2,000     Autobacs Seven                                         75,200
      48,000     Denso Corp                                            980,290
     142,000     Fuji Heavy Industries Ltd                             532,795
      20,000     Honda Motor Co Ltd                                    691,839
      95,000     Isuzu Motors Ltd                                      205,296
      14,600     Mabuchi Motor Co                                      780,100
     200,000     Mazda Motor Corp *                                    638,012
      46,000     NGK Spark Plug Co                                     332,447
      87,000     Toyota Motor Corp                                   2,403,467
      28,000     Yamaha Motor Co                                       180,416
                                                                 ---------------
                                                                     6,819,862
                                                                 ---------------
Banking - 0.1%                              
      14,000     Bandai Co                                             208,343
                                                                 ---------------
Chemicals - 3.5%                            
     365,000     Daicel Chemical Industries Ltd                        808,992
       9,000     Hitachi Chemical Co                                    55,996
     204,000     Japan Synthetic Rubber Co Ltd                       1,060,936
      39,000     Kureha Chemical Industry Co Ltd                       105,272
     208,000     Mitsubishi Gas Chemical Co Inc                        681,639
      72,000     Mitsui Petrochemical Industries Ltd                   202,327
      20,000     Nagase & Co                                            77,575
      20,000     Nippon Paint Co                                        41,954
      56,000     Nippon Soda Chemical Co Ltd                           500,910
      38,000     Shin-Etsu Chemical Co Ltd                             836,223
     411,000     Showa Denko                                           553,075
      17,000     Sumitomo Bakelite Co Ltd                              108,731
      27,000     Tokuyama Corp                                          85,277
      48,000     Tokyo Ink Manufacturing Co Ltd                        123,106
                                                                 ---------------
                                                                     5,242,013
                                                                 ---------------
Computers and Office Equipment - 0.5%       
      44,000     NCR Japan Ltd                                         171,012
       8,000     Nihon Unisys Ltd                                       42,809
      46,000     Ricoh Co Ltd                                          491,570
                                                                 ---------------
                                                                       705,391
                                                                 ---------------
Conglomerates - 0.4%                        
      77,000     Mitsubishi Corp                                       585,744
                                                                 ---------------
Construction - 3.5%                         
     468,000     Aoki Corp *                                           433,436
      15,000     Chudenko Corp                                         408,454

              See accompanying notes to the financial statements.              1


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                       Value ($)
--------------------------------------------------------------------------------

Construction - continued                    
      29,000     Daiwa House Industry Co Ltd                           226,803
     212,000     Haseko Corp *                                         194,665
      68,000     INAX Corp                                             285,285
     106,000     Maeda Corp                                            374,226
     501,000     Mitsui Engineering & Shipbuilding *                   511,589
      52,000     National House Industrial                             489,828
      57,000     Okumura Corp                                          253,123
      91,000     Penta Ocean Construction                              200,974
     248,000     Sato Kogyo Co Ltd                                     296,430
      40,000     Sekisui House Ltd                                     315,048
     154,000     Shokusan Jutaku Sogo Co Ltd *                         132,874
      67,000     Takara Standard Co                                    430,120
      25,000     Takuma Corp                                           219,663
     152,000     Tokyo Construction Co Ltd                             186,496
      21,000     Toyo Exterior Co Ltd                                  192,828
                                                                 ---------------
                                                                     5,151,842
                                                                 ---------------
Consumer Goods - 8.0%                       
      50,000     Citizen Watch Co                                      362,147
       8,000     Daikin Industries Ltd                                  40,212
      55,000     Ezaki Glico Co Ltd                                    343,940
      99,800     Fuji Photo Film Co Ltd                              3,910,473
      22,000     Hitachi Maxell Ltd                                    407,504
      70,000     Kao Corp                                              947,518
      53,000     Minolta Co Ltd                                        318,847
      61,000     Nikon Corp                                            593,921
      37,300     Nintendo Co Ltd                                     3,424,998
      44,000     Olympus Optical Co Ltd                                346,204
       6,000     Ushio Inc                                              47,447
      46,000     Victor Co of Japan Ltd                                407,821
      44,000     Yakult Honsha Co Ltd                                  297,792
      49,000     Yamaha Corp                                           543,022
                                                                 ---------------
                                                                    11,991,846
                                                                 ---------------
Electric - 2.2%                             
      30,000     Kinden Corp                                           401,330
      28,000     Kokusai Electric                                      259,321
      63,000     Matsushita Electric Industrial Co Ltd                 917,597
     245,000     Mitsubishi Electric Corp                              744,716
     232,000     Oki Electric Industry                                 598,686
      65,000     Showa Electric Wire & Cable                           158,474
      58,000     Stanley Electric Co Ltd                               200,633
                                                                 ---------------
                                                                     3,280,757
                                                                 ---------------

2             See accompanying notes to the financial statements.               


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                       Value ($)
--------------------------------------------------------------------------------

Electronics - 5.4%                          
       6,000     Aiwa Co                                               170,031
      12,000     Brother Industries Ltd                                 32,676
      20,000     Fanuc Co                                              728,251
      71,000     Hosiden Corp *                                        668,804
      57,000     Japan Aviation Electronics                            265,756
      36,000     Kyocera Corp                                        1,937,782
      26,000     Nichicon Corp                                         273,728
       5,000     Pioneer Electronics Corp                               88,261
      18,000     Ryosan Co                                             299,216
      72,000     Sharp Corp                                            563,097
      46,000     Tokyo Electron                                      1,653,131
     311,000     Toshiba Corp                                        1,393,382
                                                                 ---------------
                                                                     8,074,115
                                                                 ---------------
Financial Services - 1.1%                   
     173,000     Nikko Securities                                      683,345
      52,000     Nomura Securities Co Ltd                              716,219
       3,900     Orix Corp                                             284,018
                                                                 ---------------
                                                                     1,683,582
                                                                 ---------------
Food and Beverage - 5.7%                    
      67,000     Asahi Breweries Ltd                                   896,303
       4,000     Denny's Japan Co Ltd                                  101,005
      91,000     House Foods Corp                                    1,274,994
      39,000     Itoham Foods Inc                                      174,733
       7,000     Ito-Yokado                                            382,332
      20,000     Katokichi Co Ltd                                      265,970
      82,000     Kikkoman Corp                                         518,626
     155,000     Kirin Brewery Co Ltd                                1,349,640
      10,000     Marudai Food Co Ltd                                    27,705
      34,000     Meiji Seika Kaisha Ltd                                130,531
      42,000     Mercian Corp                                          168,226
      35,000     Nichirei                                               88,657
      84,000     Nippon Meat Packers Inc                             1,103,776
     116,000     Nippon Suisan Kaisha Ltd *                            191,910
      37,000     Nisshin Oil Mills Ltd                                 102,509
      16,000     Nissin Food Products Co Ltd                           333,096
      69,700     Q.P. Corp                                             458,487
      94,000     Snow Brand Milk Products Co Ltd                       326,652
      39,000     Takara Shuzo Co Ltd                                   182,142
      24,000     Toyo Suisan Kaisha                                    176,680
      23,000     Yamazaki Baking Co Ltd                                258,529
                                                                 ---------------
                                                                     8,512,503
                                                                 ---------------

              See accompanying notes to the financial statements.              3


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                       Value ($)
--------------------------------------------------------------------------------

Health Care - 4.2%                          
      48,000     Eisai Co Ltd                                          839,706
      46,000     Hoya Corp                                           1,219,821
      84,000     Kyowa Hakko Kogyo Co Ltd                              411,589
      81,000     Lion Corp                                             293,659
      58,000     Sankyo Co Ltd                                       1,556,400
      59,000     Shionogi and Co Ltd                                   305,438
     126,000     Shiseido Co Ltd                                     1,585,847
                                                                 ---------------
                                                                     6,212,460
                                                                 ---------------
Leisure - 0.2%                              
      19,000     Heiwa Corp                                            209,056
      24,000     Tokyotokeiba Co Ltd                                    43,315
                                                                 ---------------
                                                                       252,371
                                                                 ---------------
Machinery - 1.3%                            
       3,000     Aida Engineering Ltd                                   12,420
     113,000     Amada Co Ltd                                          529,534
      18,000     Furukawa Co Ltd                                        35,336
      24,000     Kubota Corp                                            69,152
      13,000     Mori Seiki Co Ltd                                     157,445
      32,000     Okuma Corp                                            133,745
      15,000     Rinnai Corp                                           243,410
      51,000     Sanden Corp                                           272,904
      94,000     Toshiba Tungaloy Co Ltd                               290,936
      65,000     Tsubakimoto Chain                                     227,935
                                                                 ---------------
                                                                     1,972,817
                                                                 ---------------
Metals and Mining - 2.1%                    
     114,000     Fujikara Ltd                                          802,232
      35,000     Hitachi Metals Ltd                                    159,305
     150,000     Japan Metals & Chemicals *                            249,347
       7,000     Maruichi Steel Tube                                    93,090
     108,000     Nachi Fujikoshi Co                                    241,083
      82,000     Nippon Sheet Glass Co Ltd                             179,150
      65,000     Nitto Denko Corp                                    1,029,051
      67,000     NTN Corp                                              212,673
      25,000     Yodogawa Steel Works                                  128,631
                                                                 ---------------
                                                                     3,094,562
                                                                 ---------------
Oil and Gas - 5.0%                          
     256,000     Cosmo Oil Co Ltd                                      587,667
      20,000     General Sekiyu (KK)                                    99,106
     238,000     Mitsubishi Oil Co Ltd                                 493,596
   1,423,000     Nippon Oil Co Ltd                                   5,136,452
     108,600     Showa Shell Sekiyu                                    738,442
     126,000     Teikoku Oil Co Ltd                                    417,905
                                                                 ---------------
                                                                     7,473,168
                                                                 ---------------

4             See accompanying notes to the financial statements.               


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                       Value ($)
--------------------------------------------------------------------------------

Paper and Allied Products - 0.9%            
      19,000     Daio Paper Corp                                       120,019
      69,000     Hokuetsu Paper Mills                                  362,123
     108,000     Nippon Paper Industries                               549,703
      46,000     Sumitomo Forestry Co Ltd                              268,725
                                                                 ---------------
                                                                     1,300,570
                                                                 ---------------
Pharmaceuticals - 7.0%                      
     226,000     Chugai Pharmaceutical Co Ltd                        1,438,328
      44,000     Dainippon Pharmaceutical Co Ltd                       199,573
     170,000     Fujisawa Pharmaceutical Co Ltd                      1,709,016
     105,000     Kaken Pharmaceutical Co Ltd                           384,825
      28,000     Kissei Pharmaceutical Co Ltd                          438,851
      13,000     Nippon Kayaku Co Ltd                                   61,126
     115,000     Takeda Chemical Industries Ltd                      3,186,100
      66,000     Tanabe Seiyaku Co Ltd                                 376,158
      93,000     Yamanouchi Pharmaceutical Co Ltd                    2,260,033
      78,000     Yoshitomi Pharmaceutical Industries Ltd               413,678
                                                                 ---------------
                                                                    10,467,688
                                                                 ---------------
Retail Trade - 2.0%                         
       7,000     Aoki International                                     50,479
      21,000     Aoyama Trading                                        455,474
      24,000     Best Denki Co Ltd                                     145,334
       6,200     Familymart                                            241,954
      34,000     Hankyu Department Stores Inc                          228,766
      58,000     Joshin Denki Co Ltd                                   179,055
      59,000     Nichii Co Ltd                                         457,223
      68,000     Sanrio Co Ltd *                                       516,204
       9,000     Seven-Eleven Japan                                    628,354
       4,000     UNY Co Ltd                                             61,110
                                                                 ---------------
                                                                     2,963,953
                                                                 ---------------
Services - 6.5%                             
      27,000     Canon Sales Co Inc                                    363,334
      74,000     CSK Corp                                            1,786,591
      96,000     Dainippon Printing Co Ltd                           1,633,816
     108,000     Kamigumi Co Ltd                                       493,280
      12,000     Kyodo Printing Co Ltd                                  64,118
     353,000     Nissho Iwai Corp                                    1,005,937
      28,000     Secom Co Ltd                                        1,744,320
      24,600     Sega Enterprises                                      471,242
     276,000     Sumitomo Corp                                       1,918,214
      42,000     Sumitomo Warehouse Co Ltd                             184,184
                                                                 ---------------
                                                                     9,665,036
                                                                 ---------------

              See accompanying notes to the financial statements.              5


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                       Value ($)
--------------------------------------------------------------------------------

Technology - 9.3%                           
      42,000     Dainippon Screen Manufacturing Co Ltd                 244,360
     152,000     Fujitsu Ltd                                         1,708,541
     720,000     Hitachi Ltd                                         5,402,992
      17,300     Murata Manufacturing Co Ltd                           549,141
     218,000     NEC Corp                                            2,433,151
      39,000     Omron Corp                                            629,779
       2,000     Rohm Co Ltd                                           197,894
      61,000     Taiyo Yuden Co Ltd                                    651,864
      27,700     TDK Corp                                            2,115,927
                                                                 ---------------
                                                                    13,933,649
                                                                 ---------------
Telecommunications - 2.8%                   
     102,000     Gakken Co Ltd                                         254,334
      40,000     Japan Radio Co                                        255,205
      59,000     Matsushita Communications                           1,933,507
       3,600     Nippon Television Network                           1,088,578
      64,000     Nitsuko Corp                                          243,173
      26,000     Tokyo Broadcasting System Inc                         335,471
                                                                 ---------------
                                                                     4,110,268
                                                                 ---------------
Textiles - 2.2%                             
      18,000     Gunze Ltd                                              51,009
     124,000     Kurabo Industries Ltd                                 214,961
     186,000     Nisshinbo Industries Inc                            1,082,166
      52,000     Onward Kashiyama Co Ltd                               740,917
     329,000     Renown Inc *                                          343,766
      13,000     Tokyo Style Co Ltd                                    133,777
      73,000     Toyobo Co Ltd                                         122,505
      59,000     Wacoal Corp                                           616,481
                                                                 ---------------
                                                                     3,305,582
                                                                 ---------------
Tobacco - 2.4%                              
         491     Japan Tobacco Inc                                   3,610,694
                                                                 ---------------
Transportation - 4.6%                       
         257     East Japan Railway Co                               1,214,510
      25,000     Fujita Kanko Inc                                      261,221
      55,000     Fukuyama Transporting Co Ltd                          269,928
     111,000     Hankyu Corp                                           517,526
      19,000     Japan Airport Terminal Co Ltd                         127,689
     197,000     Kawasaki Kisen *                                      316,560
      69,000     Keio Teito Electric Railway Co Ltd                    279,649
     104,000     Keisei Electric Railway                               410,797
      84,000     Nagoya Railroad Co Ltd                                295,227
      33,000     Nankai Electric Railway Co Ltd                        148,896

6             See accompanying notes to the financial statements.               


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares       Description                                         Value ($)
--------------------------------------------------------------------------------

Transportation - continued                      
      48,000   Royal Co Ltd                                            725,718
      92,000   Sagami Railway Co Ltd                                   262,171
      53,000   Seino Transportation Co Ltd                             316,330
      40,000   Skylark Co Ltd                                          446,450
      50,000   Toei Co Ltd                                             222,829
      79,000   Yamato Transport Co Ltd                                 994,301
                                                                 ---------------
                                                                     6,809,802
                                                                 ---------------
Utilities - 12.1%                               
      35,200   Chubu Electric Power Co Inc                             562,843
      32,900   Chugoku Electric Power Co Inc                           476,585
      45,500   Hokkaido Electric Power                                 655,505
      16,200   Hokuriku Electric Power                                 235,953
      72,500   Kansai Electric Power                                 1,245,349
       7,000   Kokusai Denshin Denwa                                   293,675
      89,400   Kyushu Electric Power Co Inc                          1,302,114
       1,184   Nippon Telegraph & Telephone                         10,871,844
      72,600   Shikoku Electric Power                                1,063,168
      51,400   Tohoku Electric Power Co Inc                            748,642
      37,800   Tokyo Electric Power                                    712,135
                                                                 ---------------
                                                                    18,167,813
                                                                 ---------------

               TOTAL STOCK AND EQUIVALENTS (Cost $171,705,786)     145,596,431
                                                                 ---------------

TOTAL INVESTMENTS - 97.6%                       
               (Cost $171,705,786)                                 145,596,431

               Other Assets and Liabilities (net) -  2.4%            3,556,062
                                                                 ---------------

               TOTAL NET ASSETS - 100.0%                        $  149,152,493
                                                                 ===============

Notes to the Schedule of Investments:           

         *  Non-income producing security. A dividend has not been
             declared for the twelve months ended February 28, 1998.

                  See accompanying notes to the financial statements.          7


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities - February 28, 1998                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                               
Assets:                                                                                        
      Investments, at value (cost $171,705,786) (Note 1)                      $    145,596,431 
      Foreign currency, at value (cost $3,922,370) (Note 1)                          3,807,377 
      Cash                                                                              85,565 
      Cash held on demand deposit (Notes 1 and 6)                                       55,000 
      Dividends and interest receivable                                                 72,441 
      Receivable for expenses waived or borne by Manager (Note 2)                       56,955 
                                                                                ---------------
          Total assets                                                             149,673,769 
                                                                                ---------------
Liabilities:                                                                                   
      Payable for Fund shares repurchased                                              100,000 
      Payable for variation margin on open futures contracts (Notes 1 and 6)           191,802 
      Payable to affiliate for (Note 2):                                                       
          Management fee                                                                87,219 
          Shareholder service fee                                                       17,518 
      Accrued expenses                                                                 124,737 
                                                                                ---------------
          Total liabilities                                                            521,276 
                                                                                ---------------
Net assets                                                                    $    149,152,493 
                                                                                ===============

Net assets consist of:                                                                         
      Paid-in capital                                                         $    212,406,170 
      Distributions in excess of net investment income                                (444,014)
      Accumulated net realized loss                                                (36,569,557)
      Net unrealized depreciation                                                  (26,240,106)
                                                                                ---------------
                                                                              $    149,152,493 
                                                                                ===============
Net assets attributable to Class III Shares                                   $    149,152,493 
                                                                                ===============
Shares outstanding - Class III                                                      23,446,166 
                                                                                ===============
Net asset value per share - Class III                                         $           6.36 
                                                                                ===============

8                 See accompanying notes to the financial statements.           


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Statement of Operations - Year Ended February 28, 1998                          
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                         
Investment income:                                                                       
    Dividends (net of foreign tax expense of $224,903)                $        1,471,540 
    Interest (including securities lending income of $143,301)                   388,818 
                                                                        -----------------
       Total income                                                            1,860,358 
                                                                        -----------------
Expenses:                                                                                
    Management fee (Note 2)                                                    1,540,113 
    Custodian fees                                                               279,470 
    Audit fees                                                                    52,114 
    Transfer agent fees                                                           32,924 
    Legal fees                                                                     3,922 
    Registration fees                                                              3,844 
    Trustees fee (Note 2)                                                          1,918 
    Stamp duties and transfer taxes                                                  921 
    Miscellaneous                                                                  1,830 
    Fees waived or borne by Manager (Note 2)                                    (803,953)
                                                                        -----------------
                                                                               1,113,103 
    Shareholder service fee - Class III (Note 2)                                 308,029 
                                                                        -----------------
       Net expenses                                                            1,421,132 
                                                                        -----------------
           Net investment income                                                 439,226 
                                                                        -----------------

Realized and unrealized gain (loss):                                                     
       Net realized gain (loss) on:                                                      
           Investments                                                       (36,251,088)
           Closed futures contracts                                               21,391 
           Foreign currency and foreign currency related                                 
              transactions                                                    (1,125,615)
                                                                        -----------------
                 Net realized loss                                           (37,355,312)
                                                                        -----------------

       Change in net unrealized appreciation (depreciation) on:                          
           Investments                                                        21,074,281 
           Open futures contracts                                                426,337 
           Foreign currency and foreign currency related transactions            520,303 
                                                                        -----------------
                 Net unrealized gain                                          22,020,921 
                                                                        -----------------
       Net realized and unrealized loss                                      (15,334,391)
                                                                        -----------------
Net decrease in net assets resulting from operations                  $      (14,895,165)
                                                                        =================

              See accompanying notes to the financial statements.              9


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                              Year Ended                   
                                                              February 28, 1998         February 28, 1997  
                                                             --------------------      --------------------
                                                                                                           
Increase (decrease) in net assets:                                                                         
Operations:                                                                                                
     Net investment income                                 $             439,226     $              23,994 
     Net realized loss                                               (37,355,312)               (1,918,375)
     Change in net unrealized appreciation (depreciation)             22,020,921               (46,708,941)
                                                             --------------------      --------------------

     Net decrease in net assets resulting from operations            (14,895,165)              (48,603,322)
                                                             --------------------      --------------------
Distributions to shareholders:                                                                             
     In excess of net investment income - Class III                      -                         (36,409)
                                                             --------------------      --------------------

Net share transactions - Class III (Note 5)                          (54,749,266)              141,329,696 
                                                             --------------------      --------------------

     Total increase (decrease) in net assets                         (69,644,431)               92,689,965 

Net assets:                                                                                                
     Beginning of period                                             218,796,924               126,106,959 
                                                             --------------------      --------------------

     End of period (including distributions in excess of                                                   
         net investment income of $444,014 and                                                             
         $564,380, respectively)                           $         149,152,493     $         218,796,924 
                                                             ====================      ====================

10            See accompanying notes to the financial statements.               


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                                    Year Ended February 28/29                      
                                                        ---------------------------------------------------------------------------
                                                             1998            1997             1996            1995         1994    
                                                           ---------      ----------        ----------      ----------   --------- 
                                                                                                                                   
Net asset value, beginning of period                      $     7.02     $      8.52       $      9.12     $     11.13  $     7.37 
                                                           ---------      ----------        ----------      ----------   --------- 

Income (loss) from investment operations:                                                                                          
  Net investment income (loss)                                  0.01               -(d)          (0.01)(d)           -(d)       -- 
  Net realized and unrealized gain (loss)                      (0.67)          (1.50)             0.79           (1.08)       3.94 
                                                           ---------      ----------        ----------      ----------   --------- 

    Total from investment operations                           (0.66)          (1.50)             0.78           (1.08)       3.94 
                                                           ---------      ----------        ----------      ----------   --------- 

Less distributions to shareholders:                                                                                                
  From net investment income                                      --              --                --              --          -- 
  In excess of net investment income                              --           (0.00)               --              --       (0.01)
  From net realized gains                                         --              --             (1.38)          (0.93)      (0.17)
                                                           ---------      ----------        ----------      ----------   --------- 

    Total distributions                                           --           (0.00)            (1.38)          (0.93)      (0.18)
                                                           ---------      ----------        ----------      ----------   --------- 

Net asset value, end of period                            $     6.36     $      7.02       $      8.52     $      9.12  $    11.13 
                                                           =========      ==========        ==========      ==========   ========= 

Total Return (a)                                              (9.40%)        (17.69%)            8.29%         (10.62%)     53.95% 

Ratios/Supplemental Data:                                                                                                          

    Net assets, end of period (000's)                     $  149,152     $   218,797       $   126,107     $    60,123  $  450,351 
    Net expenses to average                                                                                                        
            daily net assets                                   0.69%           0.70%(e)          0.92%           0.83%       0.87% 
    Net investment income (loss) to average                                                                                        
            daily net assets                                   0.21%           0.01%            (0.13%)         (0.02%)     (0.01%)
    Portfolio turnover rate                                     128%              4%               23%             60%          8% 
    Average broker commission rate per equity share (b)   $   0.0072     $    0.0066               N/A             N/A         N/A 
    Fees and expenses voluntarily waived or borne by                                                                               
            the Manager consisted of the following per                                                                             
            share amounts:                                $     0.02     $      0.03       $      0.01             (c)  $     0.01 

(a)  Calculation excludes purchase premiums and redemption fees. The            
total returns would have been lower had certain expenses not been     
waived during the periods shown.                                      

(b)  For fiscal years beginning on or after September 1, 1995, a fund is        
required to disclose its average commission rate per share for        
security trades on which commissions are charged. The average broker  
commission rate will vary depending on the markets in which trades    
are executed.                                                         

(c) Fees and expenses waived or borne by the Manager were less than $.01 per    
share.                                                                  

(d) Based on average month end shares outstanding.                              

(e) Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximates .01% of average daily net assets.                    

See accompanying notes to the financial statements. 

                                                                              11


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

 GMO Japan 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 into classes.                                   

The Fund seeks maximum total return through investment in Japanese    
securities, primarily in common stocks of Japanese companies.         

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
     as more fully described in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
 as those shares. Effective January 9, 1998, Class I and Class II shares
ceased to be offered.                                                 

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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. 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 
market value. Other assets and securities for which no quotations are 
   readily available are valued at fair value as determined in good faith by
the Trustees or other persons acting at their direction.              

12                                                                              


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     

     The Fund may purchase and sell Japanese futures contracts. Japanese futures
    contracts represent commitments for future delivery of cash based upon the
   level of a specified index of equity securities at a specified price at a
  given date. The Fund may use futures contracts to manage its exposure to
     the stock and currency 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 instruments 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 obligations in   
    accordance with the initial margin requirements of the broker or exchange.
    Futures contracts are marked to market daily and an appropriate payable or
     receivable for the accumulation in commitment value ("variation margin") is
  recorded by the Fund. The payable or receivable is subsequently settled.
Gains or losses are recognized but not considered realized until the  
contracts expire or are closed. Futures contracts involve, to varying 
  degrees, risk of loss in excess of the variation margin disclosed in the
   Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary 
 market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price  
  established each day by the board of trade or exchange on which they are
    traded. See Note 6 for all open futures contracts as of February 28, 1998.

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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
   securities. At February 28, 1998, the Fund had no securities out on loan.

                                                                              13


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Taxes                                                                 

 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
     necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States.                                                               

Distributions to shareholders                                         

The Fund's present policy is to declare and pay distributions from net
    investment income, if any, semi-annually, and from net realized short-term
   and long-term capital gains, if any, 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. The Fund declares   
separate dividends from net investment income on each class of shares.

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
  differing treatments for foreign currency and passive foreign investment
company 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Distributions in                                                      
Excess of Net         Accumulated Net Realized                    
Investment Income             Gain/(Loss)              Paid-in Capital
---------------------   ----------------------------   -------------------
 $(318,860)                  $889,641                   $(570,781)

14                                                                              


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   

   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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 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 .40% of the amount    
  invested. In the case of cash redemptions, the fee is .61% of the amount
    redeemed. Prior to June 1, 1996, the redemption fee was .70% of the amount
redeemed. 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. Purchase premiums
   are included as part of each class' "shares sold" and redemption fees are
included as part of each class' "shares repurchased", respectively, as
summarized in Note 5. For the year ended February 28, 1998 the Fund   
 received $83,349 in purchase premiums and $180,864, in redemption fees.
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 and the
possible imposition of currency exchange blockages 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.                                                              

                                                                              15


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .75% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
 further notice to the extent that the Fund's annual expenses (including
management fee but excluding brokerage commissions, certain other     
    transaction costs (including stamp duties and transfer taxes), shareholder
   service fees and extraordinary expenses) exceed .54% of average daily net
     assets. Prior to June 1, 1996, a similar waiver existed for annual expenses
   exceeding .69%; thus, the net annual expense ratio after the waiver for a
     Class III shareholder is unchanged. Additionally, effective March 14, 1996,
the waiver was adjusted to include custodian fees.                    

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $1,918. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$234,309,079 and $267,149,166, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                        Gross Unrealized    Gross Unrealized    Net Unrealized
    Aggregate Cost       Appreciation        Depreciation       Depreciation
     --------------     ----------------    ----------------    --------------
     $172,219,003         $3,788,637          $30,411,209        $26,622,572

4.   Principal shareholders                                                     

   At February 28, 1998, 33% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's      
outstanding shares.                                                   

16                                                                              


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
 shares, including purchase premiums and redemption fees received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]


 Class III:                          Year Ended                                      Year Ended                  
                                  February 28, 1998                              February 28, 1997               
                    ----------------------------------------------  ---------------------------------------------
                           Shares                   Amount                Shares                  Amount         
                    ----------------------   ---------------------  --------------------   ----------------------
                                                                                                                 
Shares sold                     4,316,975   $          32,950,333            22,172,884  $           188,630,734 

Shares issued to                                                                                                 
shareholders in                                                                                                  
reinvestment of                                                                                                  
distributions                           -                       -                 3,661                   28,076 

Shares repurchased            (12,050,534)            (87,699,599)           (5,789,470)             (47,329,114)
                    ----------------------   ---------------------  --------------------   ----------------------
Net increase /                                                                                                   
(decrease)                     (7,733,559)  $         (54,749,266)           16,387,075  $           141,329,696 
                    ======================   =====================  ====================   ======================


6.   Financial instruments                                                      

   A summary of outstanding futures contracts purchased at February 28, 1998
is as follows:                                                                  

                                                        [Enlarge/Download Table]


  Number of                                                                                        Net Unrealized   
  Contracts                  Type                    Expiration Date        Contract Value          Depreciation    
--------------  --------------------------------  ----------------------   ------------------    -------------------
                                                                                                                    
      9                      TOPIX                      March 1998        $          909,048   $           (20,206) 
                                                                                                 ===================


At February 28, 1998, the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.                                  

                                                                              17


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------
At February 28, 1998, the Fund had a capital loss carryforward available to     
offset future capital gains, if any, of the following amounts:                  

Year of Expiration                        Amount        
-------------------                        ------         
2005                         $     43,013 
2006                         $ 22,345,866 

The Fund has also elected to defer to March 1, 1998 post-October losses of      
$14,111,475.                                                                    

18                                                                              


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GMO Japan Fund                                                                  
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. R. Jeremy Grantham, Mr. Christopher Darnell and Mr. Forrest Berkley are     
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Grantham and Mr. Darnell have been portfolio managers at Grantham, Mayo, Van    
Otterloo & Co. LLC for more than fifteen years. Mr. Berkley has been with GMO   
and involved in portfolio management for more than ten years.                   

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

The Class III shares of the GMO Japan Fund underperformed the MSCI Japan index  
for the fiscal year ended February 28, 1998, with a total return of -9.4% versus
-8.4% for the MSCI Japan Index. Consistent with the Fund's investment objective 
and policies, the Fund was invested substantially in common stocks throughout   
the period.                                                                     

The Japanese market returned -4.1% during the fiscal year in local currency.    
However, because of the strengthening U.S. dollar relative to the yen, the      
return for dollar-denominated investors was reduced significantly. During the   
year, the two-tiered market structure continued with the multinational exporters
("the Japanese nifties") faring well. On the other hand, the stocks of smaller  
companies, which are more dependent on the local economy, performed poorly. As  
fears of a collapse of the financial system spread in the fourth quarter of     
1997, small stock performance declined sharply.                                 

The Fund's overweight in small stocks, which are at record levels of            
attractiveness, had a negative impact on performance. With respect to sector    
weights, the Fund's underweight in banks contributed positively to performance  
while the overweight in value stocks detracted from performance.                

The portfolio is currently positioned in favor of both value and small stocks,  
which are the most attractive sectors of the Japanese market.                   

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.                    


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Comparison of Change in Value of a $10,000 Investment in  
GMO Japan Fund Class III Shares and the MSCI Japan Index  
As of February 28, 1998 

----------------------------
Average Annual Total Return 
----------------------------
                   Since
                   Inception
 1 Year   5 Year    6/8/90
Class          ----------------------------               
III             -10.3%    1.9%    -2.5%                 
----------------------------

   [LINE GRAPH APPEARS HERE]

Date          GMO Japan          MSCI Japan         
    Fund               Index

6/8/90          $9,960             $10,000            
2/28/91          $9,582              $9,615             
2/29/92          $7,816              $7,904             
2/28/93          $7,465              $7,387             
2/28/94         $11,492             $10,826             
2/28/95         $10,271              $9,701             
2/29/96         $11,136             $10,565             
2/28/97          $9,166              $8,401             
2/28/98          $8,253              $7,697             

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 40 bp on the purchase and 61 bp on the redemption.           
Transaction fees are paid to the Fund to cover trading costs. Class III shares  
are a redesignation of the single class of shares that has been offered by the  
Fund since inception. Past performance is not indicative of future performance. 
Information is unaudited.                                                       


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO International Small Companies Fund (A Series of GMO Trust)                  

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 at February 28, 1998, the results of its operations for the year then      
ended, the changes in its net assets and the financial highlights for the       
periods presented, in conformity with generally accepted accounting principles. 
These financial statements and financial highlights (hereafter referred to as   
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers and the      
application of alternative auditing procedures where confirmations from brokers 
were not received, provide a reasonable basis for the opinion expressed above.  

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


 Shares              Description                                                   Value ($)       
-------------------------------------------------------------------------------------------------  
                                                                                                   
               STOCK AND EQUIVALENTS - 94.6%                                                       
               Austria - 2.0%                                                                      
         777   Allgemeine Baugesellschaft AG                                                63,349 
      20,272   Austrian Airlines*                                                          509,650 
       1,600   Bank Austria AG Preferred*                                                  105,011 
       6,305   Bank Austria AG (Participating Certificate)                                 371,835 
       1,781   Bau Holdings AG                                                             104,894 
          63   Bau Holdings AG Preferred 2.42% (Non Voting)                                  3,000 
      17,355   Boehler Uddeholm (Bearer)                                                 1,110,360 
       7,468   Brau Union AG                                                               438,668 
       2,293   BWT AG                                                                      412,152 
           9   EA-Generali AG                                                                2,948 
           8   EA-Generali AG Preferred 6.00%                                                1,516 
       3,199   Interunfall Versicherung AG                                                 489,814 
       1,834   Jenbacher Werke AG                                                           54,582 
         507   Mayr-Melnhof Karton AG (Bearer)                                              29,384 
       1,243   Oesterreichische Brau Beteiligungs AG                                        72,819 
       1,636   Oesterreichische Laenderbank AG Preferred 2.34% (Non Voting)                111,602 
      13,419   Radex-Heraklith AG                                                          539,148 
       3,285   Universale Bau AG                                                           114,490 
         226   Wiener Allianz Versicherungs AG                                              26,639 
       2,756   Wolford AG                                                                  197,286 
                                                                                 ------------------
                                                                                         4,759,147 
                                                                                 ------------------
               Canada - 6.6%                                                                       
      36,600   Air Canada Inc*                                                             335,615 
      14,200   Alberta Energy Ltd                                                          347,230 
      28,700   Anderson Exploration Ltd*                                                   338,798 
      24,700   BCE Mobile Communications*                                                  659,523 
      24,400   CAE Industries Inc                                                          188,596 
      16,700   Cameco Corp                                                                 492,264 
       8,900   Canadian Hotel Inc                                                          552,830 
      16,800   Canadian Natural Resources*                                                 336,437 
      18,800   Canadian Tire Corp Ltd Class A                                              449,805 
      12,100   Cominco Ltd                                                                 204,054 
      21,700   Dofasco Inc                                                                 380,434 
      41,000   Domtar Inc                                                                  312,581 
      23,900   Donohue Inc Class A                                                         480,301 
      84,600   Echo Bay Mines Ltd*                                                         172,392 
       3,500   Edperbrascan Corp Class A Ltd (Voting Shares)                                66,156 
      47,800   Gulf Canada Resources Ltd*                                                  362,425 
      11,300   International Comfort Products Corp*                                         96,870 
       5,700   IPL Energy Inc                                                              256,934 
      27,750   Ipsco Inc                                                                   789,709 
      12,700   Loewen Group Inc                                                            312,335 
      32,000   Macmillan Bloedel Ltd                                                       403,612 
      35,900   Methanex Corp*                                                              292,618 
      25,200   Mitel Corp*                                                                 324,042 
      15,700   Molson Co Ltd Class A                                                       281,864 
       2,500   Molson Co Ltd Class B                                                        45,146 
      20,300   Moore Corporation Ltd                                                       316,664 
      39,800   National Bank of Canada Montreal                                            662,797 

              See accompanying notes to the financial statements.              1


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares              Description                                   Value ($)   
--------------------------------------------------------------------------------

Canada - continued                                  
    39,700   Noranda Forest Inc                                        244,089
    13,800   Norcen Energy Resource                                    191,512
    20,200   Nova Scotia Power Inc                                     269,683
   120,800   Numac Energy Inc *                                        479,584
    13,500   Oshawa Group Ltd Class A                                  237,624
    12,600   Power Corp of Canada Ltd                                  467,470
     7,100   Quebecor Inc Class B                                      137,695
    23,356   Ranger Oil Ltd                                            150,165
    13,700   Rio Algom Ltd                                             254,622
     9,000   Rogers Communications Inc Class B *                        39,209
    15,500   Sears Canada Inc                                          239,065
    31,100   Stelco Inc Class A                                        262,235
    10,700   Suncor Energy Inc                                         392,843
     8,500   Teck Corp Class B                                         122,141
    23,900   Telus Corp                                                601,216
     6,300   Torstar Corp Class B                                      233,735
    26,800   Transalta Corp                                            451,014
       100   TVA Group Inc Class B *                                     2,319
    61,600   TVX Gold Inc *                                            177,465
     7,800   United Dominion Industries Ltd                            223,617
    22,400   Westcoast Energy Inc                                      566,630
     3,000   Weston (George) Ltd                                       252,960
                                                                    ------------
                                                                    15,458,925
                                                                    ------------
Denmark - 0.0%                                      
       800   Hafnia Holdings (Registered) Class A (c) *                      1
                                                                    ------------

France - 11.0%                                      
     1,750   Accor SA                                                  404,073
     8,390   BIC SA                                                    664,945
    10,470   Bouygues                                                1,468,388
    15,000   Cap Gemini SA                                           1,724,350
     5,990   Castorama Dubois Investment                               811,553
     7,390   Club Mediterranee SA Rights 3/11/98 *                      10,740
     7,390   Club Mediterranee SA *                                    548,554
     1,730   Compagnie Generale d'Industrie et de Participations       744,077
     3,610   Compagnie Parisienne de Reescompte                        281,010
     1,400   Comptoirs Modernes                                        761,013
    13,300   Credit Commercial de France                               983,098
     9,040   Credit Local de France SA                               1,153,521
    15,830   Credit Lyonnais *                                       1,156,850
     5,630   Credit National                                           342,095
     2,220   Eridania Beghin-Say SA                                    395,931
     2,460   Essilor International                                     755,059
     9,255   Financiere de Paribas SA                                  880,017
       420   Gaz Et Eaux                                               179,332
       760   Groupe Andre *                                             83,623
     2,790   Hermes International                                      218,554
     4,780   Imetal                                                    595,022
    37,850   Lagardere Groupe                                        1,373,708
    12,200   Moulinex *                                                305,538

2             See accompanying notes to the financial statements.               


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


 Shares              Description                                        Value ($)       
--------------------------------------------------------------------------------------  
                                                                                        
              France - continued                                                        
      1,260   Pathe SA                                                          242,099 
     10,600   Pechiney SA Class A                                               470,009 
      6,190   Pernod-Ricard                                                     404,585 
      3,090   Primagaz                                                          264,890 
        299   Sagem Applic Gen D Electric                                       183,154 
      2,440   Seb SA                                                            355,026 
      3,300   SEFIMEG                                                           203,010 
     20,010   Seita                                                             874,108 
      3,920   Simco Union Habit (Registered)                                    311,579 
        850   Societe Eurafrance                                                395,738 
      1,430   Sodexho Alliance                                                  921,513 
     15,790   SPIE Batignolles                                                  982,783 
      5,170   Synthelabo                                                        721,682 
      5,620   Technip SA (Compagnie Francaise)                                  634,981 
     13,500   Thomson CSF                                                       465,575 
      6,170   TV Francaise                                                      668,752 
      1,909   Unibail (Bearer)                                                  208,166 
      1,197   Union Immobiliere de France SA                                     86,297 
     28,400   Usinor Sacilor                                                    426,052 
      4,320   Valeo                                                             369,622 
     10,610   Worms et Compagnie SA                                             662,118 
                                                                        ----------------
                                                                             25,692,790 
                                                                        ----------------
              Germany - 10.9%                                                           
      5,182   Aachener & Munchener Beteiligungs AG (Bearer)                     577,380 
      8,950   Aachener & Munchener Beteiligungs AG (Registered)               1,001,157 
      6,700   Adidas Salomon AG                                               1,055,903 
      4,700   Altana AG                                                         372,685 
      1,350   Ava Allgemeine Handelsgesellschaft der Verbraucher AG *           444,855 
      7,600   Axa Colonia Konzern AG                                            921,339 
        300   Axel Springer Verlag AG                                           247,968 
     25,050   Bankgesellschaft Berlin AG                                        532,127 
      8,450   Beiresdorf AG (Bearer)                                            396,716 
     17,750   Berliner Kraft & Licht AG Class A                                 782,477 
     25,800   BHF Bank AG                                                       753,492 
      6,000   Bilfinger & Berger                                                157,708 
      1,050   Buderus AG                                                        473,288 
     24,900   Continental AG                                                    598,231 
        937   DBV-Winterthur Holding AG *                                       413,060 
     13,800   Degussa AG                                                        709,486 
      4,800   Douglas Holdings AG                                               169,809 
      7,500   ERGO Versicherungs Gruppe AG *                                  1,388,621 
     10,150   FAG Kugelfischer                                                  138,987 
      4,700   Fresenius Medical Care AG Preferred .82% (Non Voting)             966,028 
      2,750   Fresenius Medical Care AG *                                       193,208 
        650   Friedrich Grohe AG Preferred (Non Voting)                         181,953 
      4,600   Friedrich Krupp AG                                                828,875 
        450   GEA AG Preferred 3.13%                                            143,140 
      8,700   Gehe AG                                                           460,708 
        700   Hamburgische Electricitaets-Werke AG                              182,449 
      7,755   Heidelberg Port-Zement                                            571,342 

              See accompanying notes to the financial statements.              3


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares              Description                                   Value ($)   
------------------------------------------------------------------------------- 

Germany - continued                                 
     4,250   Henkel KGAA Preferred                                     275,644
     7,750   Henkel KGAA (Bearer)                                      477,449
     5,200   Hochtief AG                                               183,100
       700   Holzmann (Philipp) *                                      165,863
       300   ISAR Amperwerke AG                                         98,691
     1,600   IWKA AG                                                   362,364
       950   Karstadt AG                                               329,797
    10,800   Lahmeyer AG                                               443,367
       650   Linde AG                                                  431,602
    15,600   Lufthansa AG *                                            300,008
     1,900   MAN AG                                                    570,497
       800   MAN AG Preferred                                          186,692
     4,700   Merck KGAA                                                174,558
    14,100   Metallgesellschaft *                                      286,701
       300   Porsche AG Preferred .12% (Non Voting)                    524,039
     1,950   Preussag AG                                               630,748
     3,200   SAP AG Preferred                                        1,321,262
     7,100   Schering AG                                               797,344
       850   Schmalbach-Lubeca                                         167,213
     3,900   Schwarz Pharma AG                                         318,060
     2,450   SGL Carbon AG                                             292,960
    15,100   SKW Trostberg AG                                          515,884
       800   Suedzucker AG                                             374,707
       800   Thyssen AG                                                174,129
       850   Vereins Und Westbank                                      208,431
     1,900   Volkswagen AG Preferred .79%                              925,527
       400   Wella AG                                                  277,945
                                                                   -------------
                                                                    25,477,574
                                                                   -------------
Hong Kong - 0.9%                                    
     1,000   Asia Financial Holdings                                       254
   136,000   Associated International Hotels                            56,209
    68,000   Cross Harbour Tunnel Co Ltd                               113,297
       666   Dickson Concept International Ltd                           1,153
     6,000   Grand Hotel Holdings Ltd Class A                            1,333
    79,900   Hong Kong Aircraft Engineering Co Ltd                     170,790
    13,000   IMC Holdings                                                3,022
   154,000   Lai Sun Garment International Ltd                          83,539
   212,000   Liu Chong Hing Investment Ltd                             182,086
       620   Mandarin Oriental                                             518
       200   Mingly Corp                                                    36
       500   New Asia Realty & Trust A Shares                            1,007
    30,100   Realty Development Corp Ltd Class A                        72,699
     6,200   Semi Tech (Global) Co Ltd Warrants 7/31/98 *                    8
   776,000   South China Morning Post Ltd                              561,266
   309,101   Tsim Sha Tsui Properties Ltd                              503,025
   152,000   Wing On Co                                                106,994
    18,000   Wing On International Holdings Ltd                         21,388
   130,500   Winsor Properties Holdings Ltd                            126,413
                                                                   -------------
                                                                     2,005,037
                                                                   -------------

4             See accompanying notes to the financial statements.               


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


 Shares              Description                                                                   Value ($)       
------------------------------------------------------------------------------------------------------------------ 
                                                                                                                   
            Italy - 1.5%                                                                                           
  777,200   Banca Nazionale dell'Agricoltura SPA (Non Convertible)                                         560,277 
  334,500   Finmeccanica SPA (Non Convertible) *                                                           301,890 
  102,000   Fornara SPA *                                                                                    4,104 
  213,400   Grassetto SPA (c) *                                                                                  1 
    3,500   Recordati Industria Chimica e Farmaceutica SPA                                                  31,295 
   56,000   Recordati Industria Chimica e Farmaceutica SPA (Non Convertible)                               272,888 
   47,000   Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59%                             185,169 
  335,000   Snia BPD SPA (Non Convertible)                                                                 328,551 
  371,274   Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible)                       1,883,913 
                                                                                                 ------------------
                                                                                                         3,568,088 
                                                                                                 ------------------
            Japan - 21.1%                                                                                          
   22,000   Alps Electric Co Ltd                                                                           193,303 
  108,000   Amada Co Ltd                                                                                   506,103 
   29,000   Amano Corp                                                                                     293,834 
    3,000   Anritsu Corp                                                                                    30,397 
  253,000   Aoki Corp *                                                                                    234,315 
   10,000   Aoki International                                                                              72,113 
   25,800   Aoyama Trading                                                                                 559,582 
   95,000   Atsugi Nylon Industrial                                                                        180,480 
   15,000   Bandai Co                                                                                      223,225 
    6,000   Brother Industries Ltd                                                                          16,338 
   56,000   Canon Sales Co Inc                                                                             753,582 
   13,000   Casio Computer Co                                                                              107,021 
    2,000   Chudenko Corp                                                                                   54,461 
   25,000   Chugai Pharmaceutical Co Ltd                                                                   159,107 
  117,000   Citizen Watch Co                                                                               847,423 
  243,000   Cosmo Oil Co Ltd                                                                               557,825 
   29,300   CSK Corp                                                                                       707,393 
   50,000   Daicel Chemical Industries Ltd                                                                 110,821 
  110,000   Daido Steel Co Ltd                                                                             245,547 
   36,000   Dainippon Ink & Chemicals Inc                                                                  108,288 
   20,000   Dainippon Pharmaceutical Co Ltd                                                                 90,715 
    4,000   Dainippon Screen Manufacturing Co Ltd                                                           23,272 
   25,000   Daio Paper Corp                                                                                157,920 
   57,400   Daito Trust Construction Co Ltd                                                                508,889 
  114,000   Denki Kagaku Kogyo                                                                             218,380 
    3,000   Denny's Japan Co Ltd                                                                            75,754 
   47,000   Ezaki Glico Co Ltd                                                                             293,913 
  212,000   Fuji Heavy Industries Ltd                                                                      795,441 
  108,000   Fujisawa Pharmaceutical Co Ltd                                                               1,085,728 
   28,000   Fujitec Co                                                                                     170,664 
   49,000   Fujiya Co Ltd *                                                                                 91,150 
   75,000   Fukuyama Transporting Co Ltd                                                                   368,084 
   52,000   Furukawa Co Ltd                                                                                102,082 
   44,000   Furukawa Electric Co Ltd                                                                       194,348 
  127,000   Gakken Co Ltd                                                                                  316,671 
  107,000   General Sekiyu (KK)                                                                            530,215 
   32,000   Godo Shusei Co Ltd                                                                              65,859 
   30,000   Green Cross Corp                                                                                86,203 
    7,000   Gunze Ltd                                                                                       19,837 

              See accompanying notes to the financial statements.              5


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares              Description                                   Value ($)   
--------------------------------------------------------------------------------

Japan - continued                                     
 54,000   Hankyu Department Stores Inc                             363,334
211,000   Hanwa Co Ltd *                                           342,397
189,000   Haseko Corp *                                            173,545
  1,000   Heiwa Corp                                                11,003
    600   Hitachi Ltd                                                4,502
 36,000   Hitachi Maxell Ltd                                       666,825
116,000   Hitachi Metals Ltd                                       527,982
 31,000   Hokuetsu Paper Mills                                     162,693
 19,000   House Foods Corp                                         266,208
 25,000   Hyogo Bank Ltd (c) *                                           2
 79,000   INAX Corp                                                331,434
 43,000   Intec Inc                                                299,533
 11,000   Ishihara Sangyo Kaisha *                                  19,504
 13,000   Itoham Foods Inc                                          58,244
 34,000   Izumiya Co Ltd                                           210,465
 25,000   Japan Airport Terminal Co Ltd                            168,012
  3,000   Japan Radio Co                                            19,140
 73,000   Japan Steel Works Ltd *                                   97,657
122,000   Japan Synthetic Rubber Co Ltd                            634,481
 53,000   JGC Corp                                                 137,188
 38,000   Joshin Denki Co Ltd                                      117,312
 29,000   Kamigumi Co Ltd                                          132,455
 42,000   Kandenko Co                                              292,567
111,000   Kaneka Corp                                              632,629
 12,000   Katokichi Co Ltd                                         159,582
189,000   Keihin Electric Express Railway Co Ltd                   673,237
245,000   Keio Teito Electric Railway Co Ltd                       992,955
 23,000   Kikkoman Corp                                            145,468
  9,000   Kinden Corp                                              120,399
 18,000   Kissei Pharmaceutical Co Ltd                             282,118
  6,000   Koito Manufacturing Co Ltd                                26,692
 48,000   Kokusai Kogyo Co Ltd                                     232,914
  5,000   Kokuyo Co Ltd                                             87,469
 27,000   Komori Corp                                              476,609
 25,000   Konica Corp                                              130,808
 59,000   Koyo Seiko Co Ltd                                        292,361
 44,000   Kumagai Gumi Co Ltd                                       48,761
133,000   Kurabo Industries Ltd                                    230,563
116,000   Kuraray Co                                             1,019,235
253,000   Kureha Chemical Industry Co Ltd                          682,918
 11,000   Kyowa Exeo Corp                                           85,855
 15,000   Kyowa Hakko Kogyo Co Ltd                                  73,498
  7,000   Kyudenko Corp                                             44,938
 84,000   Lion Corp                                                304,536
  2,100   Mabuchi Motor Co                                         112,206
 67,000   Maeda Corp                                               236,539
 40,000   Maeda Road Construction                                  236,840
 62,000   Makino Milling Machine Co Ltd                            436,793
 56,000   Makita Corp                                              647,194
  2,000   Maruichi Steel Tube                                       26,597

6             See accompanying notes to the financial statements.               


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                        Value ($)    
--------------------------------------------------------------------------------

Japan - continued                                 
      29,000   Matsushita Refrigeration Co                               117,304
      58,000   Mitsubishi Belting Ltd                                    174,923
         200   Mitsubishi Chemical Corp                                      374
     186,000   Mitsubishi Gas Chemical Co Inc                            609,546
      87,000   Mitsubishi Oil Co Ltd                                     180,432
      10,000   Mitsubishi Paper Mills Ltd                                 21,452
       8,000   Mitsubishi Warehouse & Transportation Co Ltd               90,556
      30,000   Mitsui Petrochemical Industries Ltd                        84,303
       3,000   Mizuno Corp                                                11,422
      33,000   Mori Seiki Co Ltd                                         399,668
      13,000   Nagase & Co                                                50,423
      61,000   Nagoya Railroad Co Ltd                                    214,391
       2,000   Namco Ltd                                                  48,286
      39,000   Nankai Electric Railway Co Ltd                            175,968
      25,000   NGK Spark Plug Co                                         180,678
      11,000   NHK Spring Co Ltd                                          35,874
      28,000   Nichicon Corp                                             294,784
     118,000   Nichiei Co Ltd                                            150,384
       7,000   Nichirei                                                   17,731
      83,000   Nihon Cement Co Ltd                                       200,388
       3,000   Nihon Unisys Ltd                                           16,053
     124,000   Nippon Chemi-Con Corp                                     402,438
       7,000   Nippon Comsys                                              85,332
      40,000   Nippon Hodo Co                                            190,929
      13,000   Nippon Kayaku Co Ltd                                       61,126
      76,000   Nippon Meat Packers Inc                                   998,654
      25,000   Nippon Paint Co                                            52,442
     141,000   Nippon Sheet Glass Co Ltd                                 308,050
      27,000   Nippon Shokubai Corp                                      158,157
      62,000   Nippon Suisan Kaisha Ltd *                                102,573
      22,000   Nippon Zeon Ltd                                            63,564
      29,000   Nishimatsu Construction                                   149,442
      56,000   Nissan Fire & Marine Insurance Co Ltd                     202,137
      35,000   Nisshin Oil Mills Ltd                                      96,968
     316,000   Nisshin Steel Co Ltd                                      480,266
      49,000   Nisshinbo Industries Inc                                  285,087
      67,000   Nissho Iwai Corp                                          190,929
       4,000   Nissin Food Products Co Ltd                                83,274
      63,000   Nitto Boseki Co Ltd                                       182,023
      60,000   Nitto Denko Corp                                          949,893
      38,000   NSK Ltd                                                   148,896
      40,000   Okamoto Industries Inc                                    115,570
       8,000   Okumura Corp                                               35,526
      93,000   Olympus Optical Co Ltd                                    731,750
     192,000   Onoda Cement Co Ltd                                       416,433
      62,000   Onward Kashiyama Co Ltd                                   883,401
       2,000   Oyo Corp                                                   31,030
       6,000   Pioneer Electronics Corp                                  105,913
      27,000   Q.P. Corp                                                 177,606
     333,000   Renown Inc *                                              347,946

              See accompanying notes to the financial statements.              7


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares              Description                              Value ($)        
----------------------------------------------------------------------------    

Japan - continued                                 
   5,000   Rinnai Corp                                            81,137
  55,000   Royal Co Ltd                                          831,552
   5,000   Ryosan Co                                              83,116
  25,000   Sanden Corp                                           133,777
  79,000   Sankyo Aluminum Industry Co Ltd                       109,436
  36,000   Sanrio Co Ltd *                                       273,284
  11,000   Sanwa Shutter Corp                                     67,482
 145,000   Sanyo Securities Co Ltd *                               1,148
  13,000   Sapporo Breweries Ltd                                  58,656
  58,000   Seino Transportation Co Ltd                           346,173
   7,000   Shimachu Co                                           135,201
  10,000   Shimadzu Corp                                          35,067
   4,000   Shimano Inc                                            82,324
 144,000   Shionogi and Co Ltd                                   745,476
 394,000   Showa Denko                                           530,199
  37,000   Showa Electric Wire & Cable                            90,208
 151,000   Showa Shell Sekiyu                                  1,026,747
   5,000   Skylark Co Ltd                                         55,806
  10,000   Snow Brand Milk Products Co Ltd                        34,750
  75,000   Stanley Electric Co Ltd                               259,440
  71,000   Sumitomo Bakelite Co Ltd                              454,112
  39,000   Sumitomo Osaka Cement Co Ltd                           66,991
  42,000   Taiyo Yuden Co Ltd                                    448,825
  13,000   Takara Shuzo Co Ltd                                    60,714
  33,895   Takara Standard Co                                    217,596
  76,000   Tanabe Seiyaku Co Ltd                                 433,151
  84,000   Teikoku Oil Co Ltd                                    278,604
  65,000   Tobu Railway Co Ltd                                   229,478
 115,000   Toda Corp                                             558,933
     800   Toho Co Ltd                                           100,055
  60,000   Tokai Carbon Co Ltd                                   146,758
  49,000   Tokuyama Corp                                         154,761
  18,000   Tokyo Broadcasting System Inc                         232,249
 122,000   Tokyo Construction Co Ltd                             149,687
  92,000   Tokyo Electric Co Ltd                                 302,224
 106,000   Tokyo Ink Manufacturing Co Ltd                        271,859
  43,000   Tokyo Rope Manufacturing Co Ltd                        74,202
   8,000   Tokyo Steel Manufacturing Co                           36,729
  36,000   Tokyo Style Co Ltd                                    370,458
  16,000   Tokyu Department Store Co Ltd                          30,777
  13,000   Toshiba Ceramics Co Ltd                                58,244
  28,000   Toshiba Tungaloy Co Ltd                                86,662
  19,000   Toyo Engineering Corp                                  31,434
  11,000   Toyo Suisan Kaisha                                     80,978
  41,000   Tsubakimoto Chain                                     143,774
   4,000   Uniden Corp                                            42,112
 197,000   Victor Co of Japan Ltd                              1,746,537
  59,000   Wacoal Corp                                           616,481
   4,000   Yakult Honsha Co Ltd                                   27,072
   9,000   Yamaha Corp                                            99,739

8             See accompanying notes to the financial statements.               


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                                [Download Table]


 Shares              Description                                Value ($)       
--------------------------------------------------------------------------------
                                                                                
             Japan - continued                                                  
    11,000   Yamatake Honeywell                                         147,154 
     6,000   Yamazaki Baking Co Ltd                                      67,442 
    75,000   Yodogawa Steel Works                                       385,894 
    21,000   Yokogawa Electric Corp                                     132,154 
   109,000   Yokohama Rubber Co                                         333,911 
                                                                     -----------
                                                                     49,343,505 
                                                                     -----------
             Malaysia - 0.0%                                                    
     1,000   Aluminum Co of Malaysia                                        327 
     3,000   Berjaya Leisure Berhad                                       2,906 
     2,000   Boustead Holdings Berhad                                     1,912 
    11,000   Esso Berhad                                                 13,350 
     8,000   Sime Darby                                                   4,081 
                                                                     -----------
                                                                         22,576 
                                                                     -----------
             New Zealand - 0.0%                                                 
    43,500   DB Group Ltd                                                74,006 
                                                                     -----------

             Norway - 0.0%                                                      
         1   SAS Norge ASA Class B                                           15 
                                                                     -----------

             Singapore - 0.6%                                                   
 2,103,000   Chuan Hup Holdings Ltd                                     642,187 
     1,650   Haw Paw Brothers International Ltd Warrants 7/18/2001 *        499 
    64,000   Inchcape Berhad                                             96,730 
    64,000   Inchcape Marketing Services *                               16,188 
    89,000   Prima Ltd                                                  169,105 
   191,000   Times Publishing Ltd                                       377,051 
    16,000   Wearne Brothers Ltd                                         19,642 
                                                                     -----------
                                                                      1,321,402 
                                                                     -----------
             Spain - 0.3%                                                       
       565   Koipe SA                                                    39,766 
   135,578   Sarrio SA                                                  585,393 
     5,608   Tableros Defibras Class B                                   91,394 
                                                                     -----------
                                                                        716,553 
                                                                     -----------
             Sweden - 5.5%                                                      
    15,300   AGA AB Class A                                             210,207 
    16,050   AGA AB Class B                                             202,469 
    11,300   Atlas Copco AB                                             314,736 
     6,600   Atlas Copco AB Class B                                     183,416 
    32,800   Avesta Sheffield AB                                        204,836 
    19,813   Celsius Industrier AB Class B                              366,248 
    20,900   Enator AB *                                                430,718 
       200   Esselte AB Class A                                           3,772 
    15,000   Euroc Industri AB Class A                                  599,520 
     3,994   Incentive AB Class A                                       383,118 
     2,312   Incentive AB Class B                                       221,775 
     9,366   Industrivarden AB Class A                                  597,775 
    17,700   Kinnevik Investment Class B                                334,926 
    19,860   Marieberg Tidnings AB Class A                              458,895 
    28,200   Mo Och Domsjo AB Class B                                   820,668 
     2,100   Modern Times Group AB *                                     16,000 

             See accompanying notes to the financial statements.             9


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                                [Download Table]


 Shares              Description                                  Value ($)     
--------------------------------------------------------------------------------
                                                                                
             Sweden - continued                                                 
     6,600   Sandivik AB Class B                                       184,652  
    10,200   Scania AB Class A                                         220,399  
     8,800   Scania AB Class B                                         191,797  
    10,400   Securitas AB                                              314,998  
     8,500   Skandia Forsakrings AB                                    479,866  
    12,800   SKF AB Class B                                            264,588  
    18,800   Ssab Swedish Steel Class A                                352,218  
   256,706   Stena Line AB Class B *                                   875,309  
    10,891   Svedala Industries                                        193,161  
    32,000   Svenska Handelsbanken Class B                           1,282,974  
    14,825   Svenska Kullagerfabriken AB                               290,708  
    56,976   Sydkraft AB Class A                                     1,494,424  
    44,413   Sydkraft AB Class C                                     1,065,060  
     8,398   Trygg Hansa Holdings AB Class B                           255,934  
                                                                --------------- 
                                                                    12,815,167  
                                                                --------------- 
             Switzerland - 0.3%                                                 
       440   Ascom Holding AG (Registered) *                           155,901  
        45   Kuoni Reisen Holdings AG (Registered)                     183,667  
     1,930   Swissair AG (Participating Certificate) *                 460,275  
                                                                --------------- 
                                                                       799,843  
                                                                --------------- 
             United Kingdom - 33.9%                                             
   305,700   Allied Colloids                                         1,011,703  
   156,300   AMEC                                                      357,070  
    38,366   Amstrad Plc                                                24,004  
   132,300   Anglian Water Plc                                       1,829,788  
    68,565   Arcadia Group *                                           556,840  
   119,680   Argos Plc                                               1,202,024  
   124,300   Arjo Wiggins Appleton Plc                                 335,642  
 1,120,000   ASDA Group                                              3,711,193  
   179,700   Associated British Ports                                  905,381  
   152,900   Astec (BSR)                                               318,464  
   122,390   Barratt Development                                       566,258  
   136,000   Beazer Holmes Plc                                         471,360  
    96,412   Berisford International                                   306,373  
   238,200   BICC Group                                                511,816  
   152,100   Blue Circle Industries                                    889,659  
    75,700   Bowthorpe Holdings *                                      498,560  
   144,200   BPB Industries Plc                                        781,129  
   141,800   British Land Co                                         1,716,032  
   200,700   British Steel Plc                                         481,635  
   219,535   Bunzl Co                                                  880,166  
   224,200   Caradon Plc                                               732,753  
    24,885   Carlton Communications                                    174,955  
   313,800   Centrica Plc *                                            558,005  
    26,140   Charter Plc (Registered)                                  266,845  
    45,300   Christian Salvesen Plc                                     93,979  
    89,100   Coats Viyella                                             121,764  
    52,648   Cobham Group Plc                                          758,493  
    82,900   Cordiant Communications Group *                           139,225  
    89,502   Costain Group Plc *                                        44,210  

10              See accompanying notes to the financial statements.             


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares              Description                                  Value ($)    
------------------------------------------------------------------------------- 

United Kingdom - continued                            
  118,300   Courtaulds                                                 681,733
   41,081   Dawson International                                        35,173
  137,131   Debenhams Plc *                                            943,786
   71,200   Delta Plc                                                  332,935
  198,600   Electrocomponents Plc                                    1,520,526
  231,480   Elementis Plc                                              484,037
  203,159   English China Clays Plc                                    816,183
   89,400   First Leisure Plc                                          465,143
   97,100   Glynwed International                                      406,083
   87,800   Great Portland Estates Plc                                 423,569
  122,920   Greenalls Group Plc                                        838,897
   39,509   Greycoat Plc                                               147,017
  140,436   Hammerson Plc                                            1,163,076
  113,820   Hazlewood Foods                                            348,573
  100,700   Hepworth Plc                                               374,714
  413,976   Hillsdown Holdings                                       1,083,762
   49,183   Hyder Plc                                                  759,591
   12,618   Hyder Plc Cumulative Redemption Preferred                   24,827
  191,444   Inchcape Plc                                               589,447
  120,300   Johnson Matthey                                          1,047,316
   48,700   Kwik Save Group                                            275,835
1,030,167   Ladbroke Group                                           5,190,280
   32,734   Laing (John)                                               169,235
    9,009   Laing (John) Class A (Non Voting)                           46,280
   50,400   Laird Group                                                360,979
    6,200   Laporte Plc                                                 67,553
  891,817   Lasmo Plc                                                4,056,376
   81,160   Lex Service                                                636,079
  774,181   Lonrho Plc                                               1,198,208
  154,634   Marley Plc                                                 278,792
   56,048   Meyer International                                        349,753
  284,900   MFI Furniture Group                                        605,123
  123,800   Mirror Group Plc                                           346,522
  131,400   Morgan Crucible                                            956,267
  395,800   NFC Plc                                                  1,088,313
  178,097   Norcros Plc                                                190,604
  107,685   Northern Foods Plc                                         480,492
   68,680   Ocean Group                                                774,609
   21,900   Oxford Instruments                                         109,978
  270,800   Pilkington                                                 508,294
  122,500   Premeir Farnell Plc                                        800,734
  101,870   Provident Financial Plc *                                1,652,130
  158,800   Racal Electronics                                          755,971
   63,200   Railtrack Group Plc                                        962,544
   24,400   Rank Group Plc                                             133,781
  209,300   Rexam Plc                                                  956,300
  240,700   Rugby Group                                                505,299
   93,500   Saatchi & Saatchi Plc *                                    177,040
  187,400   Scottish Hydro-Electric Plc                              1,680,848
  334,500   Sears Plc                                                  289,146

              See accompanying notes to the financial statements.             11


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


           Shares/                                                                                  
          Par Value            Description                                           Value ($)      
--------------------------------------------------------------------------------------------------- 
                                                                                                    
                      United Kingdom - continued                                                    
            286,297   Securicor Plc                                                       1,718,209 
            210,600   Sedgwick Group                                                        513,437 
             30,840   Severn Trent Plc                                                      474,775 
            388,740   Signet Group Plc *                                                    249,637 
          7,828,760   Signet Group *                                                              - 
             83,125   Simon Engineering                                                      67,748 
             64,800   Slough Estates                                                        429,440 
            145,100   Smith (WH) Group                                                    1,170,645 
             88,300   Southern Electric Plc                                                 745,103 
             42,116   Southwest Water                                                       624,616 
            202,300   St James's Place Capital *                                            676,167 
            229,842   Storehouse Plc                                                        980,146 
            295,606   T & N                                                               1,231,390 
            945,164   Tarmac                                                              1,563,994 
             92,100   Tate & Lyle                                                           796,124 
            718,280   Taylor Woodrow Plc                                                  2,388,949 
            318,000   Telewest Communications Plc *                                         408,398 
             60,200   Thames Water                                                          876,215 
            111,000   Transport Development Group                                           425,834 
             58,100   Unigate                                                               624,671 
            240,863   United Biscuits                                                     1,062,837 
                900   Vendome Luxury Group Plc Units                                          7,128 
             87,226   Viglen Technology Plc *                                                48,830 
             96,926   Viglen Technology Plc Entitlement Letters *                                 - 
             80,000   Waste Management International *                                      237,096 
            100,700   Wessex Water Plc                                                      804,142 
            213,900   Willis Corroon Group Plc                                              494,822 
            120,980   Wilson (Connolly) Holdings                                            323,690 
            442,935   Wimpey (George)                                                       897,030 
              5,368   Wolseley                                                               44,192 
            149,700   Yorkshire Water                                                     1,264,448 
                                                                                     ---------------
                                                                                         79,484,792 
                                                                                     ---------------
                      United States - 0.0%                                                          
              2,125   Ultramar Diamond Shamrock Corp                                         75,836 
                                                                                     ---------------

                      TOTAL STOCK AND EQUIVALENTS (Cost $223,702,677)                   221,615,257 
                                                                                     ---------------

                      DEBT OBLIGATIONS - 0.1%                                                       
                      United Kingdom - 0.1%                                                         
  GBP       157,989   Viglen Technology Plc Floating Rate Note, 6.75% due 9/1/2000          260,129 
  GBP        41,678   Viglen Technology Plc Floating Rate Note, 6.99% due 1/1/2001           68,623 
                                                                                     ---------------
                                                                                            328,752 
                                                                                     ---------------

                      TOTAL DEBT OBLIGATIONS (Cost $178,828)                                328,752 
                                                                                     ---------------

12              See accompanying notes to the financial statements.             


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


        Shares/                                                                                  
       Par Value             Description                                       Value ($)         
-------------------------------------------------------------------------------------------------

                                                                                                 
                     SHORT-TERM INVESTMENTS - 6.2%                                               
                     Cash Equivalents - 4.1%                                                     
         3,500,760   The Boston Global Investment Trust (b)                           3,500,760  
      $  6,000,000   Wachovia Bank Time Deposit, 5.63%, due 3/2/98                    6,000,000  
                                                                                ---------------- 
                                                                                      9,500,760  
                                                                                ---------------- 
                     U.S. Government - 2.1%                                                      
      $  5,150,000   U.S. Treasury Bill, 5.39% due 1/7/99 (a)                         4,921,765  
                                                                                ---------------- 

                     TOTAL SHORT-TERM INVESTMENTS (Cost $14,427,126)                 14,422,525  
                                                                                ---------------- 

                     TOTAL INVESTMENTS - 100.9%                                                  
                     (Cost $238,308,631)                                            236,366,534  

                     Other Assets and Liabilities (net) -  (0.9%)                    (2,211,977) 
                                                                                ---------------- 

                     TOTAL NET ASSETS - 100.0%                                 $    234,154,557  
                                                                                ================ 

Notes to the Schedule of Investments: 

ADR American Depositary Receipt       

                  (a) This security is held as collateral for open futures
contracts (Note 5).           

                  (b) Represents investment of security lending collateral
(Note 1).                     

(c) Bankrupt issuer.                  

                *   Non-income producing security.  A dividend has not
           been declared for the twelve months ended
February 28, 1998.            

              See accompanying notes to the financial statements.             13


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

At February 28, 1998, industry sector diversification             
of the Fund's equity investments was as follows:                  

Industry Sector (Unaudited)                                       

Services                                            11.7%         
Construction                                         9.6          
Consumer Goods                                       7.5          
Machinery                                            6.9          
Retail Trade                                         6.4          
Chemicals                                            4.2          
Conglomerates                                        4.1          
Oil and Gas                                          4.1          
Banking                                              4.0          
Health Care                                          4.0          
Metals and Mining                                    3.8          
Transportation                                       3.8          
Utilities                                            3.8          
Electronic Equipment                                 3.3          
Insurance                                            3.0          
Paper and Allied Products                            2.4          
Real Estate                                          2.2          
Communications                                       2.1          
Textiles                                             1.6          
Financial Services                                   1.6          
Food and Beverage                                    1.3          
Automotive                                           1.2          
Aerospace                                            0.9          
Telecommunications                                   0.7          
Computers                                            0.3          
Miscellaneous                                        5.5          
                                    ==========
                                          100.0%
                                    ==========

14              See accompanying notes to the financial statements.             


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Assets and Liabilities - February 28, 1998                                        
---------------------------------------------------------------------------------------------- 
                                                                                               
Assets:                                                                                        
     Investments, at value (cost $238,308,631) (Note 1)                         $  236,366,534 
     Foreign currency, at value (cost $2,260,202) (Note 1)                           2,259,164 
     Cash                                                                               64,359 
     Receivable for investments sold                                                    43,689 
     Dividends and interest receivable                                                 266,977 
     Receivable for open forward foreign currency contracts (Notes 1 and 6)          2,345,748 
     Receivable for open swap contracts (Notes 1 and 6)                              1,437,500 
     Foreign withholding taxes receivable                                              115,409 
     Receivable for expenses waived or borne by Manager (Note 2)                       168,551 
                                                                                  -------------

         Total assets                                                              243,067,931 
                                                                                  -------------

Liabilities:                                                                                   
     Payable for open forward foreign currency contracts (Notes 1 and 6)             4,769,487 
     Payable upon return of securities loaned (Note 1)                               3,500,760 
     Payable for variation margin on open futures contracts (Notes 1 and 6)             85,682 
     Payable for fund shares repurchased                                               172,084 
     Payable to affiliate for (Note 2):                                                        
         Management fee                                                                216,922 
         Shareholder service fee                                                        26,029 
     Accrued expenses                                                                  142,410 
                                                                                  -------------

         Total liabilities                                                           8,913,374 
                                                                                  -------------
Net assets                                                                      $  234,154,557 
                                                                                  =============

Net assets consist of:                                                                         
     Paid-in capital                                                            $  236,274,501 
     Distributions in excess of net investment income                                 (665,119)
     Accumulated net realized loss                                                     (51,411)
     Net unrealized depreciation                                                    (1,403,414)
                                                                                  -------------
                                                                                $  234,154,557 
                                                                                  =============

Net assets attributable to Class III Shares                                     $  234,154,557 
                                                                                  =============

Shares outstanding - Class III                                                      19,163,810 
                                                                                  =============

Net asset value per share - Class III                                           $        12.22 
                                                                                  =============

               See accompanying notes to the financial statements.            15


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Statement of Operations - Year Ended February 28, 1998                          
--------------------------------------------------------------------------------
Investment income:                                                              
    Dividends (net of foreign tax expense of $614,487)           $   5,052,924
    Interest (including securities lending income of $95,132)        1,203,813
                                                                    ------------

        Total income                                                 6,256,737
                                                                    ------------
Expenses:                                                                       
    Management fee (Note 2)                                          2,912,080
    Custodian fees                                                     395,883
    Audit fees                                                          52,473
    Transfer agent fees                                                 30,930
    Registration fees                                                    5,298
    Legal fees                                                           4,647
    Trustees fee (Note 2)                                                2,190
    Stamp duties and transfer taxes                                        200
    Miscellaneous                                                        3,015
     Fees waived or borne by Manager (Note 2)                        (2,004,718)
                                                                    ------------
                                                                     1,401,998
    Shareholder service fee - Class III (Note 2)                       349,448
                                                                    ------------
        Net expenses                                                 1,751,446
                                                                    ------------
            Net investment income                                    4,505,291
                                                                    ------------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                  
            Investments                                             27,585,697
            Closed futures contracts                                 4,716,568
Foreign currency, forward contracts and foreign       
                currency related transactions                        (2,314,343)
                                                                    ------------
                  Net realized gain                                 29,987,922
                                                                    ------------

Change in net unrealized appreciation (depreciation) on:      
             Investments                                            (19,556,569)
             Open futures contracts                                    (514,303)
            Open swap contracts                                      1,437,500
Foreign currency, forward contracts and foreign       
                currency related transactions                        (2,197,239)
                                                                    ------------
                   Net unrealized loss                              (20,830,611)
                                                                    ------------

        Net realized and unrealized gain                             9,157,311
                                                                    ------------
Net increase in net assets resulting from operations              $  13,662,602 
                                                                    ============

16             See accompanying notes to the financial statements.              


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Changes in Net Assets                                                                         
-----------------------------------------------------------------------------------------------------------

                                                                      Year Ended            Year Ended     
                                                                   February 28, 1998     February 28, 1997 
                                                                  -------------------   -------------------
                                                                                                           
Increase (decrease) in net assets:                                                                         
Operations:                                                                                                
     Net investment income                                        $       4,505,291     $      4,054,564   
     Net realized gain (loss)                                            29,987,922           (6,729,282)  
     Change in net unrealized appreciation (depreciation)               (20,830,611)          15,655,726   
                                                                   -----------------     ----------------  

     Net increase in net assets resulting from operations                13,662,602           12,981,008   
                                                                   -----------------     ----------------  

Distributions to shareholders from:                                                                        
     Net investment income - Class III                                   (4,394,112)          (1,160,606)  
     Net realized gains - Class III                                     (28,025,043)          (3,372,778)  
     In excess of net realized gains - Class III                                  -              (30,591)  
                                                                   -----------------     ----------------  
                                                                        (32,419,155)          (4,563,975)  
                                                                   -----------------     ----------------  

Net share transactions - Class III (Note 5)                              17,258,306            8,272,041   
                                                                   -----------------     ----------------  

     Total increase (decrease) in net assets                             (1,498,247)          16,689,074   

Net assets:                                                                                                
     Beginning of period                                                235,652,804          218,963,730   
                                                                   -----------------     ----------------  

     End of period (including distributions in excess                                                      
         of net investment income of $665,119 and                                                          
         $655,418, respectively)                                  $     234,154,557     $    235,652,804   
                                                                   =================     ================  

               See accompanying notes to the financial statements.            17


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


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

                                                                                     Year ended February 28/29,                     
                                                            ----------------------------------------------------------------------- 
                                                               1998           1997           1996           1995           1994     
                                                            -----------    -----------    -----------    -----------    ----------- 
                                                                                                                                    
Net asset value, beginning of period                       $      13.46   $      12.95    $     11.95    $     14.45    $      8.91 
                                                            -----------    -----------    -----------    -----------    ----------- 

Income (loss) from investment operations:                                                                                           
  Net investment income                                            0.27           0.23           0.18           0.18           0.15 
  Net realized and unrealized gain (loss)                          0.42           0.55           1.16          (1.52)          5.59 
                                                            -----------    -----------    -----------    -----------    ----------- 

    Total from investment operations                               0.69           0.78           1.34          (1.34)          5.74 
                                                            -----------    -----------    -----------    -----------    ----------- 

Less distributions to shareholders from:                                                                                            
  Net investment income                                           (0.26)         (0.07)         (0.17)         (0.20)         (0.12)
  In excess of net investment income                                  -              -          (0.02)             -              - 
  Net realized gains                                              (1.67)         (0.20)         (0.15)         (0.96)         (0.08)
  In excess of net realized gains                                     -          (0.00)             -              -              - 
                                                            -----------    -----------    -----------    -----------    ----------- 
     Total distributions                                          (1.93)         (0.27)         (0.34)         (1.16)         (0.20)
                                                            -----------    -----------    -----------    -----------    ----------- 

Net asset value, end of period                             $      12.22   $      13.46    $     12.95    $     11.95    $     14.45 
                                                            ===========    ===========    ===========    ===========    =========== 

Total Return (a)                                                   6.92%          5.99%         11.43%          9.66%         64.67%

Ratios/Supplemental Data:                                                                                                           

      Net assets, end of period (000's)                    $    234,155   $    235,653    $   218,964    $   186,185    $   132,645 
      Net expenses to average                                                                                                       
          daily net assets                                         0.75%          0.76%(c)       0.76%(c)       0.76%(c)       0.75%
      Net investment income to average                                                                                              
          daily net assets                                         1.93%          1.75%          1.84%          1.45%          1.50%
      Portfolio turnover rate                                        79%            13%            13%            58%            38%
      Average broker commission rate per equity share (b)  $     0.0063         0.0015            N/A            N/A            N/A 
      Fees and expenses voluntarily waived or borne by                                                                              
          the Manager consisted of the following per                                                                                
          share amounts:                                   $       0.12   $       0.10    $      0.07    $      0.08    $      0.09 

(a)  Calculation excludes purchase premiums and redemption fees. The total      
   returns would have been lower had certain expenses not been waived during
the periods shown.                                                    

(b)  For fiscal years beginning on or after September 1, 1995, a fund is        
 required to disclose its average commission rate per share for security
     trades on which commissions are charged. The average broker commission rate
will vary depending on the markets in which trades are executed.      

(c)  Includes stamp duties and taxes not waived or borne by the Manager, which  
approximate .01% of average daily net assets.                         

18             See accompanying notes to the financial statements.              


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

GMO International Small Companies Fund (the "Fund") is a series of GMO
  Trust (the "Trust"). The Fund is registered under the Investment Company
    Act of 1940, as amended, as an open-end, diversified management investment
    company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a      
Massachusetts Business Trust under the laws of the Commonwealth of    
Massachusetts on June 24, 1985. The Declaration of Trust permits the  
   Trustees to create an unlimited number of series ("Funds"), each of which
     issues a separate series of shares, and to subdivide a series into classes.

    The Fund seeks maximum total return through investment primarily in equity
securities of small capitalization foreign companies traded on a major
stock exchange of a foreign country.                                  

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
     as more fully described in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
    as those shares. Effective January 9, 1998, the Fund ceased offering Class
I and Class II shares.                                                

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

                                                                              19


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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 in connection with 
    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 the value of the currency changes unfavorably to the
     U.S. dollar. The U.S. dollar value of the currencies the Fund has committed
     to buy and sell is shown under Note 6, and represents the currency exposure
   the Fund has acquired or hedged through currency contracts as of February
28, 1998.                                                             

20                                                                              


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Futures contracts                                                     
    The Fund may purchase or sell index futures contracts. Stock index futures
    contracts represent commitments for future delivery of cash based upon the
   level of a specified index of equity securities at a specified price at a
  given date. The Fund may use futures contracts to manage its exposure to
     the stock and currency 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 obligations in   
    accordance with the initial margin requirements of the broker or exchange.
    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 subsequently settled. Gains or losses
  are recognized but not considered realized until the contracts expire or
    are closed. Futures contracts involve, to varying degrees, risk of loss in
 excess of the variation margin disclosed in the Statement of Assets and
   Liabilities. Losses may arise from changes in the value of the underlying
    instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures    
  contracts are valued at the settlement price established each day by the
 board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts as of February 28, 1998.                       

Swap agreements                                                       
    The Fund may invest in swap agreements. 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 swap agreements to manage its exposure
  to the equity markets. The Fund enters 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 based on a notional amount. To the
extent that 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. Total return swaps are marked to market daily
based upon quotations from market makers and the change, if any, is   
recorded as unrealized gain or loss in the Statement of Operations.   
     Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and 
    market risk in excess of the amounts recognized on the Statement of Assets
     and Liabilities. Such risks involve the possibility that there is no liquid
  market for these agreements, that the counterparty to the agreements may
default on its obligation to perform or that there may be unfavorable 
changes in the price of the security or index underlying these        
    transactions. See Note 6 for the summary of all open swap agreements as of
February 28, 1998.                                                    

                                                                              21


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $3,329,671 collateralized by cash in the amount of    
$3,500,760, which was invested in a short-term instrument.            

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for federal income or
     excise tax is necessary. Taxes on foreign interest and dividend income have
   been withheld in accordance with the applicable country's tax treaty with
     the United States. 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.                                 

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
  differing treatments for foreign currency and passive foreign investment
company 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Distributions in Excess of    Accumulated Net Realized              
        Net Investment Income              Gain/Loss           Paid-in Capital
        ---------------------              ---------           ---------------
    ($120,880)                      $121,263              ($383)

22                                                                              


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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 1.00% of the amount   
  invested. In the case of cash redemptions, the fee is .60% of the amount
   redeemed. Prior to June 1, 1996, the premium on cash purchases and fee on
 cash redemptions was 1.25% and .75% of the amount invested or redeemed,
 respectively. 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. Purchase premiums
   are included as part of each class' "shares sold" and redemption fees are
included as part of each class' "shares repurchased", respectively, as
summarized in Note 5. For the year ended February 28, 1998, the Fund  
 received $328,967 in purchase premiums and $298,370 in redemption fees.
 There is no premium for reinvested distributions. Normally, no purchase
premium is charged with respect to in-kind purchases of Fund shares. A
purchase premium of up to .10% may be charged on certain in-kind      
transactions.                                                         

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 and the
possible imposition of currency exchange blockages 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.                                                              

                                                                              23


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of 1.25% of
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including stamp duties and transfer taxes), shareholder
    service fees, and extraordinary expenses) exceed .60% of average daily net
     assets. Prior to June 1, 1996, a similar waiver existed for annual expenses
   exceeding .75%; thus, the net annual expense ratio after the waiver for a
Class III shareholder is unchanged.                                   

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $2,190. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$169,063,402 and $173,116,323, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                   Gross Unrealized   Gross Unrealized    Net Unrealized
 Aggregate Cost     Appreciation        Depreciation      Depreciation
 ---------------   ----------------   -----------------   --------------
 $238,806,998      $29,040,678         $31,481,142        $2,440,464

4.   Principal Shareholders                                                     

 At February 28, 1998, 13.68% of the outstanding shares of the Fund were
held by one shareholder.                                              

24                                                                              


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares including purchase premiums and redemption fees received by the Fund
were as follows:                                                      

                                                        [Enlarge/Download Table]

                                     Year Ended                                      Year Ended                   
Class III:                       February 28, 1998                               February 28, 1997                
                    ----------------------------------------------  ----------------------------------------------
                           Shares                   Amount                Shares                    Amount        
                    ----------------------   ---------------------  --------------------     ---------------------
                                                                                                                  
Shares sold                     2,671,927    $         37,883,371             1,509,544      $         20,156,083 
Shares issued  to                                                                                                 
shareholders in                                                                                                   
reinvestment of                                                                                                   
distributions                   2,808,143              30,552,594               302,311                 4,040,065 

Shares repurchased             (3,825,152)            (51,177,659)           (1,205,784)              (15,924,107)
                    ----------------------   ---------------------  --------------------     ---------------------

Net increase                    1,654,918    $         17,258,306               606,071      $          8,272,041 
                    ======================   =====================  ====================     =====================

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]

                                                                                             Net Unrealized    
  Settlement                                     Units of                                     Appreciation     
     Date            Deliver/Receive             Currency                 Value              (Depreciation)    
----------------  -----------------------  --------------------   ----------------------   --------------------
                                                                                                               
Buys                                                                                                           
3/6/98                     ATS                      47,732,484   $            3,739,059   $          (146,606) 
7/16/98                    ATS                      47,732,484                3,766,486                (4,258) 
3/6/98                     BEF                     393,029,095               10,493,690              (257,053) 
7/16/98                    BEF                     301,061,320                8,097,835               (49,678) 
3/6/98                     CAD                       7,763,351                5,455,606               (12,698) 
4/17/98                    CAD                       7,632,260                5,368,579               (67,735) 
3/6/98                     CHF                       4,455,836                3,037,350               (76,442) 


                                                                              25


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                                
Buys - continued                                                  

                                                        [Enlarge/Download Table]


                                                                                             Net Unrealized    
  Settlement                                     Units of                                     Appreciation     
     Date            Deliver/Receive             Currency                Value               (Depreciation)    
----------------  -----------------------  --------------------  ----------------------    --------------------
                                                                                                               
3/6/98                     DEM                       9,429,811   $           5,197,148     $          (94,370) 
7/16/98                    DEM                       4,729,813               2,627,072                 (6,601) 
3/6/98                     ESP                   1,974,956,718              12,824,037               (573,811) 
7/16/98                    ESP                   1,665,756,718              10,866,170                (18,482) 
3/6/98                     FIM                      11,593,387               2,104,349               (141,125) 
7/16/98                    FIM                      11,593,387               2,121,156                   (699) 
3/6/98                     FRF                     131,038,379              21,523,488               (677,296) 
7/16/98                    FRF                      67,257,717              11,132,066                (28,946) 
3/6/98                     GBP                      30,500,618              50,211,948                 102,778 
4/17/98                    HKD                       3,317,718                 428,044                  13,044 
3/6/98                     IEP                       3,621,912               4,938,358               (451,612) 
7/16/98                    IEP                       3,621,912               4,935,217                (13,005) 
3/6/98                     ITL                   3,204,093,500               1,790,474                (47,526) 
7/16/98                    ITL                   3,204,093,500               1,790,094                (13,759) 
4/17/98                    JPY                     200,864,000               1,600,638                     638 
3/6/98                     NLG                       2,842,678               1,389,058                (74,957) 
7/16/98                    NLG                       2,842,678               1,400,153                   2,298 
3/6/98                     NOK                     131,449,676              17,369,569             (1,087,110) 
7/16/98                    NOK                     116,608,503              15,501,451                (11,953) 
3/6/98                     SEK                     173,966,681              21,730,488               (846,591) 
7/16/98                    SEK                     105,016,001              13,169,389                  48,160 
                                                                                           --------------------
                                                                                        $           (4,535,395)
                                                                                           ====================

26                                                                              


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                                

                                                        [Enlarge/Download Table]

                                                                                              Net unrealized  
  Settlement                                     Units of                                      Appreciation   
     Date             Deliver/Receive            Currency                  Value              (Depreciation)  
----------------  -----------------------  --------------------   ----------------------    ------------------
                                                                                                              
Sales                                                                                                         
3/6/98                      ATS                  47,732,484      $          3,739,059     $            3,773  
3/6/98                      BEF                 393,029,095                10,493,690                178,770  
7/16/98                     BEF                  91,967,774                 2,473,715                 (1,064) 
3/6/98                      CAD                   7,763,351                 5,455,606                117,910  
8/20/98                     CAD                   7,763,351                 5,471,811                 11,943  
3/6/98                      CHF                   4,455,836                 3,037,350                 42,650  
3/6/98                      DEM                   9,429,811                 5,197,148                144,525  
7/16/98                     DEM                   4,699,998                 2,610,512                 (8,365) 
3/6/98                      ESP               1,974,956,718                12,824,037                 14,794  
3/6/98                      FIM                  11,593,387                 2,104,349                     96  
3/6/98                      FRF                 131,038,379                21,523,488                331,507  
7/16/98                     FRF                  31,621,093                 5,233,721                 68,718  
3/6/98                      GBP                  30,500,618                50,211,948                297,168  
7/16/98                     GBP                  22,776,371                37,248,420                (55,157) 
3/6/98                      IEP                   3,621,912                 4,938,358                 12,463  
3/6/98                      ITL               3,204,093,500                 1,790,474                 14,650  
4/17/98                     JPY               1,288,543,335                10,268,096                307,666  
3/6/98                      NLG                   2,842,678                 1,389,058                 (2,588) 
3/6/98                      NOK                 131,449,676                17,369,569                136,697  
7/16/98                     NOK                  14,841,173                 1,972,924                 17,657  
3/6/98                      SEK                 173,966,681                21,730,488                469,974  
7/16/98                     SEK                  68,950,680                 8,646,666                  7,869  
                                                                                           ------------------ 
                                                                                          $        2,111,656  
                                                                                           ================== 

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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Currency Abbreviations:                                                         

ATS     Austrian Schilling               GBP     British Pound          
BEF     Belgian Franc                    HKD     Hong Kong Dollar       
CAD     Canadian Dollar                  IEP     Irish Punt             
CHF     Swiss Franc                      ITL     Italian Lira           
DEM     German Mark                      JPY     Japanese Yen           
ESP     Spanish Peseta                   NLG     Netherlands Guilder    
FIM     Finnish Markka                   NOK     Norwegian Kroner       
FRF     French Franc                     SEK     Swedish Krona          

Futures Contracts                                                     

                                                        [Enlarge/Download Table]

                                                                                            Net Unrealized    
   Number of                                                                                 Appreciation     
   Contracts               Type              Expiration Date         Contract Value         (Depreciation)    
-----------------  ---------------------  ----------------------  ---------------------  ---------------------
                                                                                                              
      Buys                                                                                                    
      164                  AOH8                March 1998         $          7,541,442   $            427,668 
       3                   IBEX                March 1998                      174,334                 15,258 
       68               Hang Seng              March 1998                    5,072,005                391,064 
      116                 MIB 30               March 1998                   18,828,892              3,096,185 
       6                OMX INDEX              March 1998                      205,935                  5,336 
       1                  TSE 35               March 1998                      134,526                  8,461 
                                                                                          --------------------
                                                                                         $          3,943,972 
                                                                                          ====================

     Sells                                                                                                    
       1                 CAC - 40              March 1998         $            112,723   $           (12,851) 
       92                FTSE 100              March 1998                   21,892,391            (2,011,366) 
       1                   GXZ7                March 1998                      259,347                 18,241 
      103                 TOPIX                March 1998                   10,403,546                374,829 
                                                                                          --------------------
                                                                                         $          2,417,287 
                                                                                          ====================

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GMO International Smalll Companies Fund                                         
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Swap agreement                                                        

                                                        [Enlarge/Download Table]


        Notional            Expiration                                                            Unrealized      
         Amount                Date                        Description                           Appreciation     
------------------------  ---------------  ------------------------------------------------  -------------------- 
                                                                                                                  
   CHF 8,700,000             10/9/98        Agreement with Swiss Bank Corporation dated                           
                                            10/10/97 to receive (pay) the notional amount                         
                                            multiplied by the return on the Swiss Market                          
                                            Index (including dividends) and to pay the                            
                                            notional amount multiplied by 6 month CHF LIBOR                       
                                            adjusted by a specified spread.                  $         1,437,500  
                                                                                              ====================


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------
   For the fiscal year ended February 28, 1998, all the Fund's distributions
are from investment company taxable income, except that the Fund has  
designated 83.64% of distributions as net capital gain dividends.     

    The Fund has also elected to defer to March 1, 1998 post-October losses of
$744,063.                                                             

30                                                                              


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GMO International Small Companies Fund                                          
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
fifteen years.                                                                  

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

The Class III shares of the GMO International Small Companies Fund returned 6.9%
for the fiscal year ended February 28, 1998 as compared to 15.5% for EAFE and   
18.9% for the GMO EAFE-Lite Index. Consistent with the Fund's investment        
objective and policies, the Fund was invested substantially in common stocks    
that ranked within the smallest 50% by market capitalization within each        
country.                                                                        

Overseas markets were mixed during the fiscal year.  Although a strong bull     
market prevailed in Europe, the investment climate was difficult for investors  
in the Far East. Poor economic conditions in Japan combined with the fallout    
from the Asian currency crisis caused most stock markets in the Pacific Rim to  
fall significantly.  Hedging currency exposure back to the strong-performing    
U.S. dollar added to the absolute performance of the fund.                      

Within Europe, ten of the fourteen EAFE markets returned in excess of 30% for   
the year, led by strong performance of the largest international blue chip      
companies. On the other hand, small European stocks performed poorly throughout 
the region.                                                                     

Weakness in the Pacific Rim countries offset the strong performance of the      
European markets. Many of the Pacific Rim countries represented in the index    
(Japan, Malaysia, Hong Kong and Singapore) were significantly affected by the   
debt crisis in the Asian markets. Weakening currencies further depressed returns
for dollar-based investors. In the crisis environment pervading these markets,  
both large and small stocks performed poorly in absolute terms, however, smaller
stocks were more drastically affected by the turn of events.                    

Impact of country selection                                                     

Country selection detracted slightly from the Fund's performance for the year,  
primarily in Europe where the Fund was underweight in many of the expensive     
strong-performing European markets, including the Netherlands, Switzerland, and 
the United Kingdom. The funds small (less than 2%) allocation to cash also      
detracted from performance given the strong markets.  These decisions were      
partially offset by the Fund's underweighting of a number of Asian markets      
affected by the turmoil.  The Fund also added value through overweighting of the
Italian market, which was one the best performing EAFE market for the year, as  
well as by underweighting Japan.                                                

Relative to EAFE, country selection added value, primarily due to the Fund's    
underweight in Japan.                                                           

Impact of currency selection                                                    

The Fund's currency weights detracted from performance, primarily from          
overweighting the Norwegian krone and underweighting the strong performing pound
sterling and the Swiss franc, the only two currencies to outperform the U.S.    
dollar. The underperformance was partially offset                               


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through the underweighting the Malaysian ringgit, Australian dollar and Dutch   
guilder. The Fund was modestly hedged back to the U.S. dollar during the year,  
which added value as well.                                                      

Impact of stock selection                                                       

Stock selection negatively impacted the Fund's performance for the year. Small  
European stocks performed poorly throughout the region, as a few, very large    
stocks were responsible for the strong performance of the overall market in a   
number of countries, including the United Kingdom.  In EAFE, the smallest 20% of
stocks as measured by market capitalization underperformed the index by over    
13%.                                                                            

Current portfolio structure and outlook                                         

Country selection. The International Small Companies Fund remains underweight in
some of the expensive European countries, in particular the Netherlands and     
Switzerland. The Fund remains slightly underweight in the Asia/Pacific Rim      
countries.  The Fund's largest overweight positions are in Italy and Canada.    

Currency Selection.  Among currencies, the Fund is slightly underweight in the  
European currencies and holds a larger underweight in the Asian/Pacific Rim     
currencies.  The Fund's largest underweights are the Dutch guilder, Swiss Franc 
and pound sterling.  The Fund continues to emphasize the Canadian dollar,       
Norwegian krone, Swedish krona and French franc.                                

Stock Selection. Small stocks in EAFE are now cheaper than they have been in    
more than twenty years. Value stocks are also very attractive in many European  
markets, following the strong run over the last several years in multinational  
companies.  While small stocks also appear attractive in a number of the Pacific
Rim countries, we are somewhat more cautious about their outlook given their    
higher risk of bankruptcy in what will likely be a difficult economic           
environment.                                                                    

The Fund is very well positioned to outperform the benchmark over the next three
years. Although the restructuring craze in Europe may well provide support for  
large companies in the short term, we believe large cap companies (whose        
valuations are historically high) are susceptible to earnings disappointments,  
and eventually, shrinking profit margins. We expect value and small stocks to do
well in many countries over the next several years.                             

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLC Management.  They are not meant as investment advice.                    


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International Small Companies Fund                                              

Comparison of Change in Value of a $10,000 Investment in  
GMO International Small Companies Fund Class III Shares and the MSCI EAFE Index 
As of February 28, 1998 

--------------------------------------
Average Annual Total Return 
--------------------------------------
                     Since
                     Inception
1 Year     5 Year     10/14/91
--------------------------------------
Class                                                     
III           5.2%      13.1%        8.9%               
--------------------------------------

[LINE GRAPH APPEARS HERE] 

GMO International               
    Small Companies          MSCI EAFE
Date               Fund Class III Shares         Index                    
-----------           ---------------------       ---------                     

10/14/91                     $9,900                $10,000                      
2/29/92                     $9,541                 $9,591                     
2/28/93                     $9,205                 $9,195                     
2/28/94                    $15,175                $12,798                     
2/28/95                    $13,711                $12,230                     
2/29/96                    $15,278                $14,291                     
2/28/97                    $16,193                $14,754                     
2/28/98                    $17,210                $17,036                     

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 100 bp on the purchase and 60 bp on the redemption.          
Transaction fees are paid to the Fund to cover trading costs. Class III shares  
are a redesignation of the single class of shares that has been offered by the  
Fund since inception. Past performance is not indicative of future performance. 
Information is unaudited.                                                       


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO Emerging Markets Fund (A Series of GMO Trust)                               

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 at       
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers and the      
application of alternative auditing procedures where confirmations from brokers 
were not received, provide a reasonable basis for the opinion expressed above.  

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 20, 1998                                                                  


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  STOCK AND EQUIVALENTS - 85.7%                                                   
                  Argentina - 2.4%                                                                
       749,616    Atanor SA D Shares                                                      809,990 
       485,440    Capex SA Class A (Voting)                                             2,816,960 
     2,082,454    Central Costanera Class B (Voting)                                    6,500,507 
     1,646,584    Central Puerto B Shares                                               4,942,223 
     2,819,415    Ciadea SA (Bearer)                                                    4,597,945 
     1,559,939    Garovaglio Y Zorraquin                                                3,979,834 
       563,998    Nobelza Piccardo                                                      2,539,261 
        45,970    Quimica Estrella Preferred 10%                                           45,993 
     1,069,000    Sociedad Comercial del Plata SA                                       1,550,825 
     3,543,000    Transportadora De Gas Del Sur Class B                                 8,383,387 
        53,653    YPF SA ADR                                                            1,696,776 
                                                                                ------------------
                                                                                       37,863,701 
                                                                                ------------------
                  Brazil - 10.7%                                                                  
     6,531,000    Acos Villares SA Preferred                                              577,310 
     2,300,000    Alpargatas de Sao Paolo                                                 109,897 
    35,870,000    Alpargatas de Sao Paolo Preferred                                     1,364,783 
   148,940,000    Banco Nacional Preferred (b)                                              1,318 
    25,040,000    Belgo Mineira Preferred (Registered)                                  1,154,346 
     4,400,000    Belgo Mineira (Registered)                                              221,917 
    20,525,003    Bombril SA Preferred                                                     89,717 
     6,800,000    Brasmotor Preferred (Registered)                                        716,011 
    21,500,000    Caemi Mineracao e Metalurgica SA Preferred                              932,177 
   385,100,000    Cemig Preferred                                                      16,526,435 
   246,500,000    Ceval Participacoes *                                                 1,505,632 
    34,000,000    Cia Energetica Perna Class A Preferred                                  231,651 
   162,100,000    Cia Energetica de Sao Paolo SA Preferred (Registered)                 7,888,776 
   246,500,000    Cia Hering Preferred (Registered)                                       119,962 
    12,689,000    Copene-Petroquimica do Nordeste SA Class A Preferred                  3,441,294 
     1,637,000    Cosipa PN Class B *                                                     420,059 
   179,000,000    Electrobras                                                           8,046,012 
   855,067,710    Electrobras Class B Preferred (Registered)                           40,099,623 
     2,000,000    Ericsson Telecom                                                         41,605 
    43,950,000    Ericsson Telecom Preferred                                            1,481,657 
   660,000,000    Fertilizantes Fosfatados Preferred                                    2,423,572 
   126,196,118    Gerdau SA Preferred                                                   2,009,937 
     1,050,000    Industrias Klabin de Papel e Celulose SA Preferred                      445,959 
     1,336,261    Iochpe Maxion Preferred                                                  68,578 
   262,400,000    Iparanga Brasil De Petroleo Preferred                                 3,436,287 
    42,420,000    Mesbla Preferred (Registered) *                                             375 
    12,598,589    Metalurgica Gerdau SA                                                   300,988 
    52,947,674    Metalurgica Gerdau SA Preferred                                       1,641,160 
   335,746,000    Olvebra Preferred *                                                      23,766 
   134,600,000    Petrobras Distrib Preferred                                           2,358,165 
    85,880,000    Petroleo Brasileiro SA (Petrobras) Preferred                         19,453,418 
   583,800,000    Siderurgica de Tubarao Preferred *                                    7,593,558 
        60,000    Telebras ADR                                                          7,346,250 
   283,810,000    Telebras SA                                                          28,123,596 


              See accompanying notes to the financial statements.              1


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Brazil - continued                                                              
    17,522,000    Telebras SA Preferred (Registered)                                    2,139,571 
     5,830,152    Unipar Preferred                                                      1,341,273 
       600,740    Usiminas Preferred                                                    4,066,417 
       673,000    Varig Preferred (Registered) *                                        1,625,705 
                                                                                ------------------
                                                                                      169,368,757 
                                                                                ------------------
                  Chile - 3.3%                                                                    
         1,000    Administradora de Fondos de Pensiones Provida ADR                        16,500 
       173,600    Banco Santiago Sponsored ADR                                          3,613,050 
       112,600    Chilectra SA ADR                                                      2,773,338 
       661,763    Chilgener ADR                                                        15,882,312 
        46,500    Chilquinta Sponsored ADR                                                441,750 
           200    Chilquinta Sponsored ADR 144A                                             1,900 
       191,800    Compania de Telefonos de Chile ADR                                    5,250,525 
        23,700    Cristalerias de Chile SA ADR                                            355,500 
        11,900    Embotelladora Andina ADR Class A                                        249,900 
       566,200    Empresa Natl de Electricidad ADR                                     10,439,313 
       211,000    Enersis SA ADR                                                        6,145,375 
     1,330,000    Five Arrows Chile Investment Trust Ltd                                3,059,000 
       165,100    Maderas Y Sinteticos Soc ADR                                          1,423,988 
       101,390    Quimenco SA ADR *                                                     1,089,943 
        33,500    Soc Quimica Y Minera de Chile Sponsored ADR                           1,440,500 
        50,500    Telex Chile Sponsored ADR                                               119,938 
         6,800    Vina Concha Y Toro SA Sponsored ADR                                     197,200 
                                                                                ------------------
                                                                                       52,500,032 
                                                                                ------------------
                  Colombia - 0.1%                                                                 
        26,200    Banco Ganadero SA ADR                                                   917,000 
                                                                                ------------------

                  Czech Republic - 0.4%                                                           
        21,000    Alpha Effect                                                            497,867 
        34,360    Cez Z                                                                   781,254 
        21,397    IF Zivnobanka                                                           247,346 
        84,249    IPS Praha                                                               449,781 
         1,670    Leciva AS *                                                             112,981 
        46,000    PF IKS KB Plus                                                          257,731 
        31,300    Restitucni IF                                                           820,317 
        32,362    Skoda Koncern Plzen *                                                   467,387 
       367,188    SP Vseobecny *                                                          704,307 
        27,366    Spif Cesky                                                              285,758 
       212,476    Spif Vynosovy                                                         1,237,469 
         8,470    SPT Telecom AS *                                                      1,001,790 
                                                                                ------------------
                                                                                        6,863,988 
                                                                                ------------------
                  Egypt - 1.4%                                                                    
        67,000    Al Ahram Beverages Co GDR                                             2,167,450 
        23,000    Alexandria Cement                                                       391,921 
        98,000    Ameriyah Cement Co                                                    2,041,337 
       131,000    Commercial International Bank GDR                                     2,168,050 
       121,291    Eastern Tobacco Co                                                    2,743,858 


See accompanying notes to the financial statements. 

2                                                                               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares       Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Egypt - continued                                                               
        14,800    Egyptian International Pharm Investment                               1,034,859 
       117,800    Helwan Portland Cement Co                                             2,290,416 
        41,750    Middle Egypt Flour Mills                                                269,972 
           350    Miraco /Misr Aircond/ *                                                 257,891 
       145,500    Misr International Bank Sae GDR *                                     1,800,563 
       200,000    Paints & Chemical Industries Co GDR                                   2,250,000 
        18,000    Suez Cement Co                                                          362,512 
        65,000    Suez Cement Co GDR                                                    1,280,500 
        37,881    Suez Cement Co GDR 144A                                                 746,256 
        60,250    Torrah Portland Cement                                                1,168,093 
        65,935    Upper Egypt Flour Mills                                               1,152,591 
                                                                                ------------------
                                                                                       22,126,269 
                                                                                ------------------
                  Greece - 0.1%                                                                   
        47,000    Alpha Leasing (Registered)                                              800,542 
        13,900    Aluminum of Greece Preferred 10.41%                                     603,728 
            30    Aluminum of Greece (Registered)                                           1,314 
         8,940    Econ Viomihanies *                                                        7,085 
         1,409    National Mortgage Bank of Greece                                         63,427 
                                                                                ------------------
                                                                                        1,476,096 
                                                                                ------------------
                  Hungary - 0.0%                                                                  
        28,151    Fotex (Registered) *                                                     28,327 
                                                                                ------------------

                  India - 7.7%                                                                    
       101,200    Aptech Ltd *                                                          1,458,849 
           434    Arvind Mills Ltd                                                            614 
       394,600    Ashok Leyland Ltd GDR                                                   887,850 
        25,000    Ashok Leyland Ltd GDR 144A                                               56,250 
        35,000    Bajaj Auto                                                              504,543 
        75,000    Bajaj Auto GDR 144A                                                   1,443,750 
       544,800    Bank of India *                                                         535,109 
           200    Bank of India *                                                             198 
       183,900    Bharat Heavy Electricals Ltd                                          1,495,502 
       125,500    Bharat Petrol Corp                                                    1,211,147 
       460,300    Bombay Dyeing & Manufacturing Co Ltd GDR                              1,104,720 
       903,760    BSES Ltd                                                              4,610,669 
        22,400    Ciba Speciality Chemicals                                                44,088 
       591,804    Core Healthcare Ltd GDR                                                  59,180 
     1,002,000    Escorts                                                               1,869,042 
       255,520    Garden Silk Mills Ltd GDR                                               191,640 
       572,814    Glaxo India Ltd                                                       5,239,756 
        76,500    Grasim Industries                                                       555,524 
     3,227,678    Great Eastern Shipping Co                                             3,412,234 
        56,000    Great Eastern Shipping Co GDR                                           376,600 
        45,000    Great Eastern Shipping Co GDR                                           302,625 
       114,300    Hindalco Industry GDR                                                 2,257,425 
       494,000    Hindustan Development Corp GDR 144A                                       4,940 


              See accompanying notes to the financial statements.              3


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  India - continued                                                               
       721,500    Hindustan Petroleum                                                   8,452,643 
         6,000    Housing Development Finance                                             460,521 
       469,770    India Cements GDR                                                       563,724 
        17,900    Indian Hotels                                                           254,740 
       270,100    Indian Petrochemical Co Ltd GDR                                       1,181,688 
       102,500    Indian Rayon & Industries GDR                                           376,688 
       250,000    Indo Gulf Fertilizers                                                   214,422 
     1,265,000    Indo Gulf Fertilizers GDR                                             1,265,000 
        90,000    Indo Gulf Fertilizers GDR 144A                                           90,000 
     1,976,505    Industrial Credit & Investment Corp of India Ltd                      4,470,367 
            95    Industrial Credit & Investment Corp of India Ltd                            217 
         1,130    Industrial Credit & Investment GDR 144A                                  17,798 
           600    Industrial Development Bank of India                                      1,290 
       803,000    Industrial Development Bank of India *                                1,726,399 
       593,000    Industrial Finance Corp of India                                        506,348 
       439,099    ITC Ltd                                                               7,407,215 
           909    Jaiprakash Industries Ltd                                                   231 
       350,000    Kirloskar Cummins Ltd                                                 3,482,656 
        75,867    Larsen & Toubro                                                         426,089 
           120    Larsen & Toubro                                                             695 
       678,200    Larsen & Toubro GDR                                                   8,901,375 
         1,870    Madras Cement Ltd                                                       184,149 
     1,094,500    Mahanagar Telephone                                                   7,259,581 
        95,000    Mahanagar Telephone GDR 144A *                                        1,615,000 
       226,993    Mahindra & Mahindra                                                   1,424,835 
     2,162,000    National Aluminum                                                     1,546,640 
       287,500    NIIT                                                                  5,443,504 
        44,800    Novartis India                                                          378,551 
       117,600    Oil & Natural Gas Commission Ltd                                        800,935 
     1,634,000    Oriental Bank of Commerce                                             2,688,729 
        14,000    Parke Davis & Co Ltd                                                     88,216 
       121,900    Pentafour Software                                                      823,716 
       620,227    Reliance Industries                                                   2,507,703 
     1,769,171    Reliance Industries                                                   7,207,068 
       547,800    Reliance Industries GDR (Registered)                                  4,738,470 
        83,000    Sanghi Polyesters GDR (Registered) *                                      4,150 
       589,000    Satyam Computer Service                                               3,068,488 
       119,973    Siemens India                                                           551,540 
        88,000    Smithkline Beecham Plc                                                  892,300 
       225,000    Southern Petrochem GDR                                                  866,250 
       346,000    Southern Petrochem Industry Corp                                        230,813 
           100    State Bank of India                                                         651 
       762,350    State Bank of India                                                   4,940,260 
        75,000    Steel Authority of India GDR                                            189,375 
        54,000    Steel Authority of India GDR 144A                                       136,350 
       312,828    Sterlite Industries Ltd                                               1,566,922 


4             See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  India - continued                                                               
        46,000    Sterlite Industries Ltd GDR                                             115,000 
       894,586    Tata Iron & Steel                                                     2,944,063 
         4,281    Tata Iron & Steel                                                        14,426 
     5,115,000    Uti Masterplus 1991 Unit *                                            2,255,280 
         3,600    Videocon International                                                    2,653 
        95,150    Zuari Argochemicals Ltd                                                 240,595 
                                                                                ------------------
                                                                                      122,148,574 
                                                                                ------------------
                  Indonesia - 1.5%                                                                
     7,635,000    Aneka Tambang *                                                       1,358,771 
       851,000    Astra Agro Lestari *                                                    331,746 
     4,080,500    Astra International                                                     772,298 
     5,286,500    Barito Pacific Timber                                                 1,194,689 
       171,000    Ciputra Development                                                       6,280 
    18,766,500    Citra Marga Nusaphale Persada                                         1,219,292 
     1,875,000    Dynaplast                                                               121,822 
     1,663,000    Gudang Garam                                                          2,076,401 
         5,000    Gulf Resources Ltd ADR *                                                 93,750 
     2,116,500    HM Sampoerna                                                          1,219,678 
       226,076    Indah Kiat Pulp & Paper Warrants 4/13/01 *                               25,545 
       140,000    Indosat ADR                                                           2,100,000 
     3,072,000    International Nickel                                                  3,471,186 
     3,097,500    Kalbe Farma                                                             367,500 
     1,834,000    Pakuwon Jati                                                            108,797 
     4,134,500    Semen Gresik                                                          2,557,784 
     5,692,000    Tambang Timah Persero (Foreign Registered)                            4,855,887 
       128,000    Telekomunikasi Indonesia ADR                                          1,088,000 
       810,000    Telekomunikasi Indonesia                                                320,339 
           100    Unggul Indah Corp                                                            19 
     2,478,500    United Tractors                                                         406,082 
                                                                                ------------------
                                                                                       23,695,866 
                                                                                ------------------
                  Israel - 2.8%                                                                   
     1,683,161    Bank Hapoalim                                                         3,940,597 
     6,105,650    Bank Leumi Le Israel                                                 10,358,811 
        86,500    Blue Square Chain Stores *                                              823,085 
        41,700    Blue Square Sponsored ADR                                               583,800 
        61,500    ECI Telecommunications Ltd                                            1,787,344 
        70,932    Elbit Medical Imaging Ltd                                               508,686 
        33,200    Elbit Medical Imaging Ltd *                                             240,700 
       137,101    Formula Systems Ltd *                                                 4,173,878 
     1,780,000    Israel Chemical Ltd                                                   2,284,821 
        27,610    Koor Industries                                                       2,873,754 
        11,300    Koor Industries ADR                                                     240,125 
       131,100    Makhteshim Chemicals Works Ltd *                                      1,009,686 
       317,739    Supersol Ltd                                                          1,024,950 
       130,460    Supersol Ltd ADR                                                      2,054,745 
        16,134    Tadiran Ltd                                                             638,850 
        64,800    Tadiran Ltd ADR                                                       2,592,000 
        28,260    Teva Pharmaceutical Industries Ltd                                    1,169,466 
       191,500    Teva Pharmaceutical Industries Ltd ADR                                8,043,000 
                                                                                ------------------
                                                                                       44,348,298 
                                                                                ------------------


              See accompanying notes to the financial statements.              5


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Korea - 6.9%                                                                    
       286,730    Cheil Industries                                                        890,215 
        47,431    Cheil Jedang Corp                                                       882,978 
        84,300    Choongnam Spinning                                                      142,479 
        70,280    Chosun Brewery Co Ltd                                                   568,093 
       971,170    Daewoo Corp                                                           3,734,812 
        55,900    Dongbu Construction Co Preferred                                         32,520 
        20,700    Dongbu Steel Co                                                          82,268 
       102,340    Dongbu Steel Co Preferred                                               112,806 
         1,709    Hana Bank                                                                 9,733 
           840    Hanwha Chemical Corp *                                                    2,227 
       174,406    Hanwha Corp                                                             372,735 
        10,080    Hanwha Corp Preferred                                                     8,642 
       226,113    Housing & Commercial Bank Korea                                       1,536,959 
       251,017    Housing & Commercial Bank Korea GDR                                   1,882,628 
       328,745    Hyundai Engineering & Construction GDR 144A                             295,871 
        53,123    Hyundai Motor Service Co                                                289,525 
        63,700    Hyundai Motor Service Co Preferred                                      103,371 
            50    Jinro Ltd Preferred                                                          27 
        19,000    Kang Won Industrial                                                      38,977 
        71,930    Kang Won Industrial Preferred (Non Voting)                               40,964 
        12,080    Kookmin Bank                                                             76,933 
       188,280    Kookmin Bank GDR                                                      1,204,992 
         9,670    Korea Container Terminal                                                197,190 
       213,840    Korean Air Lines *                                                    1,220,446 
       177,500    Kumho Petrochemical Preferred                                           106,522 
       225,420    LG Electronics Co                                                     3,395,794 
        63,150    LG Information & Communication                                        2,057,306 
        12,130    Lotte Chilsung Beverage                                                 563,789 
        28,611    Oriental Brewing Co Ltd                                                 387,203 
        37,400    Oriental Brewing Co Ltd Preferred                                        71,227 
        67,728    Oriental Chemical Preferred                                             141,014 
        26,840    Pang Rim Spinning                                                       414,187 
       729,784    Pohang Iron & Steel                                                  43,759,214 
         3,850    Pohang Iron & Steel ADR                                                  89,031 
           573    Sam Yang                                                                  3,039 
       194,100    Samho International *                                                    92,712 
        72,060    Samsung Display Devices                                               4,192,100 
        49,310    Samsung Display Devices Preferred                                       803,212 
       157,364    Samsung Electronics                                                   9,106,490 
       184,544    Samsung Electronics GDS 144A (Non Voting)                             2,560,548 
       534,763    Samsung Electronics Preferred (Non Voting)                            9,180,699 
        41,922    Shin Sung Corp                                                           34,914 
         5,212    Shinsegae Department Store                                               76,600 
        42,414    SK Telecom                                                           19,272,007 
        11,944    SK Telecom ADR                                                          103,017 
         1,170    Sunkyong Industries                                                       6,018 
                                                                                ------------------
                                                                                      110,144,034 
                                                                                ------------------


6             See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Lebanon - 0.5%                                                                  
       121,508    Banque Libanaise GDR Class B *                                        2,266,124 
       217,164    Banque Libanaise *                                                    4,397,571 
       139,000    Solidere GDR (Registered)                                             1,740,975 
                                                                                ------------------
                                                                                        8,404,670 
                                                                                ------------------
                  Malaysia - 0.2%                                                                 
       243,666    Amsteel Corp Warrants 5/19/00 *                                          33,815 
       376,000    Esso Berhad                                                             456,316 
     3,801,000    IGB Corp Berhad                                                       1,623,829 
       727,000    Malaysian Tobacco Co Berhad                                             443,124 
       109,620    Silverstone *                                                            29,829 
       375,000    Tractors Holdings Berhad                                                188,776 
       133,600    UMW Holding Berhad Warrants 1/26/00 *                                    38,171 
     4,009,000    Westmont Industries Berhad                                              970,887 
                                                                                ------------------
                                                                                        3,784,747 
                                                                                ------------------
                  Mexico - 12.7%                                                                  
     5,997,015    Altos Hornos De Mexico *                                              9,793,917 
       783,000    Cemex SA Class B                                                      3,748,038 
     3,642,000    Cemex SA CPO                                                         14,335,555 
       430,273    Cintra SA CPO Class A (Registered) *                                    412,933 
     2,137,915    Controladora Coml Mexicana Class B                                    2,458,094 
     4,191,480    Cydsa SA Class A                                                      8,940,119 
       302,000    Dina (Consorcio Grupo Dina)                                             389,746 
       396,000    Empresas ICA Sociedad Controladora                                      787,958 
       324,100    Empresas ICA Sociedad Controladora ADR                                3,868,944 
        75,000    Grupo Celanese Mexicana Class B                                         167,185 
     4,647,005    Grupo Financiero Banamex Class B                                     11,694,522 
       103,529    Grupo Financiero Banamex Class L                                        230,780 
    68,713,595    Grupo Financiero Bancomer SA Class B                                 39,824,621 
       328,963    Grupo Financiero Bancomer SA Class L                                    114,241 
     1,541,640    Grupo Financiero Probursa SA de CV *                                    343,652 
        95,181    Grupo Financiero Santander Class B *                                     87,995 
       225,755    Grupo Financiero Serfin SA de CV Class B *                               35,756 
    31,106,320    Grupo Gigante SA Class B *                                           12,882,655 
           600    Grupo Iusacell Sponsored ADR *                                           11,550 
     4,503,818    Grupo Mexico Class B                                                 15,534,962 
        38,886    Grupo Mexico Class B Warrants 8/9/01 *                                  123,180 
        80,200    Grupo Mexico Desarollo Class B ADR *                                     17,544 
       780,000    Grupo Mexico SA Class L                                               2,242,037 
       117,000    Grupo Posadas SA Class L *                                               79,615 
         9,500    Grupo Posadas SA GDR 144A *                                             127,506 
       660,000    Grupo Simec SA Class B *                                                 99,889 
     6,310,000    Grupo Situr SA de CV Class B                                             74,031 
        32,000    Grupo Televisa SA PTG Certs (1A,L & D)                                  561,272 
     3,205,200    Grupo Tribasa SA ADR *                                               16,626,975 


              See accompanying notes to the financial statements.              7


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Mexico - continued                                                              
       506,000    Grupo Tribasa SA *                                                    1,329,782 
     4,814,000    Herdez Class B                                                        3,490,411 
        53,000    Hylsamex SA                                                             253,699 
       973,340    International de Ceramic *                                            1,144,233 
        10,000    Ispat International NV Class A (Registered) *                           246,250 
       353,000    Telefonos de Mexico ADR Class L                                      17,892,688 
        39,000    Tolmex SA Class B                                                       150,994 
       448,000    Transportation Maritima Mexicana SA Class A                           2,628,028 
        25,000    Transportation Maritima Mexicana SA Class L                             168,651 
        94,100    Tubos de Acero de Mexico SA *                                         1,640,554 
         8,000    TV Azteca SA ADR *                                                      164,500 
     2,637,370    Vitro SA                                                              9,963,432 
     1,512,400    Vitro SA ADR                                                         17,109,025 
                                                                                ------------------
                                                                                      201,797,519 
                                                                                ------------------
                  Pakistan - 3.2%                                                                 
     1,002,000    Fauji Fertilizer                                                      1,865,971 
       804,710    Hub Power Co Ltd GDR                                                 24,342,478 
     8,877,000    Hub Power Co Ltd *                                                   11,104,823 
       910,000    Japan Power Generation Ltd *                                            159,228 
       961,000    Karachi Electric Supply *                                               540,489 
       864,000    Pakistan State Oil                                                    5,791,937 
     2,314,000    Pakistan Telecom Corp Ltd Class A                                     1,722,117 
         6,600    Pakistan Telecom Corp Ltd GDR                                           481,800 
     1,395,000    Southern Electric Power Co *                                            496,108 
     5,910,425    Sui Northern Gas Pipelines *                                          3,095,835 
     2,619,010    Sui Southern Gas Pipelines Ltd *                                      1,172,442 
                                                                                ------------------
                                                                                       50,773,228 
                                                                                ------------------
                  Peru - 0.0%                                                                     
       100,218    Cervecerias                                                              70,516 
            58    Milpo Minera T Shares                                                       253 
                                                                                ------------------
                                                                                           70,769 
                                                                                ------------------
                  Phillippines - 0.1%                                                             
     3,438,270    Metro Pacific Corp                                                      143,046 
     5,170,000    Petron Corp                                                             764,486 
                                                                                ------------------
                                                                                          907,532 
                                                                                ------------------
                  Poland - 0.0%                                                                   
       460,418    International UNP Holdings *                                             48,528 
        49,695    Polifarb Cieszyn SA Class D (Bearer) *                                  252,941 
         2,952    Polifarb Cieszyn SA (Bearer)                                             15,365 
                                                                                ------------------
                                                                                          316,834 
                                                                                ------------------
                  Portugal - 1.7%                                                                 
        18,999    Allantis Cristais de Alcobaca                                           427,415 
        12,853    Banco Commercial Portugues (Registered)                                 426,254 
       101,540    Banco Espirito Santo e Commercial de Lisboa (Registered)              4,125,430 
       214,800    Banco Totta & Acores (Registered)                                     5,959,441 
       128,400    BPI-SGPS SA (Registered)                                              4,609,284 


8             See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Portugal - continued                                                            
        15,400    Cabos de Energia e Telecomunicacoes SA Rights 3/12/98 *                  67,964 
        15,400    Cel-Cat Fabrica Nacional de Condutores Electricos SA                    144,299 
       285,000    Empresa Fabril de Maquinas Electricas                                 2,510,939 
        44,500    Fisipe Fibra Sint                                                       275,423 
       116,250    Inparsa Industrias Participacoes *                                    2,857,996 
        17,700    Lisnave Navais De Lisboa *                                              176,233 
         4,500    Portugal Telecom Sponsored ADR                                          236,813 
       124,000    Semapa Society Investment                                             3,270,095 
       148,750    Soares Da Costa                                                       1,102,386 
         7,500    Telecel-Comunicacaoes Pessoais SA *                                     999,031 
         3,000    Unicer Uniao Cervjeira SA (Registered)                                   49,487 
                                                                                ------------------
                                                                                       27,238,490 
                                                                                ------------------
                  Russia - 5.9%                                                                   
     2,649,789    Chelabinsky Tube Work *                                                 476,962 
        17,100    Dalmoreproduct *                                                         51,300 
        88,800    Electrocila *                                                           466,200 
        29,221    Elisb *                                                                 175,326 
       672,700    Irkutskelectrosviaz *                                                   437,255 
       797,100    Irkutskenergo ADR                                                     5,579,700 
           566    Irkutskenergo RDC *                                                  17,319,600 
     4,931,400    Irkutskenergo (Registered)                                              754,504 
         2,000    Izhorskie Zavody Preferred *                                             24,000 
        53,506    Izhorskie Zavody *                                                    2,728,806 
        89,030    Kirovsky Plant *                                                        409,538 
       646,500    Komineft *                                                            1,551,600 
       100,800    Krasny Red October Preferred 144A *                                     705,600 
        57,525    Lukoil Holding ADR                                                    4,033,941 
       430,800    Lukoil Holding Preferred                                              4,824,960 
       144,500    Lukoil Holding Sponsored ADR Preferred (Foreign Registered)           3,106,750 
           600    Moscow City Telephone Network                                           480,000 
         2,339    Moscow City Telephone Network Preferred                                 893,498 
     2,710,587    Norilsk Nickel (Registered) *                                        14,366,111 
       220,000    Norlisk Nickel Preferred                                                974,600 
        25,000    Rostelecom ADR *                                                        526,563 
            30    Rostelecom Preferred                                                         60 
       135,000    Russia Petroleum *                                                    1,080,000 
        19,700    Seversky Tube Works ADR *                                               542,774 
     3,411,000    St Petersburg Telephone                                               3,581,550 
     1,834,100    St Petersburg Telephone Preferred                                     1,008,755 
        67,000    Trade House Gum Sp ADR                                                  301,500 
        98,500    Unified Energy Systems GDR *                                          2,696,438 
    17,200,000    Unified Energy Systems Preferred                                      2,958,400 
    35,394,250    Unified Energy Systems *                                              9,786,510 
     1,519,500    Uralmash Zavody *                                                    11,396,250 
         6,000    Uralmash Zavody Preferred*                                               59,310 
                                                                                ------------------
                                                                                       93,298,361 
                                                                                ------------------


              See accompanying notes to the financial statements.              9


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  South Africa - 14.3%                                                            
     2,386,581    AECI Ltd                                                              7,968,954 
       106,383    Alpha Ltd                                                             1,054,896 
     1,358,637    Amalgamated Bank of South Africa                                     10,447,881 
        96,890    Anglo American Coal Corp                                              4,352,844 
       631,080    Anglo American Corp of South Africa                                  26,436,013 
       357,417    Anglo American Industrial Ltd                                         8,404,706 
       430,100    Anglo American Platinum Corp                                          6,127,500 
     7,563,314    Consolidated African Mines *                                          2,081,576 
     1,891,800    De Beers Centenary Link Units                                        37,518,243 
       413,400    De Beers Consolidated Mines Ltd ADR                                   8,242,163 
        35,000    Driefontein Ltd Sponsored ADR                                           231,875 
     2,501,192    Engen Ltd                                                             8,908,424 
       727,300    First National Bank Holdings                                          8,242,194 
       605,800    Free State Cons Gold Mines                                            2,880,967 
       177,218    Goldfields Ltd *                                                        896,580 
    13,789,165    ISCOR                                                                 4,604,295 
     1,973,100    Joel (HJ) Mining Co Ltd                                                 978,265 
       683,900    Liberty Life Association of Africa Ltd                               20,759,891 
     3,314,800    Malbak Ltd                                                            2,783,855 
       495,840    Murray & Roberts Holdings Ltd                                           767,616 
       328,100    Nedcor Ltd                                                            9,561,145 
        78,637    Polifin Ltd                                                             132,083 
         2,461    Randfontein Estates Warrants 7/01/02 *                                      946 
       600,500    Randfontein Estates *                                                 1,142,305 
       164,000    Randgold Resources Ltd GDR 144A *                                       984,000 
       309,500    Randgold & Exploration Co *                                             375,797 
       650,600    Rembrandt Group Ltd                                                   4,450,122 
     2,362,028    Sappi Ltd                                                            10,492,060 
     2,245,000    Sasol Ltd                                                            19,172,114 
        93,800    Standard Bank Investment Corp                                         5,201,093 
    10,908,400    Sun International Ltd                                                 7,505,527 
        18,935    Western Areas Gold Mining Co Ltd                                        107,291 
       121,500    Western Deep Levels                                                   2,360,417 
                                                                                ------------------
                                                                                      225,173,638 
                                                                                ------------------
                  Sri Lanka - 0.2%                                                                
       131,500    Aitken Spence & Co                                                      345,941 
     4,590,170    Blue Diamonds Jewelry Ltd                                               278,665 
        46,500    Development Finance Corp                                                159,592 
       115,599    Hayleys Ltd                                                             411,717 
       285,305    John Keells Holdings Ltd                                              1,288,653 
       333,600    Lanka Walltile Ltd                                                       83,711 
       404,200    Lion Brewery Ceylon Ltd *                                               327,181 
       304,000    National Development Bank                                             1,058,119 
                                                                                ------------------
                                                                                        3,953,579 
                                                                                ------------------
                  Thailand - 8.1%                                                                 
     2,703,900    Advanced Info Service Public Co Ltd (Foreign Registered)             20,577,244 
       315,000    Ban Pu Coal Public Co Ltd (Foreign Registered)                        2,558,005 


10            See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares      Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Thailand - continued                                                            
     2,851,500    Bangchak Petro (Foreign Registered)                                     678,141 
     8,899,200    Bangkok Expressway Plc (Foreign Registered) *                         8,672,074 
        74,800    Bangkok Insurance (Foreign Registered)                                  610,896 
     5,633,400    Bangkok Rubber Public Co Ltd (Foreign Registered) *                   1,176,348 
        77,000    BEC World Public Co Ltd (Foreign Registered)                            450,209 
    11,918,500    Cogeneration Public Co (Foreign Registered)                          12,443,910 
       393,700    CP Feedmill Public Co Ltd (Foreign Registered)                          648,555 
       101,400    Delta Electronics Public Co Ltd (Foreign Registered)                  1,675,100 
     4,150,760    Electricity Generating Public Co Ltd (Foreign Registered)            10,882,503 
       227,600    GFPT Public Co Ltd (Foreign Registered)                                  54,128 
       122,200    Grammy Entertainment Plc (Foreign Registered)                           737,169 
       745,000    Hana Microelectronic Plc (Foreign Registered)                         2,938,515 
     1,909,000    Industrial Finance (Foreign Registered)                               1,284,478 
     1,324,850    International Broadcasting Plc (Foreign Registered) *                 1,105,681 
     1,852,700    International Broadcasting Plc *                                      1,546,209 
        23,000    International Cosmetics Public Co Ltd (Foreign Registered)               31,218 
         1,100    Karat Sanitaryware Plc (Foreign Registered) *                               281 
       129,700    KCE Electronics Plc (Foreign Registered)                                962,970 
       573,000    KR Precision Plc (Foreign Registered)                                 1,994,200 
     1,559,100    Krisda Mahanakorn Public Co Ltd (Foreign Registered) *                   94,052 
     5,548,236    Land & House Public Co Ltd (Foreign Registered)                       3,443,511 
       203,000    Lanna Lignite Plc Ltd (Foreign Registered)                              998,515 
     4,010,600    National Petrochemical (Foreign Registered)                           3,582,555 
       512,700    NTS Steel Group Plc (Foreign Registered) *                               35,687 
     5,985,750    Padaeng Industry Plc (Foreign Registered) *                           1,249,925 
     1,111,000    Phatra Thanakit (Foreign Registered) *                                1,417,749 
        75,000    Pranda Jewelry (Foreign Registered) *                                    25,232 
        87,200    Prasit Development Public Co Ltd (Foreign Registered)                    12,827 
     1,752,600    Regional Container Lines Plc (Foreign Registered)                     2,439,814 
     1,859,000    Ruang Khao Fund (Foreign Registered) *                                  301,926 
        32,400    Saha Pathana International Holdings Plc (Foreign Registered)             23,304 
        70,000    Saha Pathanapibul (Foreign Registered)                                   94,200 
     2,511,300    Saha Union Public Co Ltd (Foreign Registered)                         2,214,139 
     1,292,596    Shinawatra Computer Public Co Ltd (Foreign Registered)                8,337,394 
       532,000    Siam City Cement (Foreign Registered)                                 1,542,923 
       513,000    Siam Pulp & Paper (Foreign Registered)                                  357,077 
       201,512    Singer Plc (Foreign Registered)                                         168,316 
     3,108,050    Star Block Co Ltd (Foreign Registered) *                                 36,056 
        24,000    Swedish Motor (Foreign Registered)                                        3,230 
     3,117,500    Thai Airways International (Foreign Registered)                       3,833,585 
     6,143,100    Thai Farmers Bank Plc (Foreign Registered)                           18,386,541 
     1,581,150    Thai German Ceramics Industry (Foreign Registered) *                    359,519 
    10,757,880    Thai Petrochemical (Foreign Registered)                               2,870,432 
       352,300    Thai Plastic & Chemical (Foreign Registered)                            940,012 
       378,600    Thai Telephone & Telecommunications (Foreign Registered) *              109,803 
            70    Thailand International (Foreign Registered)                             717,500 
     1,028,100    Tipco Asphalt Public Co (Foreign Registered)                          2,230,333 
     1,343,000    Total Access Communication                                            1,947,350 
                                                                                ------------------
                                                                                      128,801,341 
                                                                                ------------------


              See accompanying notes to the financial statements.             11


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares     Description                                                             Value ($)   
----------------------------------------------------------------------------------------------------
                                                                                                    
                Turkey - 0.1%                                                                       
         870    Mardin Cimento                                                                   24 
      75,300    Sabanci Holding GDR (Registered) *                                        1,016,550 
                                                                                    ----------------
                                                                                          1,016,574 
                                                                                    ----------------
                Venezuela - 1.4%                                                                    
   2,534,473    Banco Provincial                                                          4,421,847 
     218,606    Ceramica Carabobo Class B ADR                                             1,230,752 
     162,800    Compania Anonima Nacional Telefonos de Venezuela (CANTV) ADR              5,769,225 
   6,654,350    Electricidad De Caracas                                                   6,100,893 
         778    International Briquettes Holdings *                                           7,391 
      35,181    Mantex SA Class A Sponsored ADR                                             765,187 
     832,000    Siderurgica Venezolana (Sivensa) ADR                                      1,980,160 
     349,950    Siderurgica Venezolana (Sivensa) Class A                                     94,459 
       3,182    Siderurgica Venezolana (Sivensa) Registered ADR Class B 144A                  7,160 
     689,454    Venepal SA Class A GDR 144A                                                 620,509 
      75,490    Venezolana de Cementes                                                      103,087 
     489,122    Venezolana de Cementes Tipo II                                              671,762 
                                                                                    ----------------
                                                                                         21,772,432 
                                                                                    ----------------

                TOTAL STOCK AND EQUIVALENTS (Cost $0)                                 1,358,790,656 
                                                                                    ----------------

  Par Value/    CONVERTIBLE SECURITIES - 2.0%                                                       
    Shares      India - 0.3%                                                                        
$    800,000    Mahindra & Mahindra CV, 5.00% due 7/9/01                                    736,000 
$  2,292,000    Mahindra & Mahindra CV, 5.00% due 7/9/01 144A                             2,108,640 
$  1,500,000    Reliance Industries Convertible, 3.50% due 11/03/99                       1,672,500 
                                                                                    ----------------
                                                                                          4,517,140 
                                                                                    ----------------
                Indonesia - 0.4%                                                                    
$ 28,000,000    APP Finance (VI) Convertible, 0.00% due 11/18/12                          6,160,000 
$  2,470,000    Astra International Convertible, 6.75% due 5/30/2006                        938,600 
                                                                                    ----------------
                                                                                          7,098,600 
                                                                                    ----------------
                Korea - 0.1%                                                                        
$  2,000,000    Daewoo Corp Convertible, Zero Coupon, due 12/31/07                        1,773,333 
$    108,350    Hanbo Steel & General Construction Convertible, 3.375% due 01/31/99          51,753 
                                                                                    ----------------
                                                                                          1,825,086 
                                                                                    ----------------
                Portugal - 0.1%                                                                     
      20,100    Banco Commercial Portugues Preferred Class A                              2,211,000 
                                                                                    ----------------

                Russia - 0.8%                                                                       
$  7,050,000    Lukinter Fin Convertible, 3.50% due 5/6/02 144A                           8,883,000 
$  2,000,000    Lukinter Fin Convertible, 3.50% due 5/6/02                                2,520,000 
                                                                                    ----------------
                                                                                         11,403,000 
                                                                                    ----------------
                South Africa - 0.0%                                                                 
$  1,100,000    Randgold Finance Convertible, 7.00% due 10/03/01 144A                       517,000 
                                                                                    ----------------

                Thailand - 0.2%                                                                     
$  5,730,000    Bangkok Bank Public Co Convertible, 3.25% due 3/3/04                      2,578,500 
$    358,000    Bangkok Land Ltd Convertible, 4.50% due 10/13/03                             17,900 
$  1,814,000    MDX Public Co Ltd Convertible, 4.75% due 9/17/03                            181,400 


12            See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


        Shares/                                                                                              
       Par Value     Description                                                                  Value ($)  
-------------------------------------------------------------------------------------------------------------
                                                                                                             
                     Thailand - continued                                                                    
CHF     2,800,000    NTS Steel Group Convertible, 1.00% due 12/17/03                                 228,945 
   $      534,000    NTS Steel Group Convertible, 4.00% due 12/16/08                                  48,060 
   $    2,724,000    Sahaviriya Steel Convertible, 3.50% due 7/26/05                                 272,400 
   $      630,000    Somprasong Land Co Convertible, 3.88% due 1/21/04                                31,500 
                                                                                             ----------------
                                                                                                   3,358,705 
                                                                                             ----------------
                     Venezuela - 0.1%                                                                        
   $    1,460,000    Global Investment Financial Corp, 11.00% due 3/19/01                          1,460,000 
                                                                                             ----------------

                     TOTAL CONVERTIBLE SECURITIES (Cost $0)                                       32,390,531 
                                                                                             ----------------

                     EQUITY LINKED SECURITIES - 1.6%                                                         
                     Chile - 1.2%                                                                            
   $    2,630,074    Citibank-Nassau Chilean Equity Time Deposit, 4.00% due 4/15/98 (d) (f)        2,227,936 
   $    2,168,200    Citibank-Nassau Chilean Equity Time Deposit, 4.00% due 4/16/98 (d) (f)        1,764,915 
   $    4,043,627    Citibank-Nassau Chilean Equity Time Deposit, 4.00% due 4/17/98 (d) (f)        3,137,451 
   $    1,158,098    Citibank-Nassau Chilean Equity Time Deposit, 4.00% due 4/17/98 (d) (f)          918,256 
   $    5,000,000    Citibank-Nassau Chilean Equity Time Deposit, 4.00% due 5/8/98 (d) (f)         3,985,500 
   $   10,000,000    Citibank-Nassau Chilean Equity Time Deposit, 4.00% due 6/19/98 (d) (f)        7,235,000 
                                                                                             ----------------
                                                                                                  19,269,058 
                                                                                             ----------------
                     Russia - 0.4%                                                                           
           32,787    Renaissance Sberbank Note (e) *                                               5,725,800 
                                                                                             ----------------

                     TOTAL EQUITY LINKED SECURITIES (Cost $0)                                     24,994,858 
                                                                                             ----------------

                     INVESTMENT FUNDS - 1.8%                                                                 
                     Chile - 0.0%                                                                            
           22,000    Chile Fund Inc                                                                  365,750 
                                                                                             ----------------

                     Czech Republic - 0.0%                                                                   
           10,000    Sporitelni Privatizacni *                                                       230,314 
                                                                                             ----------------

                     India - 0.0%                                                                            
           58,300    India Fund Inc *                                                                426,319 
                                                                                             ----------------

                     Kazakhstan - 0.2%                                                                       
          450,000    Kazakhstan Investment Fund (f) *                                              1,710,000 
                                                                                             ----------------

                     Poland - 0.1%                                                                           
        2,060,116    Templeton Emerging European Fund L.P. (f) *                                   2,060,116 
                                                                                             ----------------

                     Romania - 0.3%                                                                          
            4,500    Romanian Investment Fund (f)                                                  3,960,000 
                                                                                             ----------------

                     Russia - 1.0%                                                                           
           27,500    Morgan Stanley Russia & New Europe Fund                                         646,250 
       10,000,000    New Century Holdings LP (c) (f)                                              15,549,000 
                                                                                             ----------------
                                                                                                  16,195,250 
                                                                                             ----------------


              See accompanying notes to the financial statements.             13


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares/                                                                                        
   Par Value      Description                                                         Value ($)    
---------------------------------------------------------------------------------------------------
                                                                                                   
                  Thailand - 0.0%                                                                  
     1,500,000    Ruam Pattana Fund (Registered) *                                         250,580 
                                                                                  -----------------

                  Ukraine - 0.1%                                                                   
        25,000    Societe Generale Thalmann Ukraine Fund (f) *                           2,050,000 
                                                                                  -----------------

                  United States - 0.1%                                                             
        71,400    Morgan Stanley Emerging Markets Fund                                     905,888 
                                                                                  -----------------

                  TOTAL INVESTMENT FUNDS (Cost $0)                                      28,154,217 
                                                                                  -----------------

                  SHORT-TERM INVESTMENTS - 16.0%                                                   
                  Cash Equivalents - 10.5%                                                         
$    8,400,000    Republic Bank of New York Time Deposit, 5.63% due 3/2/98               8,400,000 
    82,662,900    The Boston Global Investment Trust (a)                                82,662,900 
$   75,000,000    Wachovia Bank Time Deposit, 5.63%, due 3/2/98                         75,000,000 
                                                                                  -----------------
                                                                                       166,062,900 
                                                                                  -----------------
                  U.S. Government - 5.5%                                                           
$   89,400,000    U.S. Treasury Bill, 5.35% due 7/23/98                                 87,567,598 
                                                                                  -----------------

                  TOTAL SHORT-TERM INVESTMENTS (Cost $253,689,535)                     253,630,498 
                                                                                  -----------------

                  TOTAL INVESTMENTS - 107.1%                                                       
                  (Cost $1,883,863,795)                                              1,697,960,760 

                  Other Assets and Liabilities (net) -  (7.1%)                        (112,325,136)
                                                                                  -----------------

                  TOTAL NET ASSETS - 100.0%                                     $    1,585,635,624 
                                                                                  =================


14            See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

Notes to the Schedule of Investments:                       

ADR American Depositary Receipt                             
GDR Global Depository Receipt                               
GDS Global Depository Shares                                
RDC Russian Depositary Certificate                          

CHF Swiss Franc                                             
IDR Indonesian Rupiah                                       
INR Indian Rupee                                            
KRW Korean Won                                              

      (a) Represents investment of security lending collateral (Note 1).

(b) Bankrupt issuer.                                        

(c) Valued by management (Note 1).                          

      (d) A derivative security whose price is linked to the return on a
basket of Chilean equities.                         

      (e) A derivative security whose price is linked to the return on a
Russian basket of securities.                       

        (f) Security is restricted as to public resale. The aggregate market
         value of restricted securities is $44,598,174 or 2.81% of net
assets.                                             

       *   Non-income producing security. A dividend has not been declared
for the year ended February 28, 1998.               

     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 buyers.                         

              See accompanying notes to the financial statements.             15


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

     At February 28, 1998, industry sector diversification of the Fund's
equity investments was as follows:                            

Industry Sector (Unaudited)                                   

       Utilities                                                       14.6%
      Banking                                                         11.0
      Metals and Mining                                                9.1
      Telecommunications                                               9.0
      Conglomerates                                                    8.9
      Oil and Gas                                                      7.6
      Construction                                                     6.4
      Electronic Equipment                                             3.8
      Chemicals                                                        2.2
      Machinery                                                        2.0
      Textiles                                                         1.8
      Transportation                                                   1.7
      Consumer Goods                                                   1.5
      Financial Services                                               1.5
      Insurance                                                        1.4
      Food and Beverage                                                1.4
      Paper and Allied Products                                        1.3
      Automotive                                                       0.9
      Computers                                                        0.7
      Communications                                                   0.6
      Services                                                         0.6
      Health Care                                                      0.6
      Real Estate                                                      0.3
      Retail Trade                                                     0.2
      Miscellaneous                                                   10.9
                                                                ------------
                                                                       100.0 %
                                                                ============

16            See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities - February 28, 1998                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                                                            

Assets:                                                                                     
  Investments, at value (cost $1,883,863,795) (Note 1)                    $   1,697,960,760 
  Foreign currency, at value (cost $7,736,141) (Note 1)                           7,657,249 
  Receivable for investments sold                                                11,839,197 
  Receivable for Fund shares sold                                                   216,855 
  Receivable for open forward foreign currency contracts (Notes 1 and 5)            596,670 
  Foreign withholding taxes receivable                                              936,140 
  Dividends and interest receivable                                               4,229,344 
  Receivable for expenses waived or borne by Manager (Note 2)                       323,465 
                                                                           ---------------- 

     Total assets                                                             1,723,759,680 
                                                                           ---------------- 

Liabilities:                                                                                
  Payable for investments purchased                                              31,719,960 
  Payable for Fund shares repurchased                                            10,408,149 
  Payable for open forward foreign currency contracts (Notes 1 and 5)             6,702,848 
  Payable for open swap agreements (Notes 1 and 5)                                3,173,148 
  Due to custodian                                                                  909,064 
  Payable upon return of securities loaned (Note 1)                              82,662,900 
  Payable to affiliate for (Note 2):                                                        
     Management fee                                                               1,179,899 
     Shareholder service fee                                                        154,258 
  Accrued expenses                                                                1,213,830 
                                                                           ---------------- 

     Total liabilities                                                          138,124,056 
                                                                           ---------------- 

Net assets                                                                $   1,585,635,624 
                                                                           ================ 

Net assets consist of:                                                                      
  Paid-in capital                                                         $   1,844,862,815 
  Accumulated undistributed net investment income                                22,378,753 
  Accumulated net realized loss                                                 (86,438,597)
  Net unrealized depreciation                                                  (195,167,347)
                                                                           ---------------- 

                                                                          $   1,585,635,624 
                                                                           ================ 
Net assets attributable to:                                                                 
  Class III Shares                                                        $     913,615,199 
                                                                           ================ 
  Class IV Shares                                                         $     672,020,425 
                                                                           ================ 

Shares outstanding:                                                                         
  Class III                                                                      95,539,011 
                                                                           ================ 
  Class IV                                                                       70,302,469 
                                                                           ================ 

Net asset value per share:                                                                  
  Class III                                                               $            9.56 
                                                                           ================ 
  Class IV                                                                $            9.56 
                                                                           ================ 


         See accompanying notes to the financial statements.                  17


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Operations - Year Ended February 28, 1998                                 
---------------------------------------------------------------------------------------
                                                                                       
Investment income:                                                                     
     Dividends (net of foreign tax expense of $2,797,206)             $     34,225,753 
     Interest (including security lending income of $1,199,507)              9,380,304 
                                                                        ---------------

         Total income                                                       43,606,057 
                                                                        ---------------
Expenses:                                                                              
     Management fee (Note 2)                                                17,396,168 
     Custodian fees                                                          4,074,035 
     Stamp duties and transfer taxes                                           611,342 
     Brazil CPMF taxes (Note 1)                                                220,165 
     Legal fees                                                                117,588 
     Audit fees                                                                 70,565 
     Transfer agent fees                                                        53,060 
     Registration fee                                                           47,657 
     Trustees fee (Note 2)                                                      16,877 
     Miscellaneous                                                              14,013 
     Fees waived or borne by Manager (Note 2)                               (3,619,369)
                                                                        ---------------
                                                                            19,002,101 
     Shareholder service fee (Note 2)                                                  
         Class I                                                                10,272 
         Class II                                                                6,557 
         Class III                                                           2,477,394 
         Class IV                                                               85,169 
                                                                        ---------------

         Net expenses                                                       21,581,493 
                                                                        ---------------
             Net investment income                                          22,024,564 
                                                                        ---------------
Realized and unrealized gain (loss):                                                   
         Net realized gain (loss) on:                                                  
             Investments                                                    61,048,120 
             Written options                                                 1,461,013 
             Closed swap contracts                                          (5,475,068)
             Foreign currency, forward contracts and foreign                           
                currency related transactions                               24,368,436 
                                                                        ---------------
                   Net realized gain                                        81,402,501 
                                                                        ---------------

         Change in net unrealized appreciation (depreciation) on:                      
             Investments                                                  (324,191,813)
             Open swap contracts                                            (5,559,088)
             Foreign currency, forward contracts and foreign                           
                currency related transactions                              (11,883,130)
                                                                        ---------------
                   Net unrealized loss                                    (341,634,031)
                                                                        ---------------

         Net realized and unrealized loss                                 (260,231,530)
                                                                        ---------------
Net decrease in net assets resulting from operations                  $   (238,206,966)
                                                                        ===============

18            See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                                     Year Ended            Year Ended   
                                                                 February 28, 1998     February 28, 1997
                                                                 ------------------    -----------------
                                                                                                        
Increase (decrease) in net assets:                                                                      
Operations:                                                                                             
     Net investment income                                     $        22,024,564   $       17,549,883 
     Net realized gain                                                  81,402,501           47,250,695 
     Change in net unrealized appreciation (depreciation)             (341,634,031)         173,776,577 
                                                                 ------------------    -----------------

     Net increase (decrease) in net assets                                                              
         resulting from operations                                    (238,206,966)         238,577,155 
                                                                 ------------------    -----------------

Distributions to shareholders from:                                                                     
     Net investment income                                                                              
         Class I                                                          (129,011)          -          
         Class II                                                         (254,928)            (178,659)
         Class III                                                     (35,349,550)         (15,814,130)
                                                                 ------------------    -----------------
         Total distributions from net investment income                (35,733,489)         (15,992,789)
                                                                 ------------------    -----------------

     Net realized gains                                                                                 
         Class I                                                          (503,907)          -          
         Class II                                                       (1,133,793)          -          
         Class III                                                    (100,204,482)          -          
                                                                 ------------------    -----------------
         Total distributions from net realized gains                  (101,842,182)          -          
                                                                 ------------------    -----------------

     In excess of net realized gains                                                                    
         Class I                                                          (266,871)          -          
         Class II                                                         (600,460)          -          
         Class III                                                     (53,068,677)          -          
                                                                 ------------------    -----------------
         Total distributions in excess of net realized gains           (53,936,008)          -          
                                                                 ------------------    -----------------

                                                                      (191,511,679)         (15,992,789)
                                                                 ------------------    -----------------
Net share transactions:  (Note 4)                                                                       
         Class I                                                         1,328,062            1,542,386 
         Class II                                                        4,693,314           (2,994,394)
         Class III                                                    (324,321,493)         599,087,113 
         Class IV                                                      606,255,395           -          
                                                                 ------------------    -----------------
     Increase in net assets resulting from net share transactions      287,955,278          597,635,105 
                                                                 ------------------    -----------------

     Total increase (decrease) in net assets                          (141,763,367)         820,219,471 

Net assets:                                                                                             
     Beginning of period                                             1,727,398,991          907,179,520 
                                                                 ------------------    -----------------

     End of period (including accumulated undistributed                                                 
         net investment income of $22,378,753 and                                                       
         $11,553,963, respectively.)                           $     1,585,635,624   $    1,727,398,991 
                                                                 ==================    =================

                See accompanying notes to the financial statements.           19


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                           Period from March 1, 1997        Period Ended     
                                                               to January 9, 1998       February 28, 1997 *  
                                                             ----------------------   -----------------------
                                                                                                             
Net asset value, beginning of period                            $   12.48                   $   10.86        
                                                             ----------------------   -----------------------
Income (loss) from investment operations:                                                                    
  Net investment income                                              0.14+                       0.01        
  Net realized and unrealized gain (loss)                           (2.69)                       1.61        
                                                             ----------------------   -----------------------

    Total from investment operations                                (2.55)                       1.62        
                                                             ----------------------   -----------------------
Less distributions to shareholders from:                                                                     
  Net investment income                                             (0.26)                      --           
  Net realized gains                                                (0.71)                      --           
  In excess of net realized gains                                   (0.37)                      --           
                                                             ----------------------   -----------------------
    Total distributions                                             (1.34)                      --           
                                                             ----------------------   -----------------------

Net asset value, end of period                                  $    8.59(e)                $   12.48        
                                                             ======================   =======================

Total Return (a)                                                   (21.66%)                     14.92%       

Ratios/Supplemental Data:                                                                                    

      Net assets, end of period (000's)                         $   --                      $   1,748        
      Net expenses to average                                                                                
           daily net assets                                          1.41%**(c)                  1.45%**(c)  
      Net investment income to average                                                                       
           daily net assets                                          1.21%**                     0.77%**     
      Portfolio turnover rate                                          88%                         41%       
      Average broker commission rate per equity share (d)       $  0.0017                   $  0.0004        
      Fees and expenses voluntarily waived or borne by                                                       
           the Manager consisted of the following per                                                        
           share amount:                                        $    0.02                         (b)        

+          Computed using average shares outstanding throughout the period.     
*          Period from January 2, 1997 (commencement of operations) to February 
28, 1997.                                                 
**         Annualized                                                           
(a)        Calculation excludes purchase premiums and redemption fees. The      
  total returns would have been lower had certain expenses not
been waived during the periods shown.                     
(b)        Fees and expenses voluntarily waived or borne by the Manager were    
less than $0.01 per share.                                
(c)        Includes stamp duties and transfer taxes not waived or borne by the  
          Manager, which approximate .20% and .04% of average daily net assets
  for the periods ended February 28, 1997 and January 9, 1998,
respectively.                                             
(d)        The average broker commission rate will vary depending on the markets
in which trades are executed.                             
(e)        All Class I shares of the Fund were exchanged for Class III shares on
         January 9, 1998. Amount represents ending net asset value per share
on January 9, 1998.                                       

20            See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                                             Period from November 29, 1996
                                                               Period from October 31, 1997   (commencement of operations)
                                                                    to January 9, 1998            to February 4, 1997     
                                                                    ------------------            -------------------     
                                                                                                                          
Net asset value, beginning of period                               $            11.40            $              10.74     
                                                                    ------------------            -------------------     
Income (loss) from investment operations:                                                                                 
  Net investment income                                                          0.03 +                          0.05     
  Net realized and unrealized gain (loss)                                                                                 
   on investments                                                               (1.75)                           1.10     
                                                                    ------------------            -------------------     

    Total from investment operations                                            (1.72)                           1.15     
                                                                    ------------------            -------------------     
Less distributions to shareholders from:                                                                                  
  Net investment income                                                         (0.14)                          (0.07)    
  Net realized gains                                                            (0.61)                           0.00     
  In excess of net realized gains                                               (0.32)                      --            
                                                                    ------------------            -------------------     
     Total distributions                                                        (1.07)                          (0.07)    
                                                                    ------------------            -------------------     

Net asset value, end of period                                     $             8.61 (f)        $              11.82 (e) 
                                                                    ==================            ===================     

Total Return (a)                                                              (15.72%)                         10.73%     

Ratios/Supplemental Data:                                                                                                 

          Net assets, end of period (000's)                        $        --                   $          --            
          Net expenses to average                                                                                         
                   daily net assets                                             1.38% *(b)                      1.33% *(b)
          Net investment income to average                                                                                
                   daily net assets                                             1.58% *                         6.14% *   
          Portfolio turnover rate                                                 88%                             41%     
          Average broker commission rate (d)                       $           0.0017            $             0.0004     
          Fees and expenses voluntarily waived or borne by                                                                
                   the Manager consisted of the following per                                                             
                   share amounts:                                                  (c)                             (c)    

+    Computed using average shares outstanding throughout the period.           
*    Annualized                                                                 
(a)  Calculation excludes purchase premiums and redemption fees.                
The total returns would have been lower had certain expenses          
not been waived during the period shown.                              
(b)  Includes stamp duties and transfer taxes not waived or borne by the        
  Manager, which approximate .07% and .02% of average daily net assets for
the periods ended February 4, 1997 and January 9, 1998, respectively. 
(c)  Fees and expenses voluntarily waived or borne by the Manager were less than
$.01 per share.                                                       
(d)  The average broker commission rate will vary depending on the markets in   
which trades are executed.                                            
(e)  All Class II shares of the Fund were exchanged for Class III shares on     
 February 4, 1997. Amount represents ending net asset value per share on
February 4, 1997.                                                     
(f)  All Class II shares of the Fund were exchanged for Class III shares on     
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                      

              See accompanying notes to the financial statements.             21


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                                 Year Ended February 28/29                       
                                                           ------------------------------------------------------------------    
                                                              1998            1997          1996          1995         1994 *    
                                                           ---------       ----------    -----------    ---------    ---------   
                                                                                                                                 
Net asset value, beginning of period                      $   12.49       $    10.54    $      9.52    $   12.13    $   10.00    
                                                           ---------       ----------    -----------    ---------    ---------   
Income (loss) from investment operations:                                                                                        
  Net investment income                                        0.16 +           0.13           0.10         0.05         0.02    
  Net realized and unrealized gain (loss)                     (1.76)            1.96           1.06        (2.37)        2.11    
                                                           ---------       ----------    -----------    ---------    ---------   
    Total from investment operations                          (1.60)            2.09           1.16        (2.32)        2.13    
                                                           ---------       ----------    -----------    ---------    ---------   
Less distributions to shareholders from:                                                                                         
  Net investment income                                       (0.25)           (0.14)         (0.01)       (0.07)       (0.00)(c)
  Net realized gains                                          (0.71)           --             (0.13)       (0.22)       --       
  In excess of net realized gains                             (0.37)           --             --           --           --       
                                                           ---------       ----------    -----------    ---------    ---------   

    Total distributions                                       (1.33)           (0.14)         (0.14)       (0.29)       (0.00)   
                                                           ---------       ----------    -----------    ---------    ---------   

Net asset value, end of period                            $    9.56       $    12.49    $     10.54    $    9.52    $   12.13    
                                                           =========       ==========    ===========    =========    =========   

Total Return (a)                                            (12.94%)          19.98%         12.24%      (19.51%)      21.35%    

Ratios/Supplemental Data:                                                                                                        

     Net assets, end of period (000's)                    $ 913,615       $1,725,651    $   907,180    $ 384,259    $ 114,409    
     Net expenses to average                                                                                                     
            daily net assets                                  1.24% (e)        1.24% (e)      1.35%        1.58%        1.64% ** 
     Net investment income to average                                                                                            
            daily net assets                                  1.30%            1.40%          1.31%        0.85%        0.87% ** 
     Portfolio turnover rate                                    88%              41%            35%          50%           2%    
     Average broker commission rate per equity share (b)  $  0.0017       $   0.0004            N/A          N/A          N/A    
     Fees and expenses voluntarily waived or borne by                                                                            
            the Manager consisted of the following per                                                                           
            share amounts:                                $    0.03       $     0.02             (d)          --           (d)   

+     Computed using average shares outstanding throughout the period.          
*     Period from December 9, 1993 (commencement of operations) to February 28, 
1994.                                                               
**    Annualized.                                                               
(a)   Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  
(b)   For fiscal years beginning on or after September 1, 1995, a fund is       
 required to disclose its average commission rate per share for equity
  trades on which commissions are charged. The average broker commission
 rate will vary depending on the markets in which trades are executed.
(c)   The per share income distribution was $ 0.004.                            
(d)   Fees and expenses voluntarily waived or borne by the Manager were less    
than $.01 per share.                                                
(e)   Includes stamp duties and transfer taxes not waived or borne by the       
     Manager, which approximate .06% and .035% of average daily net assets for
the years ended February 28, 1997 and 1998, respectively.           

22            See accompanying notes to the financial statements.               


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class IV share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                       Period from January 9, 1998 
                                                       (commencement of operations)
                                                          to February 28, 1998     
                                                         ----------------------    
                                                                                   
Net asset value, beginning of period                    $                 8.62     
                                                         ----------------------    

Income (loss) from investment operations:                                          
  Net investment income                                                   0.01 +   
  Net realized and unrealized gain                                        0.93     
                                                         ----------------------    

    Total from investment operations                                      0.94     
                                                         ----------------------    

Net asset value, end of period                          $                 9.56     
                                                         ======================    

Total Return (a)                                                        10.90%     

Ratios/Supplemental Data:                                                          

     Net assets, end of period (000's)                  $              672,020     
     Net expenses to average                                                       
           daily net assets                                              1.22% *(b)
     Net investment income to average                                              
           daily net assets                                              0.65% *   
     Portfolio turnover rate                                               88%     
     Average broker commission rate (d)                 $               0.0017     
     Fees and expenses voluntarily waived or borne by                              
           the Manager consisted of the following per                              
           share amount:                                                    (c)    

+   Computed using average shares outstanding throughout the period.            
*   Annualized                                                                  
(a) Calculation excludes purchase premiums and redemption fees. The total return
    would have been lower had certain expenses not been waived during the period
shown.                                                                  
(b) Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximates .04% of average daily net assets.                    
(c) Fees and expenses voluntarily waived or borne by the Manager were less than 
$.01 per share.                                                         
(d) The average broker commission rate will vary depending on the markets in    
which trades are executed.                                              

              See accompanying notes to the financial statements.             23


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

GMO Emerging Markets Fund (the "Fund") is a series of GMO Trust (the  
    "Trust"). The Fund is registered under the Investment Company Act of 1940,
    as amended, as an open-end, non-diversified management investment company.
   The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
    Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an  
unlimited number of series ("Funds"), each of which issues a separate 
series of shares, and to subdivide a series into classes.             

 The Fund seeks long-term capital appreciation consistent with a prudent
  level of risk through investment in equity and equity-related securities
traded in the securities markets of newly industrializing countries in
   Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and
Africa.                                                               

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
     as more fully described in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
as those shares.                                                      

  Effective January 9, 1998, Class I and Class II shares ceased operations
    and all shares were exchanged for Class III shares. Additionally, Class IV
shares commenced operations on January 9, 1998.                       

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
quotations are readily                                                

24                                                                              


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
available are valued at fair value as determined in good faith by the 
Trustees or other persons acting at their direction.                  

     Certain investments in securities held by the Fund were valued on the basis
  of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the 
   securities existed and the differences could be material to the financial
statements.                                                           

Foreign currency translation                                          
The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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 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.
     When a forward currency contract is extinguished through delivery or offset
by entering into another forward currency contract, the Fund records a
realized gain or loss equal to the difference between the value of the
 contract at the time it was opened and the value of the contract at the
     time it was extinguished or offset. 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
    the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to sell is shown
     under Note 5, and represents the currency exposure the Fund has acquired or
hedged through currency contracts as of February 28, 1998.            

Swap agreements                                                       
    The Fund may invest in swap agreements. 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 swap agreements to manage its exposure
  to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in 
exchange                                                              

                                                                              25


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
   for a market linked return based on a notional amount. To the extent that
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. Equity swaps are marked to market daily based upon quotations
   from market makers and the change, if any, is recorded as unrealized gain
  or loss in the Statement of Operations. Payments received or made at the
    end of the measurement period are recorded as realized gain or loss in the
Statement of Operations. Entering into these agreements involves, to  
varying degrees, elements of credit and market risk in excess of the  
   amounts recognized on the Statement of Assets and Liabilities. Such risks
involve the possibility that there is no liquid market for these      
agreements, that the counterparty to the agreements may default on its
     obligation to perform or that there may be unfavorable changes in the price
  of the security or index underlying these transactions. See Note 5 for a
summary of all open swap agreements as of February 28, 1998.          

Options                                                               
   The Fund may write call and put options on securities it owns or in which
   it may invest. 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
     offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the  
     premium reduces the cost basis of the securities purchased by the Fund. The
  Fund as a writer of an option has no control over whether the underlying
    securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security     
   underlying the written option. There is the risk the Fund may not be able
  to enter into a closing transaction because of an illiquid market. As of
February 28, 1998, there were no outstanding written options.         

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $76,978,599 collateralized by cash in the amount of   
$82,662,900 which was invested in a short-term instrument.            

26                                                                              


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for federal income or
     excise tax is necessary. Taxes on foreign interest and dividend income have
   been withheld in accordance with the applicable country's tax treaty with
     the United States. 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 also subject to a .20% Contribuicao Provisoria sobre      
   Movimentacoes Financeiras (CPMF) tax which is applied to foreign exchange
transactions representing capital inflows or outflows to the Brazilian
market.                                                               

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
  differing treatments for foreign currency and passive foreign investment
 company transactions and redemptions in-kind. Gains resulting from such
in-kind transactions amounted to $4,464,178.                          

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated                                             
Undistributed Net      Accumulated Net Realized               
     Investment Income            Gain/(Loss)            Paid-in Capital
      -------------------   ----------------------------  --------------------
     $24,533,715              $(28,886,241)             $4,352,526

                                                                              27


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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 1.60% of the amount   
  invested. In the case of cash redemptions, the fee is .40% of the amount
     redeemed. These fees may be reduced by 50% with respect to any portion of a
purchase or redemption that is offset by a corresponding redemption or
  purchase, respectively, occurring on the same day. 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. Purchase premiums are included as part of each
class' "shares sold" and redemption fees are included as part of each 
     class' "shares repurchased", respectively, as summarized in Note 4. For the
year ended February 28, 1998, the Fund received $7,298,651 in purchase
premiums and $778,355 in redemption fees. 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. Investing in equity securities of
     Indian and Russian companies includes the risk of loss from those countries
underdeveloped systems of share registration and transfer. 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.                                                   

28                                                                              


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of 1.00% of
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, .15%
for Class III shares, and .105% for Class IV shares.                  

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
   management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including stamp duties and transfer taxes),  
     shareholder service fees and extraordinary expenses) exceed .81% of average
daily net assets. Prior to June 1, 1996, a similar waiver existed for 
annual expenses exceeding 1.20%.                                      

    The Manager has entered into a Consulting Agreement with Dancing Elephant,
  Ltd. (the "Consultant") with respect to the management of the portfolio.
    Payments made by the Manager to the Consultant will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.       

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $16,877. No     
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$1,391,405,200 and $1,399,263,560, respectively.                      

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                                                                [Download Table]


                       Gross Unrealized     Gross Unrealized      Net Unrealized   
  Aggregate Cost         Appreciation         Depreciation         Depreciation    
-------------------  -------------------- --------------------  -------------------
                                                                                   
  $1,892,596,551         $160,272,427        $(354,908,218)       $(194,635,791)   

                                                                              29


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
4. Share transactions                                                           

    The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund      
shares, including a class' portion of the purchase premiums and redemption fees 
received by the Fund were as follows:                                           

                                                        [Enlarge/Download Table]


                                                                   Period from January 2, 1997     
                            Period from March 1, 1997              (commencement of operations)    
                               to January 9, 1998                     to February 28, 1997         
                    -----------------------------------   ---------------------------------------- 
 Class I:                Shares             Amount              Shares              Amount         
                    ---------------    ----------------   ------------------     ----------------- 
                                                                                                   
Shares sold                654,767    $      8,075,897              140,068     $       1,542,386  

Shares issued to                                                                                   
shareholders in                                                                                    
reinvestment                                                                                       
of distributions            94,886             892,506              -                  -           

Shares repurchased        (889,721)         (7,640,341)             -                  -           
                    ---------------    ----------------   ------------------     ----------------- 
Net increase/                                                                                      
(decrease)                (140,068)   $      1,328,062              140,068     $       1,542,386  
                    ===============    ================   ==================     ================= 


                                                                    Period from November 29, 1996  
                         Period from October 31, 1997 to             (commencement of operations)  
                                 January 9, 1998                          to February 4, 1997      
                    -----------------------------------   ---------------------------------------- 
 Class II:               Shares              Amount             Shares                 Amount      
                    ---------------    ----------------   ------------------     ----------------- 
                                                                                                   
Shares sold              1,860,787    $     20,571,162            5,586,262     $      63,054,064  

Shares issued to                                                                                   
shareholders in                                                                                    
reinvestment                                                                                       
of distributions           215,746           1,989,181               16,729               178,659  

Shares repurchased      (2,076,533)        (17,867,029)          (5,602,991)           (66,227,117)
                    ---------------    ----------------   ------------------     ----------------- 
Net increase/                                                                                      
(decrease)                  -         $      4,693,314              -           $      (2,994,394) 
                    ===============    ================   ==================     ================= 


30                                                                              


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Share transactions - continued                                        

                                                        [Enlarge/Download Table]

                                    Year Ended                             Year Ended              
                                 February 28, 1998                     February 28, 1997           
                     ------------------------------------  ----------------------------------------
Class III:                 Shares              Amount            Shares                 Amount     
                     ------------------     -------------  -------------------     ----------------
                                                                                                   
Shares sold              41,704,905        $ 476,637,263       54,549,584         $  626,535,006   
Shares issued to                                                                                   
shareholders in                                                                                    
reinvestment of                                                                                    
distributions            17,410,973          170,165,033          759,519              8,422,271   
Shares repurchased     (101,692,012)        (971,123,789)      (3,248,382)           (35,870,164)  
                     ------------------     -------------  -------------------     ----------------
Net increase/                                                                                      
(decrease)              (42,576,134)       $(324,321,493)     520,670,721         $  599,087,113   
                     ==================     =============  ===================     ================


                                                                   Period from January 9, 1998     
                                                                  (commencement of operations)     
                                                                      to February 28, 1998         
                                                           ----------------------------------------
Class IV:                                                         Shares                Amount     
                                                           --------------------    ----------------
                                                                                                   
Shares sold                                                       73,482,774      $    636,013,851 
Shares issued to shareholders in                                                                   
reinvestment of distributions                                       -                      -       
Shares repurchased                                                (3,180,305)          (29,758,456)
                                                           --------------------    ----------------
Net increase                                                      70,302,469      $    606,255,395 
                                                           ====================    ================


                                                                              31


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       
--------------------------------------------------------------------------------

5.   Financial instruments                                            

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]


                                                                                     Net Unrealized  
   Settlement                                                                         Appreciation   
      Date           Deliver/Receive      Units of Currency           Value          (Depreciation)  
-----------------  --------------------  ---------------------   ----------------   -----------------
                                                                                                     
Buys                                                                                                 
07/08/98                    IDR               210,984,900,000   $    22,431,944    $    (2,568,056)  
                                                                                    -----------------

Sales                                                                                                
07/08/98                    IDR               210,984,900,000   $    22,431,944    $    (3,471,185)  
05/26/98                    INR                 2,012,000,000        49,403,330            596,670   
06/17/98                    KRW                17,580,000,000        10,387,342           (387,342)  
06/18/98                    KRW                17,400,000,000        10,276,265           (276,265)  
                                                                                    -----------------
                                                                                   $    (3,538,122)  
                                                                                    -----------------

See Notes to Schedule of Investments for definitions of currency abbreviations. 

32                                                                              


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Swap agreements                                                       

                                                        [Enlarge/Download Table]

                                                                                                   Unrealized     
   Notional        Expiration                                                                     Appreciation    
    Amount           Date                              Description                               (Depreciation)   
---------------  --------------  ----------------------------------------------------------   --------------------
                                                                                                                  
   $10,000,000         3/13/98   Agreement with Goldman Sachs International dated            $          (330,794) 
                                 3/11/97  to receive (pay) the notional amount multiplied                         
                                 by the return on the Taiwan Weighted Index and to pay                            
                                 the notional amount multiplied by 12 month LIBOR                                 
                                 adjusted by a specified spread.                                                  

     4,990,939          4/1/98   Agreement with Barclays Bank PLC dated 4/2/97 to receive               (130,622) 
                                 (pay) the notional amount multiplied by the return on                            
                                 the Taiwan Weighted Index and to pay the notional amount                         
                                 multiplied by 6 month LIBOR adjusted by a specified                              
                                 spread.                                                                          

    10,000,001          4/6/98   Agreement with Goldman Sachs International dated 4/2/97                (170,343) 
                                 to receive (pay) the notional amount multiplied by the                           
                                 return on the Taiwan Weighted Index and to pay the                               
                                 notional amount multiplied by 12 month LIBOR adjusted by                         
                                 a specified spread.                                                              

     5,184,028         4/28/98   Agreement with Robert Fleming & Co. Limited dated                      (575,117) 
                                 4/28/97  to receive (pay) the notional amount multiplied                         
                                 by the return on a basket of selected Indian securities                          
                                 (including dividends) and to pay the notional amount                             
                                 multiplied by a fixed rate.                                                      

     6,000,000         4/29/98   Agreement with Barclays Bank PLC dated 10/29/97 to                     (784,793) 
                                 receive (pay) the notional amount multiplied by the                              
                                 return on the Chile IPSA Index and to pay the notional                           
                                 amount multiplied by 6 month LIBOR adjusted by a                                 
                                 specified spread.                                                                

     3,315,306         5/12/98   Agreement with Lehman Brothers Finance S.A. dated                        323,626 
                                 11/12/97 to receive (pay) the notional amount multiplied                         
                                 by the return on the Korea Stock Price Index and to pay                          
                                 the notional amount multiplied by 3 month LIBOR adjusted                         
                                 by a specified spread.                                                           

                                                                              33


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Swap agreements - continued                                           

                                                        [Enlarge/Download Table]


                                                                                                     Unrealized     
    Notional         Expiration                                                                     Appreciation    
     Amount             Date                           Description                                 (Depreciation)   
-----------------  --------------  ----------------------------------------------------------   --------------------
                                                                                                                    
      $5,000,000         6/11/98   Agreement with Goldman Sachs International dated            $         (1,140,966)
                                   11/12/97  to receive (pay) the notional amount                                   
                                   multiplied by the return on the Korea Stock Price Index                          
                                   and to pay the notional amount multiplied by 7 month                             
                                   LIBOR adjusted by a specified spread.                                            

       1,527,809         6/27/98   Agreement with Indosuez W. I. Carr Ltd. dated 6/27/97 to               1,094,293 
                                   receive the notional amount multiplied by the change in                          
                                   market value of Pohang Iron & Steel common stock                                 
                                   (including dividends) and to pay the notional amount                             
                                   multiplied by 6 month LIBOR adjusted by a specified                              
                                   spread.                                                                          

       1,924,132         6/27/98   Agreement with Indosuez W. I. Carr Ltd. dated 6/27/97 to                 809,550 
                                   receive the notional amount multiplied by the change in                          
                                   market value of SK Telecom common stock (including                               
                                   dividends) and to pay the notional amount multiplied by                          
                                   6 month LIBOR adjusted by a specified spread.                                    

      10,000,000         11/3/98   Agreement with Barclays Bank PLC dated 11/4/97 to                    (3,369,027) 
                                   receive (pay) the notional amount multiplied by the                              
                                   return on the International Finance Corporation "IFC"                            
                                   Korea Investable Index and to pay the notional amount                            
                                   multiplied by 6 month LIBOR adjusted by a specified                              
                                   spread.                                                                          

      10,000,000        11/11/98   Agreement with Barclays Bank PLC dated 11/12/97 to                       483,666 
                                   receive (pay) the notional amount multiplied by the                              
                                   return on the International Finance Corporation "IFC"                            
                                   Thailand Investable Index and to pay the notional amount                         
                                   multiplied by 6 month LIBOR adjusted by a specified                              
                                   spread.                                                                          

34                                                                              


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Swap agreements - continued                                           

                                                        [Enlarge/Download Table]


                                                                                                   Unrealized     
   Notional        Expiration                                                                     Appreciation    
    Amount            Date                            Description                                (Depreciation)   
---------------  --------------  ----------------------------------------------------------   --------------------
                                                                                                                  
    $1,271,446         1/18/99   Agreement with Robert Fleming & Co. Limited dated           $             41,546 
                                 1/16/98 to receive the notional amount multiplied by the                         
                                 change in market value of State Bank of India common                             
                                 stock (including dividends) and to pay the notional                              
                                 amount multiplied by 12 month LIBOR adjusted by a                                
                                 specified spread.                                                                

    10,000,000          2/3/99   Agreement with Indosuez W.I. Carr Ltd. dated 2/3/98  to                  575,833 
                                 receive (pay) the notional amount multiplied by the                              
                                 return on the Thailand SET Index and to pay the notional                         
                                 amount multiplied by 6 month LIBOR adjusted by a                                 
                                 specified spread.                                                                

                                                                                              --------------------
                                                               Net unrealized depreciation   $         (3,173,148)
                                                                                              ====================

Written call option transactions                                      

                Number
                               of Contracts       Premiums
                                   --------------   ----------------
Outstanding, beginning of period          -        $        -       
Options written                        348,065          1,479,681   
Options exercised                     (348,065)        (1,479,681)  
                                   --------------   ----------------
Outstanding, end of period                -        $        -       
                                   ==============   ================

                                                                              35


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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------
For the fiscal year ended February 28, 1998, all the Fund's distributions are   
from investment company taxable income, except that the Fund has designated 53% 
of distributions as net capital gain dividends.                                 

The Fund has also elected to defer to March 1, 1998 post-October losses of      
$83,354,330.                                                                    

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GMO Emerging Markets Fund                                                       
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. R. Jeremy Grantham and Mr. Arjun Divecha are primarily responsible for the  
day-to-day management of the Fund's portfolio. Mr. Grantham has been with GMO   
since its founding in 1977. Mr. Divecha is the principal of Dancing Elephant    
Ltd., which serves as consultant to the Fund. Dancing Elephant Ltd. has an      
exclusive consulting management agreement with GMO.                             

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

The Class III shares of the GMO Emerging Markets Fund returned -12.9% for the   
fiscal year ended February 28, 1998. The Fund's benchmark, the IFC Investable   
Composite, returned -21.8% during the same period. Consistent with the Fund's   
investment objectives and policies, the Fund was invested substantially in      
equity securities throughout the period.                                        

Most of the favorable performance relative to the benchmark during the year     
resulted from the positive impact of the Fund's country bets. During the year,  
the Fund held overweight positions in Mexico, Russia, Europe and India, which   
all outperformed the benchmark. During the Asian crisis, the fund was heavily   
underweight the Southeast Asian markets, greatly helping performance relative to
the benchmark. Our overweight positions in Korea and underweight bet in Taiwan  
negatively impacted relative performance.                                       

The Mexican market had a strong rebound on the back of strong economic growth.  
The European markets, Greece and Portugal continued to do well on prospects of  
convergence with other European Union countries. Russia, after a strong first   
half, had a major correction as contagion from the Asian crisis spread.         

While the Taiwanese market was expensive going into the Asia crisis, its strong 
economic fundamentals protected it from the meltdown. As a result, it           
outperformed the other Asian markets. Korea on the other hand was badly hit by  
the contagion.                                                                  

Outlook                                                                         

The Asian crisis has had a positive impact on the behavior of other emerging    
market policy makers, especially in Brazil and Russia. In these and other       
emerging countries, policy makers have acted quickly to address macroeconomic   
imbalances, lest global investors punish them. In the long run, this bodes well 
for emerging markets as an asset class.                                         

We have been gradually increasing our weights in Asia, reducing our exposure to 
Latin America and continue to be overweight Russia.                             

The ASEAN markets have now fallen more than 70% from their peak in US$ terms    
and are already discounting poor profitability and weaker economic conditions.  
The principal factors that influenced a V shaped recovery in Mexico were a      
strong bailout package, rapid change in the trade deficit and a strong          
commitment by the government to implement tough IMF conditions. The first two   
conditions are now present in Asia. However, hubris amongst Asian governments   
helped cause the crisis and only when they begin to accept reality will they    
make the appropriate structural changes that are so desperately needed. We think
Thailand and Korea are aggressively addressing these issues and are enthusiastic
about them.                                                                     


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The new political coalition in Thailand has shown a strong willingness to accept
and implement tough policies.  We continue to be underweight Malaysia,          
Philippines and are neutral in Indonesia.  While Indonesian political risk has  
increased substantially with Mr. Suharto's recent stroke, the currency has      
fallen from 2,300 to the dollar to over 8,000.  Our currency model has the      
Indonesian rupiah at the cheapest level we have ever seen in any currency.  We  
continue to be overweight India and Pakistan, and are hopeful that the new      
coalition government in India will accelerate the pace of reforms.              

In order to protect the real, the Brazilian government has made all the right   
moves -- reducing government spending, increasing the pace of liberalization and
privatization. We are impressed by their actions, but all of Latin America      
remains vulnerable to further contagion from Asia as well as a downdraft in the 
U.S. equity market.  As a result we remain close to neutral on Brazil.  The     
Mexican economy continues to surprise with strong economic growth.  We have been
overweight for quite a while but valuations are starting to get stretched.      
Accordingly, we are close to neutral but are gradually reducing our weight in   
Mexico.  We also like Chile, which is likely to be a safe harbor if the storm   
comes to Latin America.                                                         

We have been underweight South Africa for the last 3 years, but are gradually   
increasing our weight there.  Valuations are starting to get attractive, while  
inflation is at a 25 year low and interest rates are likely to fall. However,   
the currency remains vulnerable.                                                

Despite the risks, we continue to be overweight Russia. We think the biggest    
risk to the Russian market will come from capital outflows caused by a volatile 
external environment and domestic concerns (Mr. Yeltsin's health, etc.). Under  
this scenario, economic recovery would be threatened by higher domestic interest
rates, which would have to be raised in order to defend the rouble. On the other
hand, key macroeconomic indicators point to an economic recovery in 1998. The   
40% drop in the market during the last quarter led to the big blue chips        
becoming cheap again. Our portfolio is well positioned to take advantage of the 
anticipated industrial recovery.                                                

We have continued to take profits in Turkey and Hungary. Both these markets had 
strong moves in 1997, up 100% and 70% respectively, and our model has turned    
quite negative. We remain positive on Israel; with growth slowing down, we      
anticipate falling interest rates.                                              

Overall, emerging markets in general and Asia in particular are staring to look 
extremely cheap on a three- to five-year view.                                  

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo  
& Co. LLC Management. They are not meant as investment advice.                  


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Comparison of Change in Value of a $10,000 Investment in  
GMO Emerging Markets Fund Class III Shares and the IFC Investable Composite 
As of February 28, 1998 

--------------------------------                      
Average Annual Total Return                     
--------------------------------                      
Since       
1 Year             Inception                          
--------------------------------                      
Class                            12/9/93                                        
III         -14.7%                2.8%                                        
--------------------------------                      
Class                             1/9/98                                        
IV            n/a                 8.7%                                        
--------------------------------                      

[LINE GRAPH APPEARS HERE] 

              GMO EMERGING                IFC INVESTABLE
DATE                    MARKETS FUND                   COMPOSITE            
-------                   ------------                --------------            
12/9/93                       $9,840                      $10,000               
2/28/94                      $11,941                      $10,914               
2/28/95                       $9,612                       $8,360               
2/29/96                      $10,746                       $9,495               
2/28/97                      $12,893                      $11,006               
2/28/98                      $11,224                       $8,602               

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 160 bp on the purchase and 40 bp on the redemption.          
Transaction fees are paid to the Fund to cover trading costs. Class III shares  
are a redesignation of the single class of shares that has been offered by the  
Fund since inception. Performance for Class IV shares may be different due to   
lower shareholder service fees. Past performance is not indicative of future    
performance. Information is unaudited.                                          


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of  GMO Trust and the Shareholders of                           
Pelican Fund (A Series of GMO Trust)                                            

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 Pelican Fund at February 28, 1998, 
the results of its operations for the year then ended, the changes in its net   
assets and the financial highlights for the periods presented, in conformity    
with generally accepted accounting principles. These financial statements and   
financial highlights (hereafter referred to as "financial statements") are the  
responsibility of the Trust'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 generally accepted      
auditing standards 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 28, 1998 by       
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide 
a reasonable basis for the opinion expressed above.                             

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 13, 1998                                                                  


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


  Shares        Description                                                       Value ($)   
----------------------------------------------------------------------------------------------
                                                                                              
                COMMON STOCKS - 84.0%                                                         
                Advertising - 0.1%                                                            
      3,250     Cordiant Communications Group Plc Sponsored ADR                       29,656  
     11,250     Saatchi & Saatchi Plc ADR*                                           106,875  
                                                                                ------------- 
                                                                                     136,531  
                                                                                ------------- 
                Automotive - 1.3%                                                             
     10,000     Chrysler Corp                                                        389,375  
     15,000     General Motors Corp                                                1,034,063  
     85,000     Mascotech Industries Inc                                           1,763,750  
                                                                                ------------- 
                                                                                   3,187,188  
                                                                                ------------- 
                Banking and Financial Services - 10.7%                                        
     35,000     American Express Co                                                3,152,188  
     12,500     Bank of Tokyo-Mitsubishi Ltd (The) ADR                               178,125  
    100,000     Block (HR) Inc                                                     4,706,250  
     35,000     Chase Manhattan Corp                                               4,342,188  
     40,000     Citicorp                                                           5,300,000  
     20,000     First Chicago NBD Corp                                             1,643,750  
     10,000     Nationsbank Corp                                                     685,000  
     10,000     PNC Bank Corp                                                        555,000  
     57,500     Travelers Group Inc (The)                                          3,205,625  
      5,000     Wells Fargo Co                                                     1,610,000  
                                                                                ------------- 
                                                                                  25,378,126  
                                                                                ------------- 
                Chemicals - 0.5%                                                              
     22,500     Albemarle Corp                                                       548,438  
     10,000     Bayer A G                                                            421,543  
     10,000     Georgia Gulf Corp                                                    329,375  
                                                                                ------------- 
                                                                                   1,299,356  
                                                                                ------------- 
                Computer and Office Equipment - 1.4%                                          
     80,002     Compaq Computer Corp                                               2,565,064  
     75,000     Intergraph Corp*                                                     731,250  
      7,500     Silicon Graphics Inc*                                                112,969  
                                                                                ------------- 
                                                                                   3,409,283  
                                                                                ------------- 
                Consumer Goods - 3.2%                                                         
     15,000     Black & Decker Corp                                                  755,625  
     50,000     Eastman Kodak                                                      3,281,250  
     12,500     Groupe Danone ADR                                                    498,438  
     25,000     Maytag Corp                                                        1,125,000  
     62,500     Safety Kleen                                                       1,675,781  
      7,500     Scotts Company Class A*                                              255,000  
                                                                                ------------- 
                                                                                   7,591,094  
                                                                                ------------- 
                Electronic Equipment - 0.9%                                                   
     50,000     International Rectifier Corp*                                        728,125  
     37,500     National Semiconductor Corp*                                         895,313  
     25,000     Stewart & Stevenson Services Corp                                    610,938  
                                                                                ------------- 
                                                                                   2,234,376  
                                                                                ------------- 
                Environmental Control - 0.2%                                                  
     35,000     Wheelabrator Technologies Inc                                        570,938  
                                                                                ------------- 

             See accompanying notes to the financial statements.             1


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


  Shares        Description                                                       Value ($)   
----------------------------------------------------------------------------------------------
                                                                                              
                Food and Beverage - 3.7%                                                      
     75,000     Anheuser-Busch Cos Inc                                             3,515,625  
      7,500     Archer Daniels Midland                                               168,281  
     10,000     Coors (Adolph) Co                                                    312,500  
     40,000     Nestle SA ADR                                                      3,502,320  
     12,500     Riviana Foods Inc                                                    273,438  
     25,000     RJR Nabisco Holdings Corp                                            864,063  
                                                                                ------------- 
                                                                                   8,636,227  
                                                                                ------------- 
                Health Care - 1.3%                                                            
     25,000     Baxter International Inc                                           1,415,625  
     45,000     Beverly Enterprises Inc*                                             683,438  
     50,000     Owens and Minor Holdings Co                                          887,500  
      5,000     Quest Diagnostics Inc*                                                77,500  
                                                                                ------------- 
                                                                                   3,064,063  
                                                                                ------------- 
                Insurance - 5.1%                                                              
      5,000     Aetna Inc                                                            436,875  
     25,000     Allstate Corp                                                      2,331,250  
     20,000     Chartwell Re Corp                                                    612,500  
      5,000     Cigna Corp                                                           955,000  
      5,000     Gallagher (Arthur J) and Co                                          206,563  
      7,500     Oxford Health Plans Inc*                                             128,906  
    115,000     Reliance Group Holdings Inc                                        1,955,000  
     50,000     Sedgwick Group ADR                                                   613,320  
    130,000     TIG Holdings Inc                                                   3,453,125  
     25,000     USF & G Corp                                                         610,938  
     60,000     Willis Corroon Group Plc ADR                                         705,000  
                                                                                ------------- 
                                                                                  12,008,477  
                                                                                ------------- 
                Machinery - 1.1%                                                              
     30,000     Cincinnati Milacron Inc                                              926,250  
     25,000     Coltec Industries Inc*                                               651,563  
      5,000     Cummins Engine Inc                                                   289,375  
     10,000     FMC Corp*                                                            723,750  
                                                                                ------------- 
                                                                                   2,590,938  
                                                                                ------------- 
                Manufacturing - 8.8%                                                          
     20,000     American Greetings Corp                                              912,500  
     12,500     Champion Enterprises Inc*                                            314,063  
     25,000     Clayton Homes Inc                                                    496,875  
     95,000     Corning Inc                                                        3,859,375  
     30,000     General Electric Co                                                2,332,500  
     50,000     Griffon Corp*                                                        821,875  
     45,000     International Business Machines Corp                               4,699,688  
     85,000     Owens Corning                                                      2,624,375  
     25,000     Rockwell International Corp                                        1,512,500  
     15,000     Tenneco Inc                                                          616,875  
     30,000     United Technologies Corp                                           2,679,375  
                                                                                ------------- 
                                                                                  20,870,001  
                                                                                ------------- 

2                See accompanying notes to the financial statements.            


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


  Shares        Description                                                       Value ($)   
----------------------------------------------------------------------------------------------
                                                                                              
                Metals and Mining - 1.5%                                                      
      5,000     Alcan Aluminum Ltd                                                   155,313  
     35,000     Allegheny Teledyne Inc                                               949,375  
     50,000     Amcol International Corp                                             712,500  
    150,000     Philip Services Corp*                                              1,434,375  
     15,000     Placer Dome Inc                                                      193,125  
                                                                                ------------- 
                                                                                   3,444,688  
                                                                                ------------- 
                Oil and Gas - 6.5%                                                            
     17,500     Amerada Hess Corp                                                  1,037,969  
     15,000     Cabot Oil & Gas Corp, Class A                                        315,000  
      5,000     Dresser Industries Inc                                               223,438  
     50,000     EEX Corp*                                                            428,125  
     40,000     Enron Oil & Gas Co                                                   855,000  
     50,000     Gulf Canada Resources Ltd*                                           293,750  
     50,000     Lasmo Plc ADR                                                        678,125  
     20,000     Mitchell Energy Class A                                              545,000  
     40,000     Mitchell Energy Class B                                            1,097,500  
     10,000     Mobil Corp                                                           724,375  
    105,000     Occidental Petroleum Corp                                          2,684,063  
      5,206     Texaco Inc                                                           290,560  
     35,000     Union Texas Petroleum Holdings Inc                                   706,563  
     40,000     Unocal Corp                                                        1,507,500  
     75,000     USX - Marathon Group                                               2,592,188  
     50,000     Westcoast Energy Inc                                               1,262,500  
                                                                                ------------- 
                                                                                  15,241,656  
                                                                                ------------- 
                Paper and Allied Products - 1.1%                                              
     10,000     Abitibi-Consolidated Inc                                             143,125  
     35,000     Fort James Corp                                                    1,588,125  
     17,500     Weyerhaeuser Co                                                      873,906  
                                                                                ------------- 
                                                                                   2,605,156  
                                                                                ------------- 
                Pharmaceuticals - 2.1%                                                        
     10,000     Allergan Inc                                                         350,000  
      5,000     Glaxo Wellcome Plc ADR                                               271,563  
     35,000     Lilly (Eli) and Co                                                 2,303,438  
     25,000     Medpartners Inc*                                                     300,000  
     35,000     Mylan Laboratories Inc                                               713,125  
     22,755     PharMerica Inc*                                                      295,815  
     10,000     Smithkline Beecham PLC                                               618,750  
                                                                                ------------- 
                                                                                   4,852,691  
                                                                                ------------- 
                Primary Processing - 0.4%                                                     
     10,000     Du Pont (E I) De Nemours & Co Inc                                    613,125  
     20,000     Intermet Corp                                                        395,000  
                                                                                ------------- 
                                                                                   1,008,125  
                                                                                ------------- 
                Real Estate - 2.6%                                                            
     25,000     Boston Properties Inc                                                850,000  
     25,000     Crown American Realty Trust                                          231,250  
      5,000     Equity Residential Properties Trust                                  239,688  

             See accompanying notes to the financial statements.             3


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


  Shares        Description                                                       Value ($)   
----------------------------------------------------------------------------------------------
                                                                                              
                Real Estate - continued                                                       
    100,000     JP Realty Inc                                                      2,512,500  
     50,000     Summit Properties Inc                                              1,012,500  
     25,000     United Dominion Realty Trust Inc                                     350,000  
     35,000     Walden Residential Properties Inc                                    866,250  
                                                                                ------------- 
                                                                                   6,062,188  
                                                                                ------------- 
                Refining - 0.2%                                                               
     25,000     Quaker State Corp                                                    378,125  
                                                                                ------------- 

                Retail Trade - 5.6%                                                           
     25,000     Costco Co Inc*                                                     1,221,875  
     75,000     Federated Department Stores*                                       3,515,625  
      5,000     Saks Holdings Inc *                                                  130,625  
     75,000     Sears Roebuck & Co                                                 3,979,688  
     50,000     Toys R Us Inc*                                                     1,312,500  
     65,000     Wal-Mart Stores Inc                                                3,010,313  
                                                                                ------------- 
                                                                                  13,170,626  
                                                                                ------------- 
                Services - 3.6%                                                               
     15,000     Hilton Hotels Corp                                                   447,188  
     25,000     Manpower Inc                                                       1,054,688  
     25,000     Ogden Corp                                                           687,500  
      5,000     Time Warner Inc                                                      337,500  
    230,000     Waste Management Inc                                               5,750,000  
     25,000     Waste Management International Plc*                                  151,563  
                                                                                ------------- 
                                                                                   8,428,439  
                                                                                ------------- 
                Technology - 7.3%                                                             
     32,500     Avnet Inc                                                          2,071,875  
     50,000     Data General Corp*                                                 1,031,250  
     72,500     Digital Equipment Corp*                                            4,127,969  
     55,000     Electronics for Imaging Inc*                                       1,213,438  
     62,500     Information Resources Inc*                                           875,000  
     20,000     Intel Corp                                                         1,793,750  
     75,000     Storage Technology Corp*                                           5,118,750  
     12,500     Xerox Corp                                                         1,108,594  
                                                                                ------------- 
                                                                                  17,340,626  
                                                                                ------------- 
                Telecommunications - 6.4%                                                     
      7,500     AT&T Corp                                                            456,563  
     50,000     CBS Corporation                                                    1,546,875  
     40,000     Cox Communications Inc*                                            1,542,500  
     85,000     GTE Corp                                                           4,600,625  
     22,500     MCI Communications Corp                                            1,075,781  
     12,500     SBC Communications Inc                                               945,313  
     35,000     US West Inc*                                                       1,822,188  
    100,000     US West Media Group                                                3,218,750  
                                                                                ------------- 
                                                                                  15,208,595  
                                                                                ------------- 
                Tobacco - 0.3%                                                                
     47,500     Imperial Tobacco Group Plc                                           650,156  
                                                                                ------------- 

4              See accompanying notes to the financial statements.              


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


  Shares        Description                                                       Value ($)   
----------------------------------------------------------------------------------------------
                                                                                              
                Transportation - 2.8%                                                         
     12,500     America West Holdings Corp, Class B*                                 310,156  
     10,000     AMR Corp*                                                          1,265,625  
     50,000     Canadian Pacific Ltd                                               1,428,125  
      7,500     Delta Air Lines Inc                                                  847,969  
     15,000     Ryder System Inc                                                     550,313  
     35,000     Sabre Group Holdings Inc*                                          1,155,000  
     15,000     US Airways Group Inc*                                                949,688  
                                                                                ------------- 
                                                                                   6,506,876  
                                                                                ------------- 
                Utilities - 5.3%                                                              
     25,000     Calpine Corp*                                                        396,875  
     40,000     Duke Energy Co                                                     2,222,500  
     20,000     Energy Group Plc                                                   1,028,750  
     35,000     Houston Industries Inc                                               905,625  
    100,000     Niagara Mohawk Power Corp*                                         1,281,250  
      5,000     Pacific Corp                                                         120,938  
     90,000     Texas Utilities                                                    3,639,375  
     25,000     TransCanada Pipeline Ltd                                             564,063  
     75,000     Unicom Corp                                                        2,404,670  
                                                                                ------------- 
                                                                                  12,564,046  
                                                                                ------------- 

                TOTAL COMMON STOCKS (Cost $121,343,480)                          198,438,591  
                                                                                ------------- 

                PREFERRED STOCKS - 0.6%                                                       
                Metals and Mining - 0.2%                                                      
     25,000     Freeport-McMoran Corp Preferred                                      556,250  
                                                                                ------------- 

                Primary Processing - 0.0%                                                     
        500     Armco Inc Convertible Preferred $3.625                                24,000  
                                                                                ------------- 

                Transportation - 0.4%                                                         
     16,500     Navistar International Corp Preferred $6.00                          836,344  
                                                                                ------------- 

                TOTAL PREFERRED STOCKS (Cost $1,756,758)                           1,416,594  
                                                                                ------------- 

  Par Value     DEBT OBLIGATIONS - 14.5%                                                      
                Banking and Financial Services - 0.5%                                         
$     99,101    Citicorp, Variable Rate Note, 6.50% due 5/1/04                        99,276  
   1,000,000    General Motors Acceptance Corp, 5.50% due 12/15/01                   973,510  
                                                                                ------------- 
                                                                                   1,072,786  
                                                                                ------------- 
                Food and Beverage - 0.6%                                                      
     500,000    Anheuser-Busch Cos Inc, 7.10% due 6/15/07                            519,970  
     130,000    Anheuser-Busch Cos Inc, 8.50% due 3/1/17                             134,477  
     750,000    General Foods Corp, 7.00% due 6/15/11                                748,493  
                                                                                ------------- 
                                                                                   1,402,940  
                                                                                ------------- 
                Manufacturing - 0.5%                                                          
   1,250,000    International Business Machines Corp, 6.50% due 1/15/28            1,220,588  
                                                                                ------------- 

              See accompanying notes to the financial statements.              5


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


  Par Value     Description                                                       Value ($)   
----------------------------------------------------------------------------------------------
                                                                                              
                Real Estate - 0.8%                                                            
$  1,750,000    HMH Properties Inc, 9.50% due 5/15/05                              1,859,375  
                                                                                ------------- 

                Technology - 1.5%                                                             
   2,500,000    Digital Equipment Corp, 7.125% due 10/15/02                        2,546,708  
   1,000,000    VLSI Technology Inc, 8.25% due 10/01/05                            1,013,750  
                                                                                ------------- 
                                                                                   3,560,458  
                                                                                ------------- 
                Transportation - 1.0%                                                         
   1,000,000    AMR Corp, 9.00% due 8/1/12                                         1,186,650  
   1,000,000    United Air Lines Inc, 9.13% due 1/15/12                            1,174,720  
                                                                                ------------- 
                                                                                   2,361,370  
                                                                                ------------- 
                U.S. Government - 9.6%                                                        
   6,000,000    U.S. Treasury Bond, 11.13% due 8/15/03                             7,524,360  
   1,250,000    U.S. Treasury Bond, 10.75% due 8/15/05                             1,628,325  
   2,750,000    U.S. Treasury Bond, 7.25% due 5/15/16                              3,137,998  
   7,500,000    U.S. Treasury Note, 4.75% due 8/31/98                              7,471,875  
   1,250,000    U.S. Treasury Note, 7.75% due 2/15/01                              1,323,236  
   1,500,000    U.S. Treasury Note, 6.625% due 5/15/07                             1,597,965  

                                                                                ------------- 
                                                                                  22,683,759  
                                                                                ------------- 

                TOTAL DEBT OBLIGATIONS (Cost $32,299,844)                         34,161,276  
                                                                                ------------- 

                SHORT-TERM INVESTMENT - 0.7%                                                  
   1,760,000    State Street Bank and Trust Co Repurchase Agreement,                          
                dated 2/27/98, due 3/2/98, with a maturity value of                           
                $1,760,587 and an effective yield of 4.00%,                                   
                collateralized by a U.S. Treasury Note, with a rate of                        
                5.875% due 08/31/99                                                           
                with an aggregate market value of $1,799,268 (Cost $1,760,000).    1,760,000  
                                                                                ------------- 

                TOTAL INVESTMENTS - 99.8%                                                     
                (Cost $157,160,082)                                              235,776,461  

                Other Assets and Liabilities (net) -  0.2%                           509,349  
                                                                                ------------- 

                TOTAL NET ASSETS - 100.0%                                     $  236,285,810  
                                                                                ============  

Notes to the Schedule of Investments:           

ADR - American Depositary Receipt               

    Variable    Rate Notes - The rates shown on variable
                    rate notes are the current interest rates at
               February 28, 1998, which are subject to
                  change based on the terms of the security,
      including varying reset dates.

*           Non-income producing security.      

6              See accompanying notes to the financial statements.              


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities - February 28, 1998                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                        
Assets:                                                                                 
     Investments, at value (cost $157,160,082) (Note 1)              $      235,776,461 
     Cash                                                                        11,578 
     Dividends and interest receivable                                          838,586 
     Receivable for investments sold                                          1,038,953 
     Receivable for Fund shares sold                                             22,300 
                                                                      ------------------

         Total assets                                                       237,687,878 
                                                                      ------------------

Liabilities:                                                                            
     Payable for investments purchased                                          525,731 
     Payable for Fund shares repurchased                                        650,145 
     Payable to affiliate for management fee (Note 2)                           159,110 
     Accrued expenses and other liabilities                                      67,082 
                                                                      ------------------

         Total liabilities                                                    1,402,068 
                                                                      ------------------

Net Assets (equivalent to $17.78 per share based                                        
     on 13,286,924 shares outstanding, unlimited shares authorized)  $      236,285,810 
                                                                      ==================

Net Assets consist of:                                                                  
     Paid-in capital                                                 $      149,625,042 
     Accumulated undistributed net investment income                            404,381 
     Accumulated undistributed net realized gain                              7,640,008 
     Net unrealized appreciation                                             78,616,379 
                                                                      ------------------

         Net assets                                                  $      236,285,810 
                                                                      ==================

                 See accompanying notes to the financial statements.           7


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Statement of Operations - Year Ended February 28, 1998                          
--------------------------------------------------------------------------------

Investment income:                                                              
   Dividends (net of withholding taxes of $42,926)              $    3,678,075
   Interest                                                          2,271,970
                                                                  --------------

      Total income                                                   5,950,045
                                                                  --------------

Expenses:                                                                       
   Management fee (Note 2)                                           1,967,796
   Custodian and transfer agent fees                                   143,247
   Audit fees                                                           34,838
   Registration fees                                                    19,772
   Legal fees                                                            6,007
   Trustees fee (Note 2)                                                 1,916
   Miscellaneous                                                         9,843
                                                                  --------------

      Total expenses                                                 2,183,419

       Less: expenses waived or borne by Manager (Note 2)              (108,905)
                                                                  --------------

      Net expenses                                                   2,074,514
                                                                  --------------
        Net investment income                                        3,875,531
                                                                  --------------

Realized and unrealized gain (loss):                                            

      Net realized gain on investments                              33,485,867

Change in net unrealized appreciation (depreciation)              
        on investments                                              18,746,336
                                                                  --------------

        Net realized and unrealized gain                            52,232,203
                                                                  --------------

Net increase in net assets resulting from operations             $   56,107,734 
                                                                  ==============

8              See accompanying notes to the financial statements.              


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                         Year Ended                
                                                           February 28, 1998     February 28, 1997 
                                                           -----------------     ----------------- 
                                                                                                   
Increase (decrease) in net assets:                                                                 
Operations:                                                                                        
     Net investment income                                 $       3,875,531     $       3,995,498 
     Net realized gain                                            33,485,867             9,036,632 
     Change in net unrealized appreciation (depreciation)         18,746,336            19,894,742 
                                                            ----------------      ---------------- 

     Net increase in net assets resulting from operations         56,107,734            32,926,872 
                                                            ----------------      ---------------- 

Distributions to shareholders from:                                                                
     Net investment income                                        (4,850,393)           (3,383,491)
     Net realized gains                                          (30,617,038)           (6,758,143)
                                                            ----------------      ---------------- 

                                                                 (35,467,431)          (10,141,634)
                                                            ----------------      ---------------- 

Fund share transactions:  (Note 5)                                                                 
     Proceeds from sale of shares                                 21,012,484            22,372,007 
     Net asset value of shares issued to shareholders                                              
         in payment of distributions declared                     33,903,533             9,313,111 
     Cost of shares repurchased                                  (46,639,378)          (24,339,781)
                                                            ----------------      ---------------- 

     Net increase in net assets resulting                                                          
         from Fund share transactions                              8,276,639             7,345,337 
                                                            ----------------      ---------------- 

     Total increase in net assets                                 28,916,942            30,130,575 

Net assets:                                                                                        
     Beginning of period                                         207,368,868           177,238,293 
                                                            ----------------      ---------------- 

     End of period (including accumulated undistributed                                            
         net investment income of $404,381 and                                                     
         $1,473,363, respectively)                         $     236,285,810     $     207,368,868 
                                                            ================      ================ 

        See accompanying notes to the financial statements.                  9


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a share outstanding throughout each period)                                
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                      Year Ended February 28/29,                  
                                                         ------------------------------------------------------------------------ 
                                                            1998           1997           1996             1995         1994      
                                                         -----------    -----------    -----------    --------------------------- 
                                                                                                                                  
Net asset value, beginning of period                    $      16.31   $      14.52   $      11.99   $       12.08  $       11.37 
                                                         -----------    -----------    -----------    ------------   ------------ 

Income from investment operations:                                                                                                
  Net investment income                                         0.32           0.33           0.31            0.37           0.29 
  Net realized and unrealized gain                              4.13           2.27           3.04            0.46           1.40 
                                                         -----------    -----------    -----------    ------------   ------------ 

    Total from investment operations                            4.45           2.60           3.35            0.83           1.69 
                                                         -----------    -----------    -----------    ------------   ------------ 

Less distributions to shareholders:                                                                                               
  From net investment income                                   (0.40)         (0.27)         (0.29)          (0.37)         (0.37)
  From net realized gains                                      (2.58)         (0.54)         (0.53)          (0.55)         (0.61)
                                                         -----------    -----------    -----------    ------------   ------------ 

    Total distributions                                        (2.98)         (0.81)         (0.82)          (0.92)         (0.98)
                                                         -----------    -----------    -----------    ------------   ------------ 

Net asset value, end of period                          $      17.78   $      16.31   $      14.52   $       11.99  $       12.08 
                                                         ===========    ===========    ===========    ============   ============ 

Total Return (a)                                               28.97%         18.40%         28.54%           7.38%         15.14%

Ratios/Supplemental Data:                                                                                                         

      Net assets, end of period (000's)                 $    236,286   $    207,369   $    177,238   $     117,920  $     101,165 
      Net expenses to average                                                                                                     
          daily net assets                                      0.95%          0.95%          1.05%           1.10%          1.10%
      Net investment income to average                                                                                            
          daily net assets                                      1.77%          2.10%          2.42%           2.51%          2.42%
      Portfolio turnover rate                                     28%            27%            32%             40%            49%
      Average broker commission rate (b)                $     0.0662   $     0.0556            N/A             N/A            N/A 
      Fees and expenses voluntarily waived or borne by                                                                            
          the Manager consisted of the following per                                                                              
          share amounts:                                $       0.01   $         0.01 $    -         $     -        $        0.01 

(a)       The total returns would have been lower had certain expenses not been 
waived during the periods shown.                            
(b)       For fiscal years beginning on or after September 1, 1995, a fund is   
  required to disclose its average commission rate per share for
security trades on which commissions are charged.           

10                See accompanying notes to the financial statements.           


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

   The Pelican 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 will issue a separate series of shares.

 The Fund seeks long-term capital growth primarily through investment in
equity securities.                                                    

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 debt obligations with a remaining maturity of sixty days or less
    are valued at amortized cost which approximates market value. Other assets
    and securities for which no quotations are readily available are valued at
fair value as determined in good faith by the Trustees.               

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. 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, realization of collateral
by the Fund may be delayed or limited.                                

                                                                              11


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for 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.

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
distributions.                                                        

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
   return of capital dividends, and differing treatments for amortization of
discount on bonds and partnership interests.                          

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated                                         
Undistributed Net        Accumulated Net Realized         
         Investment Income              Gain/(Loss)          Paid-in Capital
    ----------------------------  ------------------------   ---------------
      $(94,120)                      $94,155                 $(35)

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

12                                                                              


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
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 in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of 
expense and the relative size of the Funds.                           

2.   Management fee and other transactions with affiliates                      

GMO earns a management fee paid monthly at the annual rate of .90% of 
    average daily net assets. GMO has agreed to waive a portion of its fee and
bear other expenses until further notice to the extent that the Fund's
annual expenses (including the management fee but excluding brokerage 
  commissions and transfer taxes) exceed .95% of average daily net assets.

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $1,916. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

   For the year ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                                        [Enlarge/Download Table]


                                                     Purchases                Proceeds       
                                                --------------------    ---------------------
                                                                                             
U.S. Government securities                    $           5,587,383   $               91,617 
Investments (non-U.S. Government securities)             54,787,626               81,390,660 

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                                                        [Enlarge/Download Table]


                                Gross Unrealized        Gross Unrealized           Net Unrealized        
    Aggregate Cost                Appreciation             Depreciation              Appreciation        
-------------------------  ---------------------------  -------------------------  ----------------------
                                                                                                         
      $157,895,749                $80,609,075               $2,728,363               $77,880,712         


                                                                              13


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

4.   Principal shareholder                                                      

   At February 28, 1998, 39% of the outstanding shares of the Fund were held
by one shareholder.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:                                               

                                                        [Enlarge/Download Table]


                                                       Year Ended                    Year Ended          
                                                    February 28, 1998             February 28, 1997      
                                               ----------------------------  ----------------------------
                                                                                                         
Shares sold                                                 1,196,670                     1,487,108      

Shares issued to shareholders in reinvestment                                                            
   of distributions                                         2,012,397                       632,940      

Shares repurchased                                        (2,636,304)                   (1,610,011)      
                                                    -----------------            ------------------      
Net increase                                                  572,763                       510,037      

Fund shares:                                                                                             

Beginning of period                                        12,714,161                    12,204,124      
                                                    -----------------            ------------------      
End of period                                              13,286,924                    12,714,161      
                                                    =================            ==================      

14                                                                              


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Pelican Fund                                                                    
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------

  For fiscal year ended February 28, 1998, all of the Fund's distributions
are from investment company taxable income, except that the Fund has  
designated 72.18% distributions as net capital gain dividends.        

                                                                              15


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GMO Pelican Fund                                                                
(A Series of the GMO Trust)                                                     

Portfolio Manager                                                               
-----------------                                                               

Mr. Richard Mayo is responsible for the management of the GMO Pelican Fund. Mr. 
Mayo has been a portfolio manager with GMO since its founding in 1977 and began 
his career in the last 1960's.                                                  

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

The market's move the last year can only be described as awesome. As I write    
                                         -------
this and as we start the new fiscal year, the stock market is trying to reach   
the 9000 level on the Dow Jones Average and now some forecasters are saying the 
10000 goal will be reached before the year 2000. This has been one of the great 
markets of the century. The conditions for this move in stocks (up 144% since   
December 1994) have been an almost perfect investing environment. Inflation has 
steadily declined and is now less than 2%; interest rates are now below 6% and  
corporations have steadily improved profitability and now are earning record    
returns on capital.                                                             

We have achieved good returns in this market phase but in hindsight we have not 
fully exploited the opportunities in this environment. We are somewhat out of   
sync with other investor's view of risk. In our view, risks have been rising.   
The turmoil in Southeast Asia will certainly add to economic instability in the 
world and depress economic growth in the future. This will limit the ability of 
corporations to expand their profitability that has increased so robustly in    
this cycle.                                                                     

We have also been influenced by our belief that we may be near the end of the   
rise in profit margins that have been dramatic in this cycle. After tax profit  
margins have reached 6.4% up from the low of 3.9%. The dilemma is that the      
present level of the stock market requires continued increases. According to our
valuation formula investors are expecting earnings to grow 8.0-9.0% annually for
the next ten years (assuming present interest rates). If revenues grow at the   
present rate of 5.0%, profit margins must rise to 7.3%. We think this is        
unlikely for a series of reasons. Restructuring and downsizing benefits may have
been fully exploited. The favorable cost environment, specifically labor        
expenses, may be shifting unfavorably (see the graph below). The strength of the
dollar reduces the value of foreign profits, and the economic dislocations in   
Southeast Asia, as well as the anemic growth in Japan, are beginning to impact  
the profitability of more U.S. companies. IBM, Motorola, Intel and Compaq are   
just a few of the companies that have discussed the negative impact. There will 
be more.                                                                        


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U.S. Employment Cost Index                                                      
(% Year-Over-Year)                                                              

[A LINE GRAPH DEPICTING THE PERCENTAGE GROWTH OF U.S. EMPLOYMENT COST INDEX FROM
1980 TO 1998 APPEARS HERE.]                                                     

We think profit growth this year will be less than 5.0%. Our skepticism seems   
justified when you look at the chart below.                                     

S&P 500 Bottom Up Operating EPS Estimates 

[A LINE GRAPH DEPICTING THE S&P BOTTOM UP OPERATING EPS ESTIMATES FROM JUNE 1997
TO MARCH 1998 APPEARS HERE.]                                                    

Wall Street analysts have steadily reduced the expectations and now expect      
corporate profits to be up only 2.0% in the first quarter. This has alarmed     
investors because many expect the first half shortfall to be made up in the     
second half.                                                                    


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If this is not achieved this could be troublesome for the market. Presently, if 
we used the Federal Reserve market model, stocks are approximately 18%          
overvalued and any doubts about profitability may create reactions in the market
similar to the sell off in August and October of 1997.                          

FED'S S&P 500 VALUATION MODEL*                                                  
(percent)                                                                       

[A LINE GRAPH DEPICTING THE FEDERAL RESERVE S&P 500 VALUATION MODEL FROM 1980 TO
1998 APPEARS HERE.]                                                             

We have tried to build a portfolio that does better in a difficult environment  
and our experiences in August and October were encouraging. Our return of -1.64%
was a 3.96% gain over the S&P's 5.60% decline in August. This was due mainly to 
the recovery in small stocks that started in August and continued to the first  
of October. At that point we started reducing this segment due to the major     
advances of some of the stocks, but also due to the fear that smaller companies 
would be penalized in a more difficult market because of their lower liquidity. 


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Pelican Fund                                                                    
As of February 28, 1998                                                         

Pelican   
           Fund*         S&P 500
           -----         -------
RISK                                                                            
Beta                               0.93          1.00                           
% of LT Debt to Capital            44%           42%                            
LIQUIDITY                                                                       
Market Cap ($000)                  25,288        61,300                         
PROFITABILITY                                                                   
Return on Equity                   14.4%         19.0%                          
Return on Capital                  7.8%          -                              
EBITDA Margin                      16.6%         16.9%                          
Net Profit Margin                  5.4%          6.5%                           
Earnings 5 Yr Hist Gr Rate         21%           15%                            
VALUATION                                                                       
Price/Earnings Trailing 4 Qtrs     18.9          23.3                           
Price to Cashflow                  9.8           13.7                           
Price to Book                      2.7           4.0                            
Price to Sales                     1.06          1.66                           
Dividend Yield                     1.8%          1.5%                           

* Equally Weighted                                                              

Looking at the characteristics of the present portfolio you can see we have     
maintained a risk profile (measured by beta) that is less than the market. In   
addition we have gravitated to stocks with low expectations to avoid the penalty
of disappointments. We are expecting improvement in our selections but favorable
performance may require some patience - something investors don't have at the   
moment. In other words, at this stage of the market we think there is more to   
gain by investing in stocks that can still improve long term returns on capital 
and possibly experience a positive valuation change, rather than invest in those
companies that have improved and the stock price reflects the change without a  
discount for some cyclical erosion.                                             

In the chart you can also see we own stocks with market caps significantly below
average. For the last year we have maintained our bias against the "Mega Fifty" 
stocks. Very simply, we think their valuations are at extreme levels and are    
unlikely to produce good returns going forward. Our view has not been shared by 
the majority of investors and they have continued to do better than the market. 
The fifty largest stocks exceeded the S&P by 5.5% in 1997, and in 1998 through  
February they are 1.5% ahead. Our fears are expressed in the charts below. The  
out-performance is demonstrated in the top chart and the valuation measures in  
the charts below show the very high levels versus the past. These stocks are    
perceived as safe havens but given their lofty valuations we don't think they   
will give the protection expected in a market sell off. They didn't in August   
and October of last year.                                                       


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Exhibit 3. The Biggest Have Outperformed For A Number Of Years                  

Biggest 50 Stocks/Large-Cap Universe--                                          
Cumulative Relative Performance                                                 

[LINE GRAPH APPEARS HERE] 

Source: Prudential Securities Inc.                                              

Price/Sales                                                                     

[LINE GRAPH APPEARS HERE] 

Source: Compusheet; Prudential Securities Inc.                                  

Price/Cash Flow                                                                 

[LINE GRAPH APPEARS HERE] 

Source: Compusheet; Prudential Securities Inc.                                  

Return On Equity                                                                
(ROE)                                                                           

[LINE GRAPH APPEARS HERE] 

Source: Compusheet; Prudential Securities Inc.                                  

We hope to make money with an eclectic portfolio that excludes very overvalued  
areas (the Mega Fifty) and sectors that are experiencing profit declines -      
segments of technology and major energy companies. We can't find any sectors    
that are significantly undervalued comparable to last year. At the beginning of 
1997 we were buying all the cable TV stocks thinking they were 30-40%           
undervalued, adding to our small stock exposure, and accumulated electric       
utilities and telephone companies into the second quarter. The cable TV stocks  
have doubled in the last 12 months. Small stocks, the utilities and telephone   
companies underperformed for the year but each had a quarter of major           
outperformance; small stocks in the third quarter and telephone and utility     
stocks were up 17% vs. the S&P gain of 2.87%. Due to these price moves we have  
cut back in these areas and in technology as well. The technology sector        
outperformed the group (i.e., Microsoft, Cisco and Dell Computer) and we took   
profits aggressively as our concerns about deteriorating profitability were     
reinforced by negative earnings estimate revisions caused by slowing final      
demand aggravated by the major exposure to Southeast Asia.                      


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With the funds generated from these profits we have responded opportunistically.
We are waiting for good risk reward situations to present themselves to add to  
good values presently in the portfolio. Waste Management Inc. was a major       
frustration in the last year. We were too optimistic about its potential        
profitability improvement and getting a new chief executive proved troublesome. 
First they hired the former president of Sprint. Unfortunately he left after    
three months so for five months the company has been led by an interim CEO, a   
man with excellent capabilities, but the market required more certainty. We     
stayed with the investment believing margins that were 40% below the top tier in
the industry, could be improved by a new and motivated management. The stock    
sold off dramatically in October and January and each time we added to the      
position. This poor performance cost the portfolio 1.5% relatively. Patience was
rewarded in March. USA Waste, the most profitable waste services company has    
agreed to acquire Waste Management Inc. and the stock has rallied 25%,          
recapturing half of last year's performance.                                    

Another sector ignored last year was retail. For instance Federated Department  
Stores was ignored in the first half providing an opportunity to buy the stock  
at 14 times earnings (the market at the time was 20 times earnings) with no hint
of profit difficulties. A more controversial opportunity occurred in October    
when Sears announced it was experiencing a dramatic increase in credit card     
charge offs. The stock, which peaked at $65.00 per share in early summer dropped
as low as $40.00 per share in October. This allowed us the opportunity to buy   
the stock at 15 times a worst case scenario, which now seems to be an           
exaggerated fear. The stock has rebounded recently to $50.00 per share. More    
recently Toys-R-Us declined precipitously and reduced earnings expectations. We 
responded similarly to the Sears situation, encouraged by the company's         
announced $1 billion stock buyback. The Toys-R-Us situation will probably not be
as good as Sears and Federated, but the risk-reward at its lows looked very     
attractive.                                                                     

Another success in the past year was Digital Equipment. We had bought the stock 
earlier but were convinced to add significantly to the position when the stock  
traded down to $25.00 per share. Our analysis suggested the company's assets    
were worth at least $50.00 per share. In December Compaq confirmed our analysis 
by announcing a merger worth $60.00 per share at the time.                      

I have mentioned these examples because they reflect the types of situations we 
are trying to find today to put in the portfolio, which are low expectation     
opportunities where perceptions are excessively negative. The chances of        
improvement in profitability have risen (without paying for it) and the value of
the companies' assets may be worth more to a strategic buyer limiting the       
downside risk.                                                                  

Data General is an example like Digital Equipment, and Occidental Petroleum     
could attract the attention of a larger oil company that is struggling to grow  
revenues in an environment of declining oil prices. Listed below are the major  
additions or increases in the last six months and they are opportunities created
by the rotational aspects of the market. That is, if it appears not to be a     
short-term performer, sell it and go to where the action is.                    


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Federated Department Stores                                                     
Sears Roebuck                                                                   
Corning                                                                         
Occidental Petroleum                                                            
Unicom                                                                          
Stewart & Stevenson                                                             

Our experience to date is that good investments are created and interest can    
shift quickly. A great example is Electronics for Imaging. The stock in 1997    
went from $52.00 to $14.00 (earnings were very disappointing but this was due to
an inventory adjustment by its customers). The inventory shift is almost over   
and the stock has doubled in three months.                                      

We will keep looking for opportunities but think they will be more limited so we
will concentrate the portfolio in few positions. This has and will create more  
volatility in month to month relative performance particularly when the major   
market cap stocks make a major move like January to mid February. We fear this  
less going forward because the market has obviously broadened in March and good 
values with potential catalysts or favorable news are clearly doing well in the 
present market phase. However, risk must not be ignored. The concentration of   
1997 may erode in 1998 giving us a better opportunity for picking stocks.       

We will respond opportunistically and hope to deliver the best risk adjusted    
performance. We feel that thinking about risk in the future will benefit        
portfolio returns. We were encouraged recently by an analysis done by Business  
Week which picked the Pelican Fund for the A team of risk adjusted results. We  
hope to stay there.                                                             

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.                    


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Comparison of Change in Value of a $10,000 Investment in  
GMO Pelican Fund and the S&P 500 Index  
As of February 28, 1998 

------------------------------------------                                      
Average Annual Total Return                                       
------------------------------------------                                      
Since     
Inception     
1 Year    5 Year   5/31/89                        
------------------------------------------                                      

Class III      29.0%     19.7%     15.3%                                        
------------------------------------------                                      

[LINE GRAPH APPEARS HERE] 

Date              GMO Pelican Fund       S&P 500 Index                          
----              ----------------       -------------                          
5/31/89                $10,000              $10,000                             
2/28/90                 $9,931              $10,617                             
2/28/91                $10,743              $12,174                             
2/29/92                $12,380              $14,120                             
2/28/93                $14,098              $15,625                             
2/28/94                $16,232              $16,927                             
2/28/95                $17,430              $18,173                             
2/29/96                $22,618              $24,478                             
2/28/97                $26,824              $30,882                             
2/28/98                $34,595              $41,691                             

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period. Past performance is   
not indicative of future performance. Information is unaudited.                 


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders                               
of GMO Global Hedged Equity Fund (A Series of GMO Trust)                        

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 at   
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers and the      
application of alternative auditing procedures where confirmations from brokers 
were not received, provide a reasonable basis for the opinion expressed above.  

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


       Shares/                                                                                   
      Par Value    Description                                                      Value ($)    
-------------------------------------------------------------------------------------------------
                                                                                                 
                   MUTUAL FUNDS - 93.3%                                                          
                   United States - 93.3%                                                         
       2,945,382   GMO Core Fund                                                      58,878,192 
         866,061   GMO Emerging Markets Fund                                           8,279,540 
         925,419   GMO Evolving Countries Fund *                                       7,967,862 
       2,457,043   GMO International Core Fund                                        57,003,401 
         324,966   GMO International Small Companies Fund                              3,971,090 
         574,921   GMO REIT Fund                                                       7,427,979 
         620,765   GMO Small Cap Growth Fund                                           7,622,992 
         440,959   GMO Small Cap Value Fund                                            8,060,732 
                                                                                -----------------
                                                                                     159,211,788 
                                                                                -----------------

                   TOTAL MUTUAL FUNDS (Cost $166,000,283)                            159,211,788 
                                                                                -----------------

                   STOCK AND EQUIVALENTS - 0.1%                                                  
                   Hong Kong - 0.0%                                                              
          11,703   Johnson Electric Holdings Ltd                                          41,618 
                                                                                -----------------

                   Italy - 0.0%                                                                  
          12,500   Grassetto SPA (b)                                                           - 
                                                                                -----------------

                   Malaysia - 0.0%                                                               
           9,000   Malaysian Resources Corp                                                6,098 
                                                                                -----------------

                   United Kingdom - 0.0%                                                         
           7,847   Amstrad Plc                                                             4,910 
           8,000   Costain Group Plc *                                                     3,954 
       1,115,129   Signet Group *                                                              - 
          17,870   Viglen Technology Plc *                                                10,004 
          17,870   Viglen Technology Plc Entitlement Letters                                   - 
                                                                                -----------------
                                                                                          18,868 
                                                                                -----------------
                   United States - 0.1%                                                          
           1,300   Pennzoil Co                                                            87,019 
                                                                                -----------------

                   TOTAL STOCK AND EQUIVALENTS (Cost $155,218)                           153,603 
                                                                                -----------------

                   DEBT OBLIGATIONS - 6.0%                                                       
                   United Kingdom - 0.0%                                                         
GBP       29,128   Viglen Technology Plc Floating Rate Note, 6.75% due 9/1/2000           47,959 
GBP        7,684   Viglen Technology Plc Floating Rate Note, 6.99% due 1/1/2001           12,652 
                                                                                -----------------
                                                                                          60,611 
                                                                                -----------------
                   U.S. Government - 3.1%                                                        
  $    5,250,000   U.S. Treasury Note, 5.50% due 11/15/98 (a)                          5,249,180 
                                                                                -----------------

              See accompanying notes to the financial statements.              1


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Par Value ($)   Description                                                     Value ($)     
-------------------------------------------------------------------------------------------------
                                                                                                 
                   U.S. Government Agency - 2.9%                                                 
       5,000,000   Student Loan Marketing Association, 6.05% due 10/26/09              4,979,688 
                                                                                 ----------------

                   TOTAL DEBT OBLIGATIONS (Cost $10,305,339)                          10,289,479 
                                                                                 ----------------

                   SHORT-TERM INVESTMENTS - 2.2%                                                 
                   Cash Equivalents - 0.9%                                                       
       1,500,000   Wachovia Bank Time Deposit, 5.63%, due 3/2/98                       1,500,000 
                                                                                 ----------------

                   U.S. Government - 1.3%                                                        
       2,350,000   U.S. Treasury Bill, 5.39% due 1/7/99 (a)                            2,245,854 
                                                                                 ----------------

                   TOTAL SHORT-TERM INVESTMENTS (Cost $3,747,806)                      3,745,854 
                                                                                 ----------------

                   TOTAL INVESTMENTS - 101.6%                                                    
                   (Cost $180,208,646)                                               173,400,724 

                   Other Assets and Liabilities (net) - (1.6%)                        (2,695,055)
                                                                                 ----------------

                   TOTAL NET ASSETS - 100.0%                                    $    170,705,669 
                                                                                 ================

Notes to the Schedule of Investments:     

GBP - British Pound                       

              (a) This security is held as collateral for open futures
contracts.                        

(b) Bankrupt issuer.                      

                *   Non-income producing security. A dividend has not been
                     declared for the twelve months ended February 28, 1998.

2              See accompanying notes to the financial statements.              


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]

Statement of Assets and Liabilities - February 28, 1998                                            
---------------------------------------------------------------------------------------------------
                                                                                                   
Assets:                                                                                            
     Investments, at value (cost $180,208,646) (Note 1)                           $    173,400,724 
     Foreign currency, at value (cost $406,404) (Note 1)                                   400,975 
     Cash                                                                                   92,468 
     Dividends and interest receivable                                                     113,672 
     Receivable for open forward foreign currency contracts (Notes 1 and 6)              1,621,533 
     Receivable for variation margin on open futures contracts (Notes 1 and 6)              60,056 
     Foreign withholding taxes receivable                                                  119,959 
     Receivable for expenses waived or borne by Manager (Note 2)                            77,522 
                                                                                    ---------------

         Total assets                                                                  175,886,909 
                                                                                    ---------------

Liabilities:                                                                                       
     Payable for open swap contracts (Notes 1 and 6)                                     4,121,031 
     Payable for Fund shares repurchased                                                   714,919 
     Payable for open forward foreign currency contracts (Notes 1 and 6)                   178,780 
     Payable to affiliate for (Note 2):                                                            
         Management fee                                                                     86,022 
         Shareholder service fee                                                             2,210 
     Accrued expenses                                                                       78,278 
                                                                                    ---------------

         Total liabilities                                                               5,181,240 
                                                                                    ---------------

Net assets                                                                        $    170,705,669 
                                                                                    ===============
Net assets consist of:                                                                             
     Paid-in capital                                                              $    190,539,226 
     Distributions in excess of net investment income                                   (1,571,288)
     Distributions in excess of net realized gain                                         (876,658)
     Net unrealized depreciation                                                       (17,385,611)
                                                                                    ---------------

                                                                                  $    170,705,669 
                                                                                    ===============

Net assets attributable to Class III Shares                                       $    170,705,669 
                                                                                    ===============

Shares outstanding - Class III                                                          19,571,340 
                                                                                    ===============

Net asset value per share - Class III                                             $           8.72 
                                                                                    ===============

              See accompanying notes to the financial statements.              3


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]

Statement of Operations - Year Ended February 28, 1998                                             
---------------------------------------------------------------------------------------------------
                                                                                                   
Investment income:                                                                                 
     Dividends (net of foreign tax expense of $275,665)                         $        3,277,634 
     Dividends from investment company shares                                            2,449,297 
     Interest (including security lending income of $26,087)                             2,435,206 
                                                                                  -----------------
         Total income                                                                    8,162,137 
                                                                                  -----------------
Expenses:                                                                                          
     Management fee (Note 2)                                                             1,509,937 
     Custodian fees                                                                        376,553 
     Audit fees                                                                             41,139 
     Transfer agent fees                                                                    28,203 
     Legal fees                                                                             13,598 
     Registration fees                                                                       6,500 
     Trustees fee (Note 2)                                                                   2,196 
     Stamp duties and transfer taxes                                                           423 
     Miscellaneous                                                                           2,288 
     Fees waived or borne by Manager (Note 2)                                             (850,401)
                                                                                  -----------------
                                                                                         1,130,436 
     Shareholder service fee - Class III (Note 2)                                          217,705 
                                                                                  -----------------

         Net expenses                                                                    1,348,141 
                                                                                  -----------------

             Net investment income                                                       6,813,996 
                                                                                  -----------------

Realized and unrealized gain (loss):                                                               
         Net realized gain (loss) on:                                                              
             Investments                                                                39,032,089 
             Realized gain distributions from investment company shares                 15,458,182 
             Closed futures contracts                                                  (25,202,111)
             Closed swap contracts                                                      (8,619,045)
             Foreign currency, forward contracts and foreign currency related                      
                 transactions                                                           (2,891,897)
                                                                                  -----------------
                    Net realized gain                                                   17,777,218 
                                                                                  -----------------
         Change in net unrealized appreciation (depreciation) on:                                  
             Investments                                                               (25,158,057)
             Open futures contracts                                                     (4,744,737)
             Open swap contracts                                                           232,859 
             Foreign currency, forward contracts and foreign currency related                      
                 transactions                                                            1,995,454 
                                                                                  -----------------
                    Net unrealized loss                                                (27,674,481)
                                                                                  -----------------
         Net realized and unrealized loss                                               (9,897,263)
                                                                                  -----------------

Net decrease in net assets resulting from operations                            $       (3,083,267)
                                                                                  =================

4                See accompanying notes to the financial statements.            


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                             Year Ended           Year Ended    
                                                                         February 28, 1998    February 28, 1997 
                                                                        -------------------  -------------------
                                                                                                                
Increase (decrease) in net assets:                                                                              
Operations:                                                                                                     
     Net investment income                                            $         6,813,996    $      6,639,580   
     Net realized gain                                                         17,777,218          21,603,070   
     Change in net unrealized appreciation (depreciation)                     (27,674,481)        (21,597,390)  
                                                                        ------------------     ---------------  

     Net increase (decrease) in net assets resulting from operations           (3,083,267)          6,645,260   
                                                                        ------------------     ---------------  

Distributions to shareholders from:                                                                             
     Net investment income - Class III                                         (6,516,906)         (5,664,462)  
     Net realized gains - Class III                                           (19,721,985)             -        
     In excess of net realized gains - Class III                               (7,564,405)             -        
                                                                        ------------------     ---------------  

                                                                              (33,803,296)         (5,664,462)  
                                                                        ------------------     ---------------  

Net share transactions - Class III (Note 5)                                   (89,109,720)        (87,212,602)  
                                                                        ------------------     ---------------  

     Total decrease in net assets                                            (125,996,283)        (86,231,804)  

Net assets:                                                                                                     
     Beginning of period                                                      296,701,952         382,933,756   
                                                                        ------------------     ---------------  
     End of period (including distributions in excess of                                                        
     net investment income of $1,571,288 and $927,940,                                                          
     respectively)                                                    $       170,705,669    $    296,701,952   
                                                                        ==================     ===============  

              See accompanying notes to the financial statements.              5


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                       Year Ended February 28/29,                
                                                    -------------------------------------------------------------
                                                        1998            1997             1996            1995*   
                                                    -----------      ----------       ----------      -----------
                                                                                                                 
Net asset value, beginning of period                 $    10.69      $    10.64       $    10.12      $    10.00 
                                                     ----------      ----------       ----------       --------- 

Income from investment operations:                                                                               
  Net investment income                                    0.35            0.24             0.21            0.11 
  Net realized and unrealized gain (loss)                 (0.52)           0.01             0.55            0.08 
                                                     ----------      ----------       ----------       --------- 

    Total from investment operations                      (0.17)           0.25             0.76            0.19 
                                                     ----------      ----------       ----------       --------- 
Less distributions to shareholders:                                                                              
  From net investment income                              (0.35)          (0.20)           (0.24)          (0.07)
  From net realized gains                                 (1.05)              -                -               - 
  In excess of net realized gains                         (0.40)              -                -               - 
                                                     ----------      ----------       ----------       --------- 
Total distributions                                       (1.80)          (0.20)           (0.24)          (0.07)
                                                     ----------      ----------       ----------       --------- 

Net asset value, end of period                       $     8.72       $   10.69       $    10.64       $   10.12 
                                                     ==========       =========       ==========       ========= 

Total Return (a)                                         (1.63%)          2.34%            7.54%           1.92% 

Ratios/Supplemental Data:                                                                                        

     Net assets, end of period (000's)                 $170,706        $296,702       $  382,934       $ 214,638 
     Net expenses to average                                                                                     
         daily net assets                                 0.58%           0.91%(c)         0.78%           0.92% 
     Net investment income to average                                                                            
         daily net assets                                 2.93%           1.99%            2.44%           2.85% 
     Portfolio turnover rate                               277%            463%             214%            194% 
     Average broker commission rate (b)              $   0.0104       $  0.0084              N/A             N/A 
     Fees and expenses voluntarily waived or borne                                                               
         by the Manager consisted of the following                                                               
         per share amounts:                          $     0.04       $    0.02       $    0.005      $    0.006 

*    Period from July 29, 1994 (commencement of operations) to February 28,     
1995.                                                                 
**   Annualized                                                                 
(a)  Calculation excludes purchase premiums and redemption fees. The total      
returns would have been lower had certain expenses not been waived    
during the periods shown.                                             
(b)  For fiscal years beginning on or after September 1, 1995, a fund is        
 required to disclose its average commission rate per share for security
trades on which commissions are charged. The average broker commission
rate will vary depending on the markets in which trades are executed. 
(c)  Includes stamp duties and transfer taxes not waived or borne by the        
Manager, which approximates .02% of average daily net assets.         

6             See accompanying notes to the financial statements.               


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.  Significant accounting policies                                   

  GMO Global Hedged Equity Fund (the "Fund") is a series of GMO Trust (the
    "Trust"). The Fund is registered under the Investment Company Act of 1940,
    as amended, as an open-end, non-diversified management investment company.
   The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
    Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an  
unlimited number of series ("Funds"), each of which issues a separate 
series of shares, and to subdivide a series into classes.             

 The Fund seeks total return consistent with minimal exposure to general
     equity market risk, either directly or through investment in other Funds of
the Trust ("underlying Funds"). On August 20, 1998, the Fund began to 
invest a substantial portion of its assets in underlying Funds.       

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bore the same total operating expenses (after the voluntary expense waiver)
     as those shares. On August 20, 1997, the Fund revised its voluntary expense
    waiver to include certain expenses incurred indirectly by the Fund through
 investment in underlying Funds (see Note 2). Effective January 9, 1998,
Class I and Class II shares ceased to be offered.                     

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted
   sale price on each business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

                                                                               7


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Foreign currency translation                                          
The accounting records of the Fund are maintained in U.S. dollars. The
  market values of foreign securities, currency holdings, other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     
The Fund may purchase index futures contracts. Stock index futures    
    contracts represent commitments for future delivery of cash based upon the
   level of a specified index of equity securities at a specified price at a
  given date. The Fund may use futures contracts to manage its exposure to
     the stock and currency 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 obligations in   
    accordance with the initial margin requirements of the broker or exchange.
    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 subsequently settled. Gains or losses
  are recognized but not considered realized until the contracts expire or
    are closed. Futures contracts involve, to varying degrees, risk of loss in
 excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from the changes in the value of the    
 underlying instrument, if there is an illiquid secondary market for the
 contracts or if counterparties do not perform under the contract terms.
   Futures contracts are valued at the settlement price established each day
    by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of February 28, 1998.                   

8                                                                               


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts                                            
The Fund may enter into forward 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 the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the  
    currencies the Fund has committed to buy or sell is shown under Note 6 and
  represents the currency exposure the Fund has acquired or hedged through
currency contracts as of February 28, 1998.                           

Options                                                               
   The Fund may write call and put options on securities it owns or in which
   it may invest. 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
     offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the  
     premium reduces the cost basis of the securities purchased by the Fund. The
  Fund as a writer of an option has no control over whether the underlying
    securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security     
   underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At 
February 28, 1998, there were no outstanding written options.         

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

                                                                               9


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Swap agreements                                                       
    The Fund may invest in swap agreements. 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 swap agreements to manage its exposure
  to the equity markets. The Fund enters 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 based on a notional amount. To the
extent that 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. Total return swaps are marked to market daily
based upon quotations from market makers and the change, if any, is   
recorded as unrealized gain or loss in the Statement of Operations.   
     Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and 
    market risk in excess of the amounts recognized on the Statement of Assets
     and Liabilities. Such risks involve the possibility that there is no liquid
  market for these agreements, that the counterparty to the agreements may
default on its obligation to perform or that there may be unfavorable 
changes in the price of the security or index underlying these        
transactions. See Note 6 for a summary of open swap agreements as of  
February 28, 1998.                                                    

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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the fund had no securities on loan. 

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for federal income or
     excise tax is necessary. Taxes on foreign interest and dividend income have
   been withheld in accordance with the applicable country's tax treaty with
the United States.                                                    

10                                                                              


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Distributions to shareholders                                         
   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.                                                   

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
  differing treatments for foreign currency and passive foreign investment
company 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Distributions in           Accumulated                          
Excess of Net           Undistributed                         
   Investment Income       Net Realized Gain           Paid-in Capital
 ----------------------- -------------------------   -------------------

 ($940,438)                $758,903                   $181,535

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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             

                                                                              11


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
    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. 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. (See Note 2).     

Purchases and redemptions of Fund shares                              
The premium on cash purchases of Fund shares is .37% of the amount    
     invested. Prior to June 30, 1997, the premium on cash purchases was .50% of
   the amount invested. In the case of cash redemptions, the fee is 1.40% of
   the amount redeemed. The Manager may waive the fee on cash redemptions if
 it is not necessary to incur costs relating to the early termination of
     hedging transactions to meet redemption requests. All purchase premiums and
redemption fees are paid to and are recorded by the Fund as paid-in   
     capital. These fees are allocated relative to each class' net assets on the
share transaction date. Purchase premiums are included as part of each
class' "shares sold" and redemption fees are included as part of each 
     class' "shares repurchased", respectively, as summarized in Note 5. For the
     year ended February 28, 1998, the Fund received $2,343 in purchase premiums
   and no redemption fees. There is no premium for reinvested distributions.
    Normally, no purchase premium is charged with respect to in-kind purchases
     of Fund shares. A purchase premium of up to 0.10% may be charged on certain
in-kind transactions.                                                 

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 and the
possible imposition of currency exchange blockages 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.                                                              

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .65% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares and
     .15% for Class III shares. The Fund will invest in Class III shares of each
underlying Fund being offered. Like the management fee (as described  
     below), the shareholder service fee of each class of the Fund's shares 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.                                                     

    GMO has agreed to waive a portion of its fee (but not below zero) and bear
  other expenses until further notice to the extent that the Fund's annual
expenses (including the management fee but                            

12                                                                              


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
  excluding custody fees, brokerage commissions, certain other transaction
costs (including transfer taxes), shareholder service fees and        
extraordinary expenses ("fund expenses")) plus the amount of fees and 
   expenses (excluding shareholder service fee and fund expenses (as defined
 above) incurred indirectly by the Fund through investment in underlying
    Funds) exceed .50% of average daily net assets. Because GMO will not waive
     the management fees below zero, 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) incurred indirectly
   by the Fund through investment in underlying Funds may exceed .50% of the
Fund's average daily net assets.                                      

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $2,196. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

   For the year ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                                        [Enlarge/Download Table]


                                                      Purchases                 Proceeds       
                                                ----------------------    ---------------------
                                                                                               
U.S. Government securities                    $           302,077,695   $          313,850,234 

Investments (non-U.S. Government securities)              266,435,906              355,676,538 


  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                        [Enlarge/Download Table]


                                 Gross Unrealized             Gross Unrealized              Net Unrealized      
   Aggregate Cost                  Appreciation                 Depreciation                 Depreciation       
-------------------------  -----------------------------  --------------------------  --------------------------
                                                                                                                
    $182,567,708                    $1,989,887                   $11,156,871                  $9,166,984        


4.   Principal shareholders                                                     

   At February 28, 1998, 42% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's      
outstanding shares.                                                   

                                                                              13


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
   of full and fractional shares of beneficial interest (without par value).
 Transactions in Fund shares, including purchase premiums and redemption
fees received by the Fund, were as follows:                           

                                                        [Enlarge/Download Table]


                                     Year Ended                                     Year Ended                  
                                 February 28, 1998                              February 28, 1997               
                    ---------------------------------------------  ---------------------------------------------
Class III:                Shares                   Amount                Shares                   Amount        
                    --------------------    ---------------------  --------------------     --------------------
                                                                                                                
Shares sold                      58,635   $              595,622             2,716,101    $          28,751,811 

Shares issued to                                                                                                
shareholders in                                                                                                 
reinvestment of                                                                                                 
distributions                 3,493,801               30,813,859               335,863                3,585,825 

Shares repurchased         (11,741,685)            (120,519,201)          (11,267,323)            (119,550,238) 
                    --------------------    ---------------------  --------------------     --------------------
Net decrease                (8,189,249)   $         (89,109,720)           (8,215,359)    $        (87,212,602) 
                    ====================    =====================  ====================     ====================


6.  Financial instruments                                                       

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Short futures contracts                                               

                                                        [Enlarge/Download Table]


   Number of                                                                                   Net Unrealized    
   Contracts               Type              Expiration Date          Contract Value            Depreciation     
-----------------  ---------------------  ----------------------    --------------------    ---------------------
                                                                                                                 
             341   S&P 500                     March 1998         $          89,555,125   $          (6,718,780) 
               6   MIB30                       March 1998                       973,908                (123,148) 
               8   DAX                         March 1998                     2,074,776                (181,777) 
              32   TOPIX                       March 1998                     3,232,170                 (11,252) 
               9   HANG SENG                   March 1998                       671,295                 (59,273) 
              21   FT-SE 100                   March 1998                     4,997,176                (475,682) 
              13   ALL ORDS                    March 1998                       597,797                 (15,539) 
              17   OMX                         March 1998                       583,483                 (12,584) 
              16   MATIF CAC 40                March 1998                     1,803,572                (235,264) 
              11   IBEX                        March 1998                       639,223                 (54,314) 
                                                                                            ---------------------
                                                                                          $          (7,887,613) 
                                                                                            =====================


At February 28, 1998, the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.                        

14                                                                              


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts                                                      

                                                        [Enlarge/Download Table]


                                                                                                 Net Unrealized   
   Settlement                                                                                     Appreciation    
      Date              Deliver/Receive         Units of Currency             Value              (Depreciation)   
------------------  -------------------------  ---------------------    -------------------    -------------------
Buys                                                                                                              
                                                                                                                  
          4/17/98             ATS                         1,752,850   $            137,649   $                149 
          4/17/98             AUD                         1,571,426              1,071,477                 54,977 
          4/17/98             BEF                        12,792,375                342,369                  (130) 
           3/6/98             CHF                         2,014,320              1,373,074               (13,263) 
          4/17/98             CHF                         3,956,761              2,712,456                (8,044) 
           3/6/98             DEM                         2,841,280              1,565,944                  (648) 
          4/17/98             DEM                         6,496,856              3,589,869                (6,911) 
          4/17/98             DKK                         2,036,356                295,028                     28 
           3/6/98             ESP                        69,409,400                450,698                  (487) 
          4/17/98             ESP                       139,068,000                904,107                (2,300) 
          4/17/98             FIM                         1,121,192                204,065                  (435) 
           3/6/98             FRF                         7,731,100              1,269,859                (1,181) 
          4/17/98             FRF                        18,111,701              2,982,479               (12,198) 
           3/6/98             GBP                         1,745,955              2,874,296                 14,823 
          4/17/98             GBP                         4,937,196              8,109,851                 76,544 
          4/17/98             HKD                         7,828,943              1,010,072                 13,072 
          4/17/98             IEP                            46,996                 64,030                  (970) 
           3/6/98             ITL                     1,422,181,550                794,727                  1,608 
          4/17/98             ITL                     2,471,765,950              1,380,518                (2,482) 
          4/17/98             JPY                       528,827,500              4,214,101               (35,899) 
          4/17/98             MYR                         2,605,440                706,872                116,872 
           3/6/98             NLG                         1,851,388                904,670                  (898) 
          4/17/98             NLG                         4,108,600              2,013,016                (6,653) 
          4/17/98             NOK                         1,459,809                193,316                (3,684) 
          4/17/98             NZD                           278,024                162,462                  5,462 
           3/6/98             SEK                         3,155,589                394,170                  4,591 
          4/17/98             SEK                         8,703,750              1,088,659                  1,616 


                                                                              15


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                              

                                                        [Enlarge/Download Table]


                                                                                               Net Unrealized   
   Settlement                                                                                   Appreciation    
      Date              Deliver/Receive         Units of Currency           Value              (Depreciation)   
------------------  -------------------------  ---------------------  -------------------    -------------------
Buys - continued                                                                                                
                                                                                                                
          4/17/98             SGD                           700,916              432,210                 39,210 
                                                                                             -------------------
                                                                                           $            232,769 
                                                                                             ===================



Sales                                                                                                           
                                                                                                                
          4/17/98             ATS                         2,567,200              201,599                 12,142 
          4/17/98             AUD                         2,261,293            1,541,863                 14,269 
          4/17/98             BEF                        18,837,500              504,158                 27,524 
           3/6/98             CHF                         2,014,320            1,373,074                 26,926 
          4/17/98             CHF                         3,685,526            2,526,518                138,938 
          8/20/98             CHF                         2,014,320            1,402,562                 11,294 
           3/6/98             DEM                         2,841,280            1,565,944                 34,056 
          4/17/98             DEM                         6,496,856            3,589,869                191,110 
          8/20/98             DEM                         2,841,280            1,581,278                  (726) 
          4/17/98             DKK                         2,779,560              402,703                 21,702 
           3/6/98             ESP                        69,409,400              450,698                  9,302 
          4/17/98             ESP                       139,068,000              904,107                 51,227 
          8/20/98             ESP                        69,409,400              453,449                     30 
          4/17/98             FIM                         1,645,560              299,503                 17,976 
           3/6/98             FRF                         7,731,100            1,269,859                 30,141 
          4/17/98             FRF                        18,111,701            2,982,479                165,467 
          8/20/98             FRF                         7,731,100            1,282,111                    165 
           3/6/98             GBP                         1,745,955            2,874,296                 28,704 
          4/17/98             GBP                         5,369,055            8,819,223                163,418 
          8/20/98             GBP                         1,745,955            2,850,439               (14,746) 
          4/17/98             HKD                        11,700,450            1,509,565               (30,555) 
          4/17/98             IEP                            68,273               93,019                  9,623 
           3/6/98             ITL                     1,422,181,550              794,727                 14,273 
          4/17/98             ITL                     2,282,743,600            1,274,946                 68,634 


16                                                                              


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                              

                                                        [Enlarge/Download Table]


                                                                                                 Net Unrealized   
   Settlement                                                                                     Appreciation    
      Date              Deliver/Receive         Units of Currency             Value              (Depreciation)   
------------------  -------------------------  ---------------------    -------------------    -------------------
Sales - continued                                                                                                 
                                                                                                                  
          8/20/98             ITL                     1,422,181,550   $            794,955   $            (2,247) 
          4/17/98             JPY                       856,180,000              6,822,695               (22,695) 
          4/17/98             MYR                         3,258,200                883,969                 28,436 
           3/6/98             NLG                         1,851,388                904,670                 20,330 
          4/17/98             NLG                         4,108,600              2,013,016                108,976 
          8/20/98             NLG                         1,851,388                913,720                     94 
          4/17/98             NOK                         1,511,600                200,174                 15,895 
          4/17/98             NZD                           318,016                185,831                 11,402 
           3/6/98             SEK                         3,155,589                394,170                  6,830 
          4/17/98             SEK                         8,703,750              1,088,659                 63,697 
          8/20/98             SEK                         3,155,589                396,122                (5,105) 
          4/17/98             SGD                           928,690                572,664                (6,523) 
                                                                                               -------------------
                                                                                             $          1,209,984 
                                                                                               ===================


Currency Abbreviations:                                         

ATS      Austrian Schilling        HKD        Hong Kong Dollar  
AUD      Australian Dollar         IEP        Irish Pound       
BEF      Belgian Franc             ITL        Italian Lira      
CHF      Swiss Franc               JPY        Japanese Yen      
DEM      German Mark               MYR        Malaysian Ringgit 
 DKK      Danish Krona              NLG        Netherlands Guilder
ESP      Spanish Peseta            NOK        Norwegian Kroner  
FIM      Finnish Markka            NZD        New Zealand Dollar
FRF      French Franc              SEK        Swedish Krona     
GBP      British Pound             SGD        Singapore Dollar  

                                                                              17


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Swap agreements                                                         

                                                        [Enlarge/Download Table]


                                                                                                        Unrealized     
        Notional             Expiration                                                                Appreciation    
         Amount                 Date                             Description                          (Depreciation)   
-------------------------  ---------------  ------------------------------------------------------  -------------------
                                                                                                                       
      $        9,000,000         09/30/98   Agreement with Deutsche Bank AG dated 9/30/97 to pay    $          (2,992) 
                                            (receive) the notional amount multiplied by the                            
                                            return on the EAFE Index (including dividends) and                         
                                            to receive the notional amount multiplied by 6 month                       
                                            LIBOR adjusted by a specified spread.                                      

              15,500,000         05/29/98   Agreement with Swiss Bank Corporation dated 5/30/97              (390,729) 
                                            to pay (receive) the notional amount multiplied by                         
                                            the return on the EAFE Index (including dividends)                         
                                            and to receive the notional amount multiplied by 12                        
                                            month LIBOR adjusted by a specified spread.                                

              25,641,923         05/29/98   Agreement with Swiss Bank Corporation dated 5/30/97            (3,727,310) 
                                            to pay (receive) the notional amount multiplied by                         
                                            the return on the EAFE x-Japan Index (including                            
                                            dividends) and to receive the notional amount                              
                                            multiplied by 12 month LIBOR adjusted by a specified                       
                                            spread.                                                                    

                                                                                                    -------------------
                                                                      Net unrealized depreciation   $      (4,121,031) 
                                                                                                    ===================


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

------------------------------------------------------------------------------- 
For the fiscal year ended February 28, 1998, all the Fund's distributions are   
from investment company taxable income, except that the Fund has designated 54% 
of distributions as net capital gain dividends.                                 

The Fund has elected to defer to March 1, 1998 post-October losses of           
$5,813,966.                                                                     

                                                                              19


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GMO Global Hedged Equity Fund                                                   
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. R. Jeremy Grantham, Mr. Christopher Darnell and Mr. Forrest Berkley are     
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Grantham has been with GMO since its founding in 1977. Mr. Darnell has been with
GMO and involved in portfolio management for more than 16 years. Mr. Berkley has
been with GMO and involved in portfolio management for more than 10 years.      

Management Discussion and Analysis of Fund Performances                         
-------------------------------------------------------                         

The Class III shares of the Global Hedged Equity Fund returned -1.63% for the   
fiscal year ending February 28, 1998. During that period the Fund's benchmark,  
The Salomon 3 Month T-Bill, returned +5.27%.                                    

The Fund's objective is to outperform the Salomon 3 Month T-Bill Index by adding
the alpha (value added) of our U.S. and international equity funds, as well as  
the value added of our asset allocation strategy, to a short-term fixed income  
return. As of February 28, 1998, the Fund held 44% of its assets in U.S.        
equities, 35% in developed international equities and 12% in emerging markets   
equities. The remaining 9% of the Fund was invested in U.S. Treasuries and cash 
holdings. The equity exposure is fully hedged using EAFE futures and            
international equity swaps combined to represent the GMo EAFE-Lite Index, as    
well as S&P 500 futures.                                                        

In August, the GMO Global Hedged Equity Fund converted into a fund-of-funds by  
exchanging its portfolio securities for GMO mutual fund shares of equivalent    
value. The purpose of the conversion was to enable the Fund to implement more   
effectively its investment strategies. The Fund currently invests in the GMO    
Core Fund, GMO REIT Fund, GMO Small Cap Growth Fund, GMO Small Cap Value Fund,  
GMO Evolving Countries Fund, GMO Emerging Markets Fund, GMO International Small 
Companies Fund and GMO International Core Fund. The conversion does not         
represent any change in the investment strategies of the Fund, but only in the  
implementation of these strategies.                                             

The GMO Global Hedged Equity Fund's performance for the fiscal year was         
negatively impacted by the poor performance of the GMO International Core Fund  
relative to EAFE-Lite. For the fiscal year, the GMO International Core Fund     
returned 11.7%, trailing the GMO EAFE-Lite Index by 7.1%. Returns for the Fund  
relative to the benchmark were negatively impacted by the Fund's value          
orientation in a market that favored large, growth-oriented international       
stocks.                                                                         

The emerging markets position also negatively impacted the relative performance 
of the GMO Global Hedged Equity Fund. The 12% weight in emerging markets was    
hedged half with S&P 500 futures and half with EAFE futures and international   
equity swaps. This position reflected the expectation that emerging markets     
would outperform richly valued developed equity markets. However, during the    
year, developed markets continued to trend upwards, while emerging markets fell 
sharply in the wake of the financial collapse in Southeast Asia.                

For the fiscal year, the U.S. equity funds as a group returned 34.4%, slightly  
underperforming the S&P 500 return of 35.0%. The GMO Core Fund, which accounts  
for 72% of the U.S. equity holdings, outperformed the S&P 500 Index by 1.7%.    
However, diversification into the GMO Small Cap Value, Small Cap Growth and REIT
Funds was unsuccessful in adding value. The small cap funds did well against    
their respective mandates, but lagged the S&P 500 Index, which continued its    
record-breaking run.                                                            

The 9% Treasury position was enhanced with bond futures for most of the fiscal  
year. As interest rate spreads narrowed, this exposure added value for the      
period.                                                                         

Outlook                                                                         
-------                                                                         

We continue to believe that valuation levels of developed equity markets are    
high. In the U.S., we are maintaining positions in the GMO Small Cap Value,     
Small Cap Growth and REIT Funds which, in our view, have better return potential
than the S&P 500. In out GMO International Core portfolio we are emphasizing    
small and value stocks. We are also maintaining a significant exposure to       
emerging equity markets, which we expect to rebound from currently depressed    
levels. We expect this positioning of our international portfolio to outperform 
both GMO EAFE-Lite and the S&P 500 during the current fiscal year.              

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.                    


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Global Hedged                                                                   

Comparison of Change in Value of a $10,000 Investment in  
GMO Global Hedged Equity Fund Class III Shares and  
the Salomon Brothers 3 Month Treasury Bill Index  
As of February 28, 1998 

----------------------------------  
Average Annual Total Return 
----------------------------------  
         Since
         Inception
1 Year     7/29/94  
----------------------------------  
Class                                             
III            -3.6%       2.2%                 
----------------------------------  

[LINE GRAPH APPEARS HERE] 

       GMO Global Hedged Equity       Salomon Brothers 3 Month
Date          Fund Class III Shares            Treasury Bill Index        
----------      ------------------------       ------------------------         

7/29/94                 $9,963                         $10,000                
2/28/95                $10,155                         $10,297                
2/29/96                $10,769                         $10,882                
2/28/97                $11,021                         $11,451                
2/28/98                $10,811                         $12,054                

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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 140 bp on the redemption.          
Transaction fees are paid to the Fund to cover trading costs. Class III shares  
are a redesignation of the single class of shares that has been offered by the  
Fund since inception. Past performance is not indicative of future performance  
Information is unaudited.                                                       


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO Foreign Fund (A Series of GMO Trust)                                        

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 at February 28,   
1998, the results of its operations for the year then ended, the changes in its 
net assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and   
financial highlights (hereafter referred to as "financial statements") are the  
responsibility of the Trust'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 generally accepted      
auditing standards 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 28, 1998 by       
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide 
a reasonable basis for the opinion expressed above.                             

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  STOCK AND EQUIVALENTS - 93.9%                                                   
                  Argentina - 0.2%                                                                
       57,500     YPF SA ADR                                                            1,818,438 
                                                                                ------------------

                  Australia - 3.8%                                                                
      346,591     Australia and New Zealand Banking Group Ltd                           2,384,763 
      572,816     Broken Hill Proprietary Ltd                                           5,658,348 
    2,840,000     Burns Philp & Co Ltd                                                    464,340 
      501,000     Burswood Ltd                                                            361,785 
      229,100     Caltex Australia Ltd                                                    733,550 
      323,232     Capral Aluminum Ltd                                                     682,626 
    5,674,100     Crown Ltd *                                                           2,705,836 
      237,472     Dominion Mining Ltd Warrants 12/31/98 *                                   3,236 
      494,945     Dominion Mining Ltd *                                                   101,154 
      690,504     Email Ltd                                                             1,552,339 
      465,510     Foodland Associated                                                   3,504,272 
    1,462,358     Goodman Fielder Ltd                                                   2,530,427 
    3,365,000     Menzies Gold NL *                                                       378,247 
    3,072,793     MIM Holdings Ltd                                                      1,716,539 
      296,888     Newcrest Mining Ltd *                                                   398,442 
      390,000     Oil Search Ltd                                                          757,209 
       54,000     Orogen Minerals Ltd GDR 144A                                          1,161,000 
    4,101,235     Pasminco Ltd                                                          4,556,959 
      602,001     Pioneer International Ltd                                             1,742,981 
      326,990     Qantas Airways Ltd                                                      559,132 
      616,496     Rothmans Holdings Ltd                                                 3,729,493 
      661,499     Western Mining Corp Holdings Ltd                                      2,244,218 
      529,994     Westpac Banking Corp                                                  3,675,575 
      511,706     Wills (WD & HO) Holdings Ltd                                            700,685 
                                                                                ------------------
                                                                                       42,303,156 
                                                                                ------------------
                  Austria - 0.4%                                                                  
       42,920     Bank Austria AG (Participating Certificate)                           2,531,192 
        4,613     Oesterreichische Brau Beteiligungs AG                                   270,244 
        7,170     Radex-Heraklith AG                                                      288,076 
        1,991     Universale Bau AG                                                        69,391 
        4,107     VA Technologie AG (Bearer)                                              567,084 
        3,140     Wienerberger Baustoffindustrie AG                                       606,201 
                                                                                ------------------
                                                                                        4,332,188 
                                                                                ------------------
                  Belgium - 2.9%                                                                  
       28,925     Almanij NV                                                            1,660,137 
        1,109     Bekaert SA                                                              750,485 
        6,000     CBR Cimenteries NPV                                                     526,962 
       25,192     Cie Francois De Enterprises                                           7,027,667 
       14,350     Credit Commercial Dexia                                               2,060,945 
       19,398     Electrabel SA                                                         4,707,096 
        6,397     Generale Banque NPV                                                   3,026,877 
       17,305     GIB Holdings Ltd                                                        852,315 

              See accompanying notes to the financial statements.              1


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Belgium - continued                                                             
        5,032     Kredietbank NPV                                                       2,323,908 
        2,713     Petrofina SA Bruxelles                                                  925,216 
        1,510     Royale Belge NPV                                                        478,677 
       24,780     Solvay Et Cie                                                         1,554,538 
       33,775     Tractebel                                                             3,466,761 
          715     UCB Cap NPV                                                           2,872,597 
                                                                                ------------------
                                                                                       32,234,181 
                                                                                ------------------
                  Brazil - 0.0%                                                                   
    6,439,529     Gerdau SA Preferred                                                     102,563 
      158,537     Metalurgica Gerdau SA                                                     3,788 
    2,809,994     Metalurgica Gerdau SA Preferred                                          87,098 
                                                                                ------------------
                                                                                          193,449 
                                                                                ------------------
                  Canada - 0.9%                                                                   
      137,220     Abitibi Consolidated Inc                                              1,957,324 
       29,693     Alliance Forest Products Inc Preferred *                                588,373 
       10,200     Alliance Forest Products Inc (c) *                                      202,115 
       10,500     Avenor Inc                                                              222,447 
       12,000     Boliden Ltd Installment Receipt 144A *                                   30,777 
      283,000     Boliden Ltd *                                                           725,819 
       50,000     Burcon Properties Ltd *                                                 518,217 
       36,700     Burcon Properties Ltd *                                                 380,371 
       99,149     Cambridge Shopping Centres Ltd                                        1,034,580 
       15,000     Cambridge Shopping Centres Ltd *                                        156,519 
       82,500     Canadian Hotel Income Properties                                        547,816 
       33,500     Canfor Corp                                                             240,101 
      101,500     Iamgold (International African Mining Gold) *                           349,471 
      116,600     KAP Resources Ltd Class A Warrants 8/5/2000 *                            32,772 
      220,100     KAP Resources Ltd *                                                     290,755 
      200,000     Meridian Gold Inc *                                                     611,320 
      633,600     Semi-Tech Class A *                                                     253,769 
       38,800     St Laurent Paperboard *                                                 440,305 
       99,000     Tembec Inc Class A *                                                    605,207 
       24,140     Trizec Hahn Corp (Sub-Voting)                                           595,379 
                                                                                ------------------
                                                                                        9,783,437 
                                                                                ------------------
                  Denmark - 0.0%                                                                  
       12,300     Alm Brand AS Class B                                                    444,473 
                                                                                ------------------

                  France - 8.5%                                                                   
        9,350     Accor SA                                                              2,158,903 
       34,745     Alcatel Alsthom Cie Generale d'Electricite SA                         4,519,118 
       31,136     Axa SA                                                                3,011,718 

2             See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  France - continued                                                              
        4,788     Axa UAP Certificates 7/1/99                                               1,494 
       31,516     Banque Nationale de Paris                                             1,904,650 
       46,500     BIC SA                                                                3,685,331 
       21,046     Bouygues                                                              2,951,642 
        4,080     Cap Gemini SA                                                           469,023 
        5,278     Chargeurs International SA                                              311,952 
        5,943     Christian Dior                                                          720,275 
       12,983     Club Mediterranee SA Rights 3/11/98 *                                    18,869 
       12,983     Club Mediterranee SA *                                                  963,717 
        3,200     Colas SA                                                                515,006 
        7,843     Compagnie Generale d'Industrie et de Participations                   3,373,292 
        6,890     Credit Local de France SA                                               879,177 
       16,505     Credit Lyonnais *                                                     1,206,179 
        7,679     Dollfus-Mieg and Cie *                                                  158,895 
      108,305     Elf Aquitaine SA                                                     12,325,880 
        2,871     Elf Gabon                                                               490,346 
       10,339     Eridania Beghin-Say SA                                                1,843,931 
       18,576     Financiere de Paribas SA                                              1,766,310 
       45,550     France Telecom SA *                                                   2,207,465 
        1,739     Gaz Et Eaux                                                             742,522 
        6,474     Generale Des Eaux                                                     1,018,531 
       11,021     Generale Des Eaux Warrants 5/2/2001 *                                    11,040 
        8,463     Groupe Andre *                                                          931,184 
        3,038     Groupe Axime *                                                          497,914 
       17,938     Groupe Danone                                                         3,623,392 
        2,299     Guyenne Et Gascogne                                                     755,101 
        5,500     Imetal                                                                  684,649 
        4,389     Labinal SA                                                            1,226,765 
       12,000     Lafarge Coppee SA                                                       885,429 
       36,617     Lagardere Groupe                                                      1,328,958 
       62,365     Lyonnaise Des Eaux                                                    8,224,181 
       23,310     Michelin SA Class B                                                   1,443,178 
        4,318     Pathe SA                                                                829,669 
       33,523     Pechiney SA Class A                                                   1,486,424 
       23,970     Pernod-Ricard                                                         1,566,705 
       18,953     Peugeot SA                                                            2,698,567 
       52,112     Rhone Poulenc SA Class A                                              2,401,384 
        6,796     Saint-Gobain                                                            952,004 
       60,594     Seita                                                                 2,646,960 
       16,483     Sidel (Bearer)                                                        1,142,312 
       18,755     Societe Generale Paris                                                2,827,457 
       15,100     Sommer Allibert                                                         588,700 
       35,350     SPIE Batignolles                                                      2,200,213 

              See accompanying notes to the financial statements.              3


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  France - continued                                                              
        4,196     Strafor Facom                                                           327,315 
        6,000     Sylea (Bearer)                                                          708,462 
       54,656     Thomson CSF                                                           1,884,922 
       30,344     Total SA                                                              3,328,783 
       12,602     TV Francaise                                                          1,365,902 
        9,260     Vallourec                                                               638,091 
        6,835     Worms et Compagnie SA                                                   426,539 
                                                                                ------------------
                                                                                       94,876,426 
                                                                                ------------------
                  Germany - 7.4%                                                                  
      128,500     Bankgesellschaft Berlin AG                                            2,729,674 
       61,990     Bayer AG                                                              2,635,365 
      135,000     Bayerische Hypotheken und Wechsel-Bank AG                             2,447,445 
       11,602     BHF Bank AG                                                             338,838 
       27,200     Brau und Brunnen *                                                    2,450,585 
        9,945     Cologne Reinsurance (Registered)                                     11,891,803 
      141,000     Commerzbank AG                                                        5,104,670 
      178,010     Continental AG                                                        4,276,752 
       26,500     Daimler-Benz                                                          2,165,560 
       35,500     Deutsche Bank AG                                                      2,437,416 
      227,000     Deutsche Telekom AG                                                   4,509,354 
      169,940     Dresdner Bank                                                         7,777,114 
        3,641     Dyckerhoff AG (Non Voting)                                            1,015,207 
        9,800     Holzmann (Philipp) *                                                  2,322,083 
        3,331     Koelnische Rueckversicherungs-Gesellschaft AG *                       3,955,534 
      161,500     Lufthansa AG *                                                        3,105,855 
       26,772     Metro AG Class I Preferred                                              901,374 
      123,000     Pfeiffer Vacuum Tech Sponsored ADR *                                  4,182,000 
       55,000     Rheinmetall AG                                                        1,091,059 
       16,144     Rheinmetall AG Preferred                                                284,672 
      131,860     RWE Preferred                                                         6,187,011 
       29,000     Siemens AG                                                            1,792,974 
        5,150     Villeroy and Boch AG *                                                  763,383 
        2,400     Volkswagen AG                                                         1,577,077 
       10,600     Volkswagen AG Preferred .79%                                          5,163,466 
        4,500     Volkswagen AG Warrants 10/27/98 *                                     1,537,402 
                                                                                ------------------
                                                                                       82,643,673 
                                                                                ------------------
                  Hong Kong - 4.9%                                                                
    3,237,400     Amoy Properties Ltd                                                   2,738,776 
    1,277,000     Cheung Kong Holdings                                                  8,947,659 
    3,255,052     Dairy Farm International                                              3,906,062 
      243,000     Goldlion Holdings Ltd                                                    72,971 
    1,296,327     Great Eagle Holdings Ltd                                              1,908,702 
      259,264     Great Eagle Holdings Ltd Warrants 11/30/98 *                             22,101 
    1,894,800     Hang Lung Development Co Ltd                                          2,777,653 
      316,500     Henderson Land Development Co Ltd                                     1,651,482 
      945,000     HKR International Ltd                                                   707,911 
    2,788,641     Hong Kong Land Holdings                                               4,991,667 

4             See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Hong Kong - continued                                                           
      821,900     Hysan Development Co Ltd                                              1,565,777 
       28,345     Hysan Development Co Ltd Warrants 4/30/98 *                                  37 
      302,000     Jardine International Motor Holdings Ltd                                168,699 
      729,000     Kumagai Gumi Ltd                                                        494,317 
       83,200     Lai Fung Holdings Ltd *                                                  14,292 
    4,220,000     Lai Sun Development                                                   1,662,383 
    1,250,000     Lai Sun Garment International Ltd                                       678,076 
    1,050,266     Liu Chong Hing Bank Ltd                                               1,580,316 
    1,103,000     National Mutual Asia Ltd                                                982,977 
      639,000     New World Development Co Ltd                                          2,352,147 
      220,000     Orient Overseas International Ltd                                        93,768 
    7,204,073     Regal Hotels International Ltd                                        1,125,854 
          128     Sanwa International Ltd *                                             3,115,649 
    6,782,620     Semi Tech (Global) Co Ltd                                               788,422 
      160,248     Semi Tech (Global) Co Ltd Warrants 7/31/98 *                                207 
      846,500     Swire Pacific Ltd Class A                                             5,094,853 
    1,844,500     Swire Pacific Ltd Class B                                             1,858,198 
    2,034,500     Wharf Holdings Ltd                                                    4,283,158 
      638,000     Wheelock & Co Ltd                                                       737,501 
      183,912     Wing On Co                                                              129,457 
      758,486     Winsor Industrial Corp Ltd                                              151,844 
      429,243     Winsor Properties Holdings Ltd                                          415,799 
                                                                                ------------------
                                                                                       55,018,715 
                                                                                ------------------
                  India - 0.0%                                                                    
       59,007     Mahindra & Mahindra GDR 144A                                            500,084 
                                                                                ------------------

                  Indonesia - 0.0%                                                                
      775,720     Dharmala Intiland (Foreign Registered)                                   28,487 
      603,500     PT Daya Guna Samudera                                                   419,381 
                                                                                ------------------
                                                                                          447,868 
                                                                                ------------------
                  Ireland - 0.5%                                                                  
      476,335     Allied Irish Banks Plc                                                6,156,642 
                                                                                ------------------

                  Italy - 5.2%                                                                    
      141,409     Assicurazioni Generali SPA                                            4,038,112 
      535,792     Banca Commerciale Italiana SPA                                        2,446,238 
       59,948     Banca di Legano SPA                                                     348,408 
      236,958     Banca Toscana                                                           793,855 
      513,583     Banco Ambrosiano Veneto SPA (Non Convertible)                         1,175,290 
      207,500     Comau Finanziaria SPA                                                   747,925 
    1,246,464     Credito Italiano                                                      4,785,385 
      163,232     Danieli and Co SPA (Non Convertible)                                    732,033 
      346,322     ENI SPA                                                               2,022,445 
       30,472     Ericsson SPA                                                          1,626,240 
      146,530     Falck Acciaierie and Ferriere Lombarde                                1,036,670 
      236,490     Fiat SPA                                                                831,273 

              See accompanying notes to the financial statements.              5


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Italy - continued                                                               
      345,502     Fiat SPA Preferred                                                      677,701 
       29,074     Fiat SPA (Non Convertible)                                               60,847 
       39,570     IFI Istituto Finanziario Preferred                                      767,319 
      172,607     IFIL Finanziaria di Partecipazioni SPA (Non Convertible)                446,601 
      627,004     Industriali Riunite SPA *                                               797,135 
      237,693     Istituto Mobilaire Italiano                                           3,314,113 
    1,336,000     Istituto Nazionale Delle Assicurazioni                                3,628,467 
      160,238     Italcementi Fabbriche Riunite Cemento SPA (Non Convertible)             743,231 
      555,315     Italgas SPA                                                           2,113,328 
      221,428     Magneti Marelli SPA                                                     483,827 
       74,642     Mediaset SPA                                                            420,251 
       42,000     Mediobanca SPA                                                          429,517 
    1,383,702     Montedison SPA                                                        1,428,203 
      975,630     Montedison SPA (Non Convertible)                                        735,491 
      210,955     Montefibre SPA                                                          172,706 
      456,096     Olivetti and Co SPA *                                                   449,609 
       46,000     Pagnossin SPA                                                           238,168 
      194,430     RAS SPA                                                               2,292,589 
       73,200     Rinascente per l'Esercizio di Grandi Magazzini SPA                      674,547 
      117,157     SAI di Risp                                                             763,719 
      719,880     Seat SPA di Risp *                                                      187,065 
      713,947     Seat SPA *                                                              286,066 
      127,537     Sirti SPA                                                               741,938 
    1,361,241     Telecom Italia Mobile SPA (Non Convertible)                           3,993,694 
      753,724     Telecom Italia SPA                                                    5,126,056 
      833,884     Telecom Italia SPA (Non Convertible)                                  4,047,211 
       70,931     Toro Assicurazioni                                                    1,282,303 
       68,306     Unione Cementi Marchino Emiliane e di Augusta-Casale                    654,641 
      159,857     Unione Cementi Marchino Emiliane e di Augusta-Casale                            
                  (Non Convertible)                                                       811,144 
                                                                                ------------------
                                                                                       58,351,361 
                                                                                ------------------
                  Japan - 19.0%                                                                   
       28,500     Advantest Corp                                                        2,014,605 
       52,700     AJL Peps Trust Exchangeable Preferred                                   652,163 
       41,300     Akita Bank                                                              178,172 
      117,000     Arisawa Manufacturing                                                 1,333,650 
      286,000     Asahi Breweries Ltd                                                   3,826,011 
      149,000     Asahi Glass Co Ltd                                                      895,203 
      388,000     Bridgestone Corp                                                      8,937,545 
      253,000     Canon Inc                                                             5,787,778 
       31,800     Circle K Japan Co Ltd                                                 1,565,709 
       43,300     Credit Saison Co                                                      1,011,122 
      172,000     Daikin Industries Ltd                                                   864,561 
      341,000     Dainippon Ink & Chemicals Inc                                         1,025,726 
      151,000     Dainippon Printing Co Ltd                                             2,569,857 
          281     East Japan Railway Co                                                 1,327,927 
       30,100     Exedy Corp                                                              203,716 

6             See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Japan - continued                                                               
      190,000     Fuji Photo Film Co Ltd                                                7,444,787 
       89,000     Fujitec Co                                                              542,468 
      496,000     Fujitsu Ltd                                                           5,575,239 
       27,000     H I S Co Ltd                                                            606,982 
       66,000     Hitachi Credit Corp                                                   1,149,371 
      581,000     Hitachi Ltd                                                           4,359,915 
       46,312     Hokkaido Electric Power                                                 667,204 
      371,000     Honda Motor Co Ltd                                                   12,833,610 
          221     Japan Tobacco Inc                                                     1,625,180 
       86,350     Kansai Electric Power                                                 1,483,254 
      281,000     Kao Corp                                                              3,803,610 
       44,000     Kirin Beverage                                                          832,423 
       50,400     Kurita Water Industries Ltd                                             734,077 
      472,000     Marubeni Corp                                                         1,303,950 
      126,000     Marui Co Ltd                                                          2,064,593 
      440,000     Matsushita Electric Industrial Co Ltd                                 6,408,612 
      255,000     Matsushita Electric Works Ltd                                         2,543,339 
      527,000     Minebea Co Ltd                                                        5,840,260 
      397,000     Minolta Co Ltd                                                        2,388,348 
      521,000     Mitsui & Co                                                           3,344,661 
       26,600     Namco Ltd                                                               642,207 
       35,350     Nichido Fire & Marine Insurance Co Ltd                                  215,743 
      113,000     Nichii Co Ltd                                                           875,699 
       45,400     Nintendo Co Ltd                                                       4,168,764 
       31,000     Nippon Broadcasting System                                            1,496,873 
       77,700     Nippon Electric Glass Co                                                990,240 
      262,000     Nippon Meat Packers Inc                                               3,442,729 
      234,000     Nippon Soda Chemical Co Ltd                                           2,093,090 
      545,000     Nissho Iwai Corp                                                      1,553,075 
       20,000     Nitta Corp                                                              204,227 
      214,000     Obayashi Corp                                                         1,163,762 
      130,000     Onward Kashiyama Co Ltd                                               1,852,292 
      104,000     Orix Corp                                                             7,573,815 
       34,080     Paris Miki Inc                                                          504,469 
      326,000     Ricoh Co Ltd                                                          3,483,733 
       40,000     Rinnai Corp                                                             649,094 
      109,000     Rohm Co Ltd                                                          10,785,245 
      304,000     Sanwa Bank Ltd                                                        3,032,059 
      175,000     Shibusawa Warehouse                                                     537,481 
       25,000     Shimachu Co                                                             482,862 
      219,750     Shin-Etsu Chemical Co Ltd                                             4,835,787 
      143,000     Shiseido Co Ltd                                                       1,799,810 
       33,000     Sho Bond Construction Co                                                707,908 
       64,000     Showa Corp                                                              378,437 
       38,300     SMC                                                                   3,334,916 
      124,100     Sony Corp                                                            11,198,765 

              See accompanying notes to the financial statements.              7


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Japan - continued                                                               
      117,000     Sumitomo Electric                                                     1,704,108 
      357,000     Sumitomo Realty and Development Co Ltd                                2,359,653 
      473,000     Suzuki Motor Corp                                                     5,017,177 
       47,000     Tachi-S Co Ltd                                                          293,913 
       92,000     Taisho Pharmaceutical Co Ltd                                          2,162,907 
      250,000     Takeda Chemical Industries Ltd                                        6,926,304 
      178,000     Tanabe Seiyaku Co Ltd                                                 1,014,486 
      120,000     TDK Corp                                                              9,166,469 
      277,000     Terumo Corp                                                           3,902,953 
       40,000     Tokyo Broadcasting System Inc                                           516,109 
          200     Tokyo Electron                                                            7,188 
       85,000     Tokyo Seimitsu Co Ltd                                                 2,368,400 
       78,000     Toppan Printing Co Ltd                                                  919,972 
      101,000     Tsubaki Nakashima Co Ltd                                                543,656 
       15,000     Unicharm Corp                                                           534,315 
      112,000     UNY Co Ltd                                                            1,711,074 
      230,000     Yamanouchi Pharmaceutical Co Ltd                                      5,589,330 
      106,000     Yamatake Honeywell                                                    1,418,032 
       96,000     Yamato Kogyo Co                                                         775,113 
                                                                                ------------------
                                                                                      212,679,869 
                                                                                ------------------
                  Korea - 0.7%                                                                    
          390     Daehan Flour Mill                                                        16,718 
      114,350     Daewoo Corp                                                             439,754 
       22,000     Daewoo Securities Ltd Preferred *                                        45,805 
          829     Daewoo Securities Ltd *                                                   4,772 
        9,860     Dongkuk Steel Mill                                                       64,606 
       67,310     Dongwon Securities Co Preferred                                         107,168 
       15,310     Halla Climate Control Corp                                              211,884 
       43,886     Hana Bank Sponsored GDR 144A                                            290,964 
        7,500     Hankook Tire Manufacturing Co Ltd                                       180,955 
       15,069     Hansol Paper Manufacturing Ltd                                           89,141 
       41,000     Hyundai Motor Service Co GDR 144A                                       172,200 
       68,540     Jinro Ltd Preferred                                                      36,935 
      250,000     Korea Exchange Bank                                                     474,587 
           68     Korea Trust *                                                           119,000 
      126,230     Kyungnam Bank                                                           320,793 
       10,000     LG Cable & Machinery Ltd                                                 47,152 
       43,190     LG Electronics Co                                                       650,627 
       30,000     LG Securities Co Preferred                                               44,274 
       12,290     Nhong Shim                                                              438,767 
        2,580     Pohang Iron & Steel                                                     154,677 
      121,500     Pusan Bank                                                              241,810 
      122,300     Samsung Corp                                                            483,808 
       35,550     Samsung Display Devices                                               2,068,126 
       51,036     Samsung Heavy Industries Co Ltd                                         340,657 

8             See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Korea - continued                                                               
      104,905     Shinhan Bank                                                            499,150 
        1,040     Shinyoung Securities Preferred                                            2,898 
        6,746     Sindoricom Co Ltd                                                       274,715 
          133     SK Telecom                                                               60,432 
        6,300     Ssangyong Investment Securities Co Preferred *                            5,015 
                                                                                ------------------
                                                                                        7,887,390 
                                                                                ------------------
                  Malaysia - 0.2%                                                                 
      374,800     Genting Berhad                                                        1,244,234 
      315,000     New Straits Times                                                       488,571 
      257,000     Resorts World Berhad                                                    559,456 
                                                                                ------------------
                                                                                        2,292,261 
                                                                                ------------------
                  Mexico - 0.1%                                                                   
       22,300     Desc S.A. de C.V. Sponsored ADR                                         649,488 
        8,868     Grupo Financiero Banamex Class L                                         19,768 
      569,562     Grupo Financiero Bancomer SA Class B                                    330,103 
                                                                                ------------------
                                                                                          999,359 
                                                                                ------------------
                  Netherlands - 6.1%                                                              
      137,580     ABN Amro Holdings NV                                                  3,051,583 
       49,192     Aegon NV                                                              5,599,695 
       28,061     Akzo Nobel NV                                                         5,693,496 
      586,358     ASM International NV *                                                7,146,238 
       13,661     Bam Groep                                                             1,027,820 
       35,059     De Boer Unigro NV                                                     1,394,241 
       65,426     Dordtsche Petroleum                                                   3,426,566 
       92,660     Elsevier NV                                                           1,742,878 
       25,000     Endemol Entertainment                                                   574,053 
       25,939     Fugro NV                                                                795,842 
       29,331     Gist Brocades NV                                                        945,768 
       54,225     Hal Trust Class B                                                     1,070,274 
       64,274     Hal Trust (Participating Units)                                       1,268,617 
       35,949     Heidemij Holdings NV                                                    375,850 
       41,700     Hunter Douglas NV                                                     1,802,990 
       24,644     ING Groep NV                                                          1,303,928 
       42,250     Kon Bolswessanen                                                        734,836 
       47,267     Koninklijke Numico NV                                                 1,616,479 
       15,637     Koninklijke NV KNP BT                                                   417,119 
       17,088     Koninklijke Pakhoed                                                     569,363 
       94,181     Koninklijke PTT Nederland                                             4,739,303 
       77,537     Koninklijke Volker Wessels                                            2,708,501 
           82     Moeara Enim Petroleum                                                 1,963,016 
       20,560     Nedlloyd                                                                479,132 
       98,883     Philips Electronics                                                   7,681,265 
       24,778     Philips NV ADR                                                        1,929,587 
       13,917     Roto Smeets D Boer                                                      569,775 
       52,608     Royal Dutch Petroleum                                                 2,876,046 
       20,564     Unilever NV CVA                                                       1,323,145 

              See accompanying notes to the financial statements.              9


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                      Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Netherlands - continued                                                         
       27,102     Van Ommeren (Koninklijke) (Participating Certificate)                 1,089,721 
       16,543     Vendex International                                                  1,041,792 
       28,111     Wereldhave NV                                                         1,697,496 
                                                                                ------------------
                                                                                       68,656,415 
                                                                                ------------------
                  New Zealand - 1.4%                                                              
    1,303,036     Brierley Investment Ltd                                                 886,734 
      896,561     Carter Holt Harvey Ltd                                                1,372,775 
       38,750     DB Group Ltd                                                             65,925 
      317,646     Fisher and Paykel Industries Ltd                                      1,034,226 
      316,475     Fletcher Challenge Buildings                                            755,636 
      323,511     Fletcher Challenge Energy                                             1,186,173 
    1,295,891     Fletcher Challenge Ltd                                                  965,498 
      586,821     Fletcher Challenge Paper                                                791,795 
      362,307     Lion Nathan Ltd                                                         896,950 
    1,731,203     Progressive Enterprise                                                1,777,318 
    2,586,505     Sovereign Assurance (c)                                               3,414,090 
    6,739,327     Trans Tasman Properties                                               2,767,538 
      485,082     Wrightson Ltd                                                           227,659 
                                                                                ------------------
                                                                                       16,142,317 
                                                                                ------------------
                  Norway - 0.8%                                                                   
        7,907     Bolig OG Naeringsk                                                      180,727 
      285,000     Christiania Bank OG Kreditkasse                                       1,216,219 
      139,700     Den Norske Bank AS Class A                                              769,656 
       23,100     Dyno Industrier AS                                                      363,181 
       25,900     Elkem AS Class A                                                        331,922 
       14,050     Kvaerner Industrier AS                                                  510,474 
       15,395     Leif Hoegh and Co AS                                                    242,042 
       30,000     Norsk Data AS Class B ADR (b) *                                             300 
       34,916     Norsk Hydro AS                                                        1,526,922 
        5,400     Norske Skogindustrier AS Class A                                        164,805 
       17,700     Orkla-Borregaard AS Class A                                           1,714,122 
        8,300     Orkla-Borregaard AS Class B (Non Voting)                                717,167 
       37,900     Schibsted AS                                                            608,387 
       27,000     Unitor AS                                                               337,101 
                                                                                ------------------
                                                                                        8,683,025 
                                                                                ------------------
                  Poland - 0.1%                                                                   
       40,000     Bank Handlowy W Warszawie *                                             632,638 
                                                                                ------------------

                  Russia - 0.3%                                                                   
    8,715,000     Irkutskenergo (Registered)                                            1,333,395 
       47,128     Mosenergo Sponsored ADR 144A                                          1,832,101 
                                                                                ------------------
                                                                                        3,165,496 
                                                                                ------------------


10            See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Singapore - 0.6%                                                                
      268,000     Cycle & Carriage Ltd                                                  1,190,376 
      407,400     Jardine Matheson Holdings Ltd                                         1,906,632 
      562,263     Jardine Strategic Holdings Ltd                                        1,602,450 
      135,133     Jardine Strategic Holdings Ltd Warrants 5/02/98 *                         5,405 
      715,000     Singapore Land Ltd                                                    2,002,529 
                                                                                ------------------
                                                                                        6,707,392 
                                                                                ------------------
                  South Africa - 0.1%                                                             
       61,000     Barlow Ltd                                                              570,313 
      185,197     Housewares Group *                                                       11,993 
      907,152     NSA International Inc *                                                  36,716 
    1,109,100     Sun International Ltd                                                   763,116 
                                                                                ------------------
                                                                                        1,382,138 
                                                                                ------------------
                  Spain - 6.1%                                                                    
        4,560     Acerinox SA                                                             684,822 
       16,000     Argentaria Corporacion Bancaria de Espana SA                          1,190,533 
      268,822     Banco Bilbao Vizcaya SA                                              12,270,355 
       48,330     Banco Popular Espanol                                                 4,289,654 
      166,723     Banco Santander SA (Registered)                                       7,707,481 
       38,406     Bankinter SA                                                          2,458,742 
       48,007     Corporacion Mapfre (Registered)                                       1,399,548 
       16,000     Ebro Agricolas Compania de Alimentacion SA                              324,644 
      216,548     Endesa                                                                4,780,464 
      264,417     FENOSA SA                                                             3,279,138 
       20,816     General Aguas de Barcelona SA                                           959,605 
       48,361     Hidroelec Cantabrico                                                  2,062,992 
      529,243     Iberdrola SA                                                          7,645,786 
       11,975     Inmobilana Metropolitan Vasco Central SA                                578,476 
       49,000     Midesa                                                                  763,562 
       75,860     Repsol SA                                                             3,378,889 
       93,767     Sevillana de Electricidad                                               901,050 
      356,988     Telefonica de Espana SA                                              12,261,575 
       34,058     Vallehermoso SA                                                       1,079,135 
                                                                                ------------------
                                                                                       68,016,451 
                                                                                ------------------
                  Sweden - 0.1%                                                                   
      100,000     Castellum AB *                                                        1,149,081 
                                                                                ------------------

                  Switzerland - 4.3%                                                              
        1,545     Ascom Holding AG (Bearer) *                                           2,737,122 
          760     Baloise Holdings *                                                    1,654,538 
        1,586     Banque Cantonale Vaudoise (Bearer)                                      653,809 
        2,186     Belimo Automation AG                                                    796,886 
          360     Bobst SA (Bearer)                                                       603,434 
       50,116     CS Holdings (Registered)                                              9,049,291 
        3,500     Feldschloesschen Huerlimann (Participating Certificates)                584,287 
          365     Fischer (George) AG (Bearer)                                            614,302 


              See accompanying notes to the financial statements.             11


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  Switzerland - continued                                                         
          280     Flughafen Immobilien                                                    511,311 
        3,099     Forbo Holdings AG (Registered)                                        1,406,333 
        2,293     Hero AG (Bearer)                                                      1,409,298 
        2,055     Hilti AG (Participating Certificate)                                  1,540,270 
          777     Holderbank Financiere Glarus AG (Bearer)                                757,093 
        3,274     Jelmoli (Registered)                                                    642,486 
        4,900     Kraftwerk Laufenberg (Bearer)                                           881,439 
        2,048     Merkur Holding AG (Registered)                                          469,578 
        3,456     Nestle AG (Registered)                                                6,052,003 
        2,808     Novartis AG (Registered)                                              5,121,979 
        4,500     Publigroupe Sa                                                          981,194 
          154     Roche Holdings (Participating Certificate)                            1,802,753 
        4,129     SMH AG (Bearer)                                                       2,593,989 
          275     Stratec Holding AG Class B (Registered)                                 403,806 
        2,200     Sulzer Gebrueder AG (Registered)                                      1,708,913 
        2,305     Sulzer Medica AG *                                                      593,684 
          161     Swiss Insurance Co                                                      403,158 
        1,300     Swiss Reinsurance (Bearer)                                            2,739,779 
        3,599     Zurich Reinsurance                                                    1,961,842 
                                                                                ------------------
                                                                                       48,674,577 
                                                                                ------------------
                  Thailand - 0.1%                                                                 
      301,300     Bank of Ayudhya Plc (Foreign Registered)                                188,749 
      428,900     First Bangkok City (Foreign Registered) (b)                                 100 
      645,900     Jasmine International Public Co (Foreign Registered)                    453,329 
        9,000     Telecomasia Sponsored GDR 144A *                                         53,298 
      462,200     Telecomasia (Foreign Registered) *                                      268,104 
      487,700     Thai Telephone & Telecommunications (Foreign Registered) *              141,444 
      204,800     Total Access Communication                                              296,960 
      122,800     United Communication Industries (Foreign Registered)                    156,705 
                                                                                ------------------
                                                                                        1,558,689 
                                                                                ------------------
                  United Kingdom - 19.2%                                                          
      161,272     Allied Domecq Plc                                                     1,554,704 
      119,028     Amstrad Plc                                                              74,472 
      317,976     Anglian Water Plc                                                     4,397,799 
    1,915,281     ASDA Group                                                            6,346,408 
      319,838     BAA                                                                   2,991,163 
      436,056     Bank of Scotland                                                      4,971,916 
      145,536     Barclays Plc                                                          4,332,420 
       66,964     Bass Plc *                                                            1,122,408 
      552,643     BAT Industries                                                        5,514,156 
      694,613     Berkley Group                                                         8,120,130 
      826,347     BG Plc *                                                              4,146,369 
      440,000     Billiton Plc *                                                        1,079,445 
      100,000     BOC Group Plc *                                                       1,564,175 
      419,953     BPB Industries Plc                                                    2,274,879 
      411,421     British Airways Plc                                                   3,861,207 


12            See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  United Kingdom - continued                                                      
      298,100     British Energy Plc *                                                  2,198,881 
      759,168     British Petroleum Co Plc                                             10,474,750 
      100,000     British Sky Broadcasting Plc                                            650,368 
    1,091,250     British Steel Plc                                                     2,618,753 
    1,998,455     British Telecom Plc                                                  20,137,592 
      787,000     BTR                                                                   2,089,470 
      175,000     Cable & Wireless                                                      1,913,233 
      641,375     Capital Shopping Centres Plc                                          4,730,987 
      408,800     Caradon Plc                                                           1,336,082 
      519,527     Centrica Plc *                                                          923,833 
      176,780     Commercial Union Plc                                                  3,195,930 
      345,000     Cookson Group                                                         1,278,096 
      492,767     Costain Group Plc *                                                     243,402 
      432,916     Diageo Plc                                                            4,430,028 
       63,000     Elementis Plc                                                           131,736 
      269,287     Energy Group Plc                                                      3,449,505 
       68,927     Flextech Plc *                                                          593,249 
      299,000     Gallaher Group Plc *                                                  1,742,754 
       85,013     General Accident                                                      1,907,844 
      350,000     General Electric Plc                                                  2,287,812 
      211,598     Glaxo Wellcome Plc                                                    5,922,734 
      100,000     Granada Group                                                         1,562,529 
      360,586     Great Portland Estates Plc                                            1,739,555 
      223,079     Great Universal Stores Plc                                            2,846,572 
      209,598     Guardian Royal                                                        1,575,396 
      166,008     Hanson Plc                                                              839,130 
      873,094     Hillsdown Holdings                                                    2,285,703 
      147,469     HSBC Holdings                                                         4,530,792 
       79,909     Hyder Plc                                                             1,234,128 
      157,839     Hyder Plc Cumulative Redemption Preferred                               310,559 
      225,071     Imperial Chemical Industries Plc                                      4,107,873 
      132,816     Imperial Tobacco Group Plc                                              935,957 
      431,065     Ladbroke Group                                                        2,171,830 
      150,000     Lasmo                                                                   682,266 
      170,000     Lucas Variety Plc                                                       654,978 
      785,537     Marley                                                                1,416,258 
      361,140     Mirror Group Plc                                                      1,010,849 
      382,100     National Power                                                        3,960,359 
      318,924     National Westminster Bank                                             5,886,465 
      240,000     Norwich Union Plc *                                                   2,039,026 
       16,000     Nycomed Amersham Plc Class B *                                          581,322 
      151,504     Peninsular & Oriental Steam Navigation Co                             1,951,957 
      166,792     Powergen                                                              2,330,176 
    2,148,935     Raglan Property Plc                                                     919,938 
      334,630     Railtrack Group Plc                                                   5,096,457 


              See accompanying notes to the financial statements.             13


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares        Description                                                    Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  United Kingdom - continued                                                      
      130,000     Reckitt & Colman                                                      2,293,492 
      576,824     Royal & Sun Alliance Insurance                                        7,346,244 
      282,799     Safeway Plc                                                           1,666,950 
      500,000     Scottish Power Plc                                                    4,264,435 
    1,174,447     Sears                                                                 1,015,207 
      292,593     Severn Trent Plc                                                      4,504,403 
      100,000     Smithkline Beecham Plc                                                1,251,340 
      154,171     Standard Chartered                                                    2,226,199 
      254,000     Sun Life & Province Holding                                           2,410,986 
      785,326     T & N                                                                 3,271,389 
      477,000     Tanjong                                                               1,096,776 
      200,000     Tate & Lyle                                                           1,728,825 
      203,196     Thames Water                                                          2,957,530 
       92,904     United Utilities                                                      1,248,206 
      271,030     Viglen Technology Plc *                                                 151,725 
      271,030     Viglen Technology Plc Entitlement Letters                                     - 
      303,076     Williams Plc *                                                        1,771,502 
                                                                                ------------------
                                                                                      214,483,974 
                                                                                ------------------
                  United States - 0.0%                                                            
       39,500     Koor Industries Ltd ADR *                                               192,563 
                                                                                ------------------

                  TOTAL STOCK AND EQUIVALENTS (Cost $902,013,301)                   1,052,407,726 
                                                                                ------------------

                  INVESTMENT FUNDS - 0.5%                                                         
                  Chile - 0.0%                                                                    
      141,751     Five Arrows Chile Investment Trust Ltd                                  326,027 
       27,821     Five Arrows Chile Investment Trust Ltd Warrants 5/31/99 *                   974 
                                                                                ------------------
                                                                                          327,001 
                                                                                ------------------
                  India - 0.1%                                                                    
      157,150     India Fund Class A                                                      633,931 
       40,000     India Liberalisation (c) *                                              268,000 
       11,000     Morgan Stanley India Fund Inc *                                          88,688 
                                                                                ------------------
                                                                                          990,619 
                                                                                ------------------
                  Korea - 0.0%                                                                    
          100     Dong Yang Dragon Fund *                                                 413,000 
                                                                                ------------------

                  Russia - 0.4%                                                                   
      180,000     First Russian Frontiers Trust Plc *                                   3,022,974 
       38,000     First Russian Frontiers Trust Plc Warrants 6/3/2001 *                   312,835 
                                                                                ------------------
                                                                                        3,335,809 
                                                                                ------------------
                  South Africa - 0.0%                                                             
       29,000     New South Africa Fund Inc                                               404,188 
                                                                                ------------------

                  TOTAL INVESTMENT FUNDS (Cost $6,544,132)                              5,470,617 
                                                                                ------------------


14            See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares/                                                                                       
   Par Value        Description                                                    Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                    CONVERTIBLE BONDS - 0.6%                                                      
                    Hong Kong - 0.1%                                                              
HKD     810,000     Sino Land Co, 5.00% due 2/26/01                                       562,950 
                                                                                   ---------------

                    Japan - 0.3%                                                                  
JPY  49,000,000     MTI Capital (Cayman) Ltd, 0.50% due 10/01/07                          931,766 
  $   2,200,000     SB Treasury Co, 9.40% due 12/29/49 144A                             2,244,000 
JPY  45,000,000     STB Cayman Capital Ltd., .50% due 10/01/07                          1,030,139 
                                                                                   ---------------
                                                                                        4,205,905 
                                                                                   ---------------
                    Mexico - 0.0%                                                                 
  $     870,000     Grupo Financiero Invermexico, 7.50% due 6/16/01                       313,200 
                                                                                   ---------------

                    New Zealand - 0.1%                                                            
NZD     978,881     Brierley Investment, 9.00% due 6/30/98                                620,201 
                                                                                   ---------------

                    Singapore - 0.1%                                                              
  $   1,750,000     Keppel Corp 2.0% due 8/12/02 144A                                   1,575,000 
                                                                                   ---------------

                    TOTAL CONVERTIBLE BONDS (Cost $8,455,862)                           7,277,256 
                                                                                   ---------------

                    DEBT OBLIGATIONS - 0.0%                                                       
                    United Kingdom - 0.0%                                                         
GBP     441,778     Viglen Technology Plc Floating Rate Note, 6.75% due 9/1/2000          727,387 
GBP     116,542     Viglen Technology Plc Floating Rate Note, 6.99% due 1/1/2001          191,886 
                                                                                   ---------------
                                                                                          919,273 
                                                                                   ---------------

                    TOTAL DEBT OBLIGATIONS (Cost $541,150)                                919,273 
                                                                                   ---------------

                    SHORT-TERM INVESTMENTS - 8.2%                                                 
                    Cash Equivalents - 8.2%                                                       
     41,830,578     The Boston Global Investment Trust (a)                             41,830,578 
  $  49,600,000     Wachovia Bank Time Deposit, 5.63%, due 3/2/98                      49,600,000 
                                                                                   ---------------
                                                                                       91,430,578 
                                                                                   ---------------

                    TOTAL SHORT-TERM INVESTMENTS (Cost $91,430,578)                    91,430,578 
                                                                                   ---------------

                    TOTAL INVESTMENTS - 103.2%                                                    
                    (Cost $1,008,985,023)                                           1,157,505,450 

                    Other Assets and Liabilities (net) -  (3.2%)                      (36,344,226)
                                                                                   ---------------

                    TOTAL NET ASSETS - 100.0%                                    $  1,121,161,224 
                                                                                   ===============


              See accompanying notes to the financial statements.             15


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

Notes to the Schedule of Investments:                     

ADR     American Depositary Receipt                       
GDR     Global Depository Receipt                         

GBP     British Pounds                                    
HKD     Hong Kong Dollar                                  
JPY     Japanese Yen                                      
NZD     New Zealand Dollar                                

  (a)     Represents investment of security lending collateral
(Note 1).                                 

(b)     Bankrupt issuer.                                  

       (c)     Security is restricted as to public resale. The aggregate
                 market value of restricted securities is $3,884,205 or .35%
of net assets.                            

        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 buyers.                     

    *       Non-income producing security. A dividend has not been
             declared for the twelve months ended February 28, 1998.

16            See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

At February 28, 1998, industry sector                   
diversification of the Fund's investments               
(excluding short-term investments) was as               
follows:                                                
                                               Percentage of
Industry Sector (Unaudited)                   Net Assets

Banking                                         13.5 %  
Consumer Goods                                   8.4    
Insurance                                        6.5    
Telecommunications                               5.7    
Conglomerates                                    5.4    
Electronic Equipment                             5.3    
Oil and Gas                                      5.2    
Utilities                                        4.9    
Machinery                                        4.8    
Construction                                     4.7    
Real Estate                                      4.3    
Services                                         4.1    
Chemicals                                        3.6    
Retail Trade                                     3.5    
Automotive                                       3.3    
Health Care                                      3.0    
Food and Beverage                                2.7    
Metals and Mining                                2.0    
Computers                                        1.6    
Transportation                                   1.6    
Financial Services                               1.4    
Communications                                   1.0    
Paper and Allied Products                        0.9    
Textiles                                         0.4    
Aerospace                                        0.3    
Miscellaneous                                    1.9    
                                       ---------
                                             100.0 %
                                       =========

              See accompanying notes to the financial statements.             17


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities - February 28, 1998                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                     
Assets:                                                                              
     Investments, at value (cost $1,008,985,023) (Note 1)        $     1,157,505,450 
     Foreign currency, at value (cost $4,775,756) (Note 1)                 4,792,367 
     Cash                                                                     70,394 
     Receivable for investments sold                                      10,008,676 
     Dividends and interest receivable                                       912,395 
     Foreign withholding taxes receivable                                    743,908 
     Receivable for expenses waived or borne by Manager (Note 2)             151,009 
                                                                   ------------------

         Total assets                                                  1,174,184,199 
                                                                   ------------------

Liabilities:                                                                         
     Payable upon return of securities loaned (Note 1)                    41,830,578 
     Payable for investments purchased                                    10,179,794 
     Payable to affiliate for (Note 2):                                              
         Management fee                                                      641,714 
         Shareholder service fee                                             121,038 
     Accrued expenses                                                        249,851 
                                                                   ------------------

         Total liabilities                                                53,022,975 
                                                                   ------------------

Net assets                                                       $     1,121,161,224 
                                                                   ==================

Net assets consist of:                                                               
     Paid-in capital                                             $       977,911,429 
     Distributions in excess of net investment income                       (343,662)
     Distributions in excess of net realized gain                         (4,941,071)
     Net unrealized appreciation                                         148,534,528 
                                                                   ------------------

                                                                 $     1,121,161,224 
                                                                   ==================
Net assets attributable to:                                                          
     Class II Shares                                             $        53,949,208 
                                                                   ==================
     Class III Shares                                            $       847,427,349 
                                                                   ==================
     Class IV Shares                                             $       219,784,667 
                                                                   ==================

Shares outstanding:                                                                  
     Class II                                                              4,460,629 
                                                                   ==================
     Class III                                                            70,009,604 
                                                                   ==================
     Class IV                                                             18,152,694 
                                                                   ==================

Net asset value per share:                                                           
     Class II                                                    $             12.09 
                                                                   ==================
     Class III                                                   $             12.10 
                                                                   ==================
     Class IV                                                    $             12.11 
                                                                   ==================


18            See accompanying notes to the financial statements.               


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Statement of Operations - Year Ended February 28, 1998                          
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                          
Investment income:                                                                        

     Dividends (net of foreign tax expense of $2,151,041)              $       18,850,954 
     Interest (including security lending income of $370,217)                   4,656,131 
                                                                         -----------------
         Total income                                                          23,507,085 
                                                                         -----------------

Expenses:                                                                                 
     Management fee (Note 2)                                                    7,035,104 
     Custodian fees                                                               810,268 
     Audit fees                                                                    50,042 
     Stamp duties and transfer taxes                                               12,573 
     Transfer agent fees                                                           58,410 
     Legal fees                                                                    18,407 
     Registration fees                                                             10,689 
     Trustees fee (Note 2)                                                          8,197 
     Miscellaneous                                                                  6,900 
     Fees waived or borne by Manager (Note 2)                                  (2,369,507)
                                                                         -----------------
                                                                                5,641,083 
     Shareholder service fee (Note 2)                                                     
         Class I                                                                   25,021 
         Class II                                                                  62,048 
         Class III                                                              1,311,907 
         Class IV                                                                  22,912 
                                                                         -----------------

         Net expenses                                                           7,062,971 
                                                                         -----------------

             Net investment income                                             16,444,114 
                                                                         -----------------

Realized and unrealized gain (loss):                                                      

         Net realized gain (loss) on:                                                     
             Investments                                                       (1,283,691)
             Foreign currency, forward contracts and foreign currency                     
                related transactions                                            2,625,319 
                                                                         -----------------
                Net realized gain                                               1,341,628 
                                                                         -----------------

         Change in net unrealized appreciation (depreciation) on:                         
             Investments                                                      106,309,982 
             Foreign currency, forward contracts and foreign currency                     
                related transactions                                                6,703 
                                                                         -----------------
                Net unrealized gain                                           106,316,685 
                                                                         -----------------

         Net realized and unrealized gain                                     107,658,313 
                                                                         -----------------
Net increase in net assets resulting from operations                   $      124,102,427 
                                                                         =================

                See accompanying notes to the financial statements.           19


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


Increase (decrease) in net assets:                                         Year Ended          Period Ended    
Operations:                                                            February 28, 1998    February 28, 1997 *
                                                                      ------------------   --------------------
                                                                                                               
      Net investment income                                         $        16,444,114   $          4,998,592 
      Net realized gain (loss)                                                1,341,628             (3,379,420)
      Change in net unrealized appreciation (depreciation)                  106,316,685             42,217,843 
                                                                      ------------------    -------------------

      Net increase in net assets resulting from operations                  124,102,427             43,837,015 
                                                                      ------------------    -------------------

Distributions to shareholders from:                                                                            
      Net investment income                                                                                    
          Class I                                                              (265,008)               (32,692)
          Class II                                                             (647,192)               (86,399)
          Class III                                                         (18,851,879)            (4,439,981)
                                                                      ------------------    -------------------
          Total distributions from net investment income                    (19,764,079)            (4,559,072)
                                                                      ------------------    -------------------

Distributions to shareholders from:                                                                            
      Net realized gains                                                                                       
          Class I                                                                (5,149)             -         
          Class II                                                              (12,389)             -         
          Class III                                                            (348,959)             -         
                                                                      ------------------    -------------------
          Total distributions from net realized gains                          (366,497)             -         
                                                                      ------------------    -------------------

Net share transactions:  (Note 5)                                                                              
          Class I                                                            (4,265,890)             4,554,323 
          Class II                                                           26,425,821             21,186,399 
          Class III                                                          98,158,725            633,658,060 
          Class IV                                                          198,193,992              -         
                                                                      ------------------    -------------------
      Increase in net assets resulting from net share transactions          318,512,648            659,398,782 
                                                                      ------------------    -------------------

      Total increase in net assets                                          422,484,499            698,676,725 

Net assets:                                                                                                    
      Beginning of period                                                   698,676,725              -         
                                                                      ------------------    -------------------

      End of period (including distributions in excess of net                                                  
          investment income of $343,662 and $76,274, respectively)  $     1,121,161,224   $        698,676,725 
                                                                      ==================    ===================

* Period from June 28, 1996 (commencement of operations) to February 28, 1997.  

20             See accompanying notes to the financial statements.              


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                         Period from March 1, 1997      Period Ended     
                                                            to January 9, 1998       February 28, 1997 * 
                                                          ---------------------     ---------------------
                                                                                                         
Net asset value, beginning of period                       $        10.65             $         9.88     
                                                            -------------              -------------     

Income from investment operations:                                                                       
  Net investment income                                              0.18(d)                    0.06     
  Net realized and unrealized gain                                   0.28                       0.78     
                                                            -------------              -------------     

         Total from investment operations                            0.46                       0.84     
                                                            -------------              -------------     
Less distributions to shareholders from:                                                                 
     Net investment income                                          (0.22)                     (0.07)    
     Net realized gains                                             (0.00)(f)                     --     
                                                            -------------              -------------     
         Total distributions                                        (0.22)                     (0.07)    
                                                            -------------              -------------     

Net asset value, end of period                             $        10.89(e)          $        10.65     
                                                            =============              =============     

Total Return (a)                                                    4.31%                      8.53%     

Ratios/Supplemental Data:                                                                                

     Net assets, end of period (000's)                     $           --             $        4,891     
     Net expenses to average                                                                             
         daily net assets                                           0.88%**                    0.89%**(b)
     Net investment income to average                                                                    
         daily net assets                                           1.82%**                    0.98%**   
     Portfolio turnover rate                                          19%                        13%     
     Average broker commission rate per equity share (c)   $       0.0153             $       0.0204     
     Fees and expenses voluntarily waived or borne by                                                    
         the Manager consisted of the following per                                                      
         share amounts:                                    $         0.03             $         0.02     

*   Period from July 10, 1996 (commencement of operations) to February 28, 1997.
**  Annualized.                                                                 
(a) The total returns would have been lower had certain expenses not been       
waived during the periods shown.                                        
(b) Includes stamp duties and transfer taxes not waived or borne by the         
   Manager, which approximates .01% of average daily net assets for the period
ended February 28, 1997.                                                
(c) The average broker commission rate will vary depending on the markets in    
which trades are executed.                                              
(d) Computed using average shares outstanding throughout the period.            
(e) All Class I shares of the Fund were exchanged for Class II shares on        
January 9, 1998. Amount represents ending net asset value per share on  
January 9, 1998.                                                        
(f) The per share realized gain distribution was $0.004.                        

               See accompanying notes to the financial statements.            21


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                Year Ended             Period Ended          
                                                            February 28, 1998       February 28, 1997 *      
                                                           --------------------     --------------------     
                                                                                                             
Net asset value, beginning of period                      $             10.65      $              10.02      
                                                           --------------------     --------------------     
Income from investment operations:                                                                           
  Net investment income                                                  0.18 (d)                  0.06      
  Net realized and unrealized gain                                       1.48                      0.65      
                                                           --------------------     --------------------     

         Total from investment operations                                1.66                      0.71      
                                                           --------------------     --------------------     

Less distributions to shareholders from:                                                                     
     Net investment income                                              (0.22)                    (0.08)     
     Net realized gains                                                 (0.00)(e)                    --      
                                                           --------------------     --------------------     
         Total distributions                                            (0.22)                    (0.08)     
                                                           --------------------     --------------------     

Net asset value, end of period                            $             12.09      $              10.65      
                                                           ====================     ====================     

Total Return (a)                                                       15.94%                     7.08%      

Ratios/Supplemental Data:                                                                                    

     Net assets, end of period (000's)                    $            53,949      $             21,957      
     Net expenses to average                                                                                 
         daily net assets                                               0.82%                     0.84% **(b)
     Net investment income to average                                                                        
         daily net assets                                               1.60%                     0.83% **   
     Portfolio turnover rate                                              19%                       13%      
     Average broker commission rate per equity share (c)  $            0.0153      $             0.0204      
     Fees and expenses voluntarily waived or borne by                                                        
         the Manager consisted of the following per                                                          
         share amounts:                                   $              0.03      $               0.02      

*   Period from September 30, 1996 (commencement of operations) to February 28, 
1997.                                                                   
**  Annualized.                                                                 
(a) The total returns would have been lower had certain expenses not been       
waived during the periods shown.                                        
(b) Includes stamp duties and transfer taxes not waived or borne by the         
   Manager, which approximates .02% of average daily net assets for the period
ended February 28, 1997.                                                
(c) The average broker commission rate will vary depending on the markets in    
which trades are executed.                                              
(d) Computed using average shares outstanding throughout the period.            
(e) The per share realized gain distribution was $0.004.                        

22             See accompanying notes to the financial statements.              


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                Year Ended                Period Ended          
                                                            February 28, 1998         February 28, 1997 *       
                                                           ---------------------      ---------------------     
                                                                                                                
Net asset value, beginning of period                      $               10.66      $               10.00      
                                                           ---------------------      ---------------------     
Income from investment operations:                                                                              
  Net investment income                                                    0.21 (d)                   0.08      
  Net realized and unrealized gain                                         1.45                       0.66      
                                                           ---------------------      ---------------------     

         Total from investment operations                                  1.66                       0.74      
                                                           ---------------------      ---------------------     

Less distributions to shareholders from:                                                                        
     Net investment income                                                (0.22)                     (0.08)     
     Net realized gains                                                   (0.00)(e)                      -      
                                                           ---------------------      ---------------------     
         Total distributions                                              (0.22)                     (0.08)     
                                                           ---------------------      ---------------------     

Net asset value, end of period                            $               12.10      $               10.66      
                                                           =====================      =====================     

Total Return (a)                                                         15.95%                      7.37%      

Ratios/Supplemental Data:                                                                                       

     Net assets, end of period (000's)                    $             847,427      $             671,829      
     Net expenses to average                                                                                    
         daily net assets                                                 0.75%                      0.76% **(b)
     Net investment income to average                                                                           
         daily net assets                                                 1.80%                      1.24% **   
     Portfolio turnover rate                                                19%                        13%      
     Average broker commission rate per equity share (c)  $             0.0153       $             0.0204       
     Fees and expenses voluntarily waived or borne by                                                           
         the Manager consisted of the following per                                                             
         share amounts:                                   $               0.03       $               0.02       

*   Period from June 28, 1996 (commencement of operations) to February 28, 1997.
**  Annualized.                                                                 
(a) The total returns would have been lower had certain expenses not been       
waived during the periods shown.                                        
(b) Includes stamp duties and transfer taxes not waived or borne by the         
   Manager, which approximates .01% of average daily net assets for the period
ended February 28, 1997.                                                
(c) The average broker commission rate will vary depending on the markets in    
which trades are executed.                                              
(d) Computed using average shares outstanding throughout the period.            
(e) The per share realized gain distribution was $0.004.                        

              See accompanying notes to the financial statements.             23


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class IV share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                        Period from January 9, 1998 
                                                        (commencement of operations)
                                                           to February 28, 1998     
                                                           --------------------     
                                                                                    
Net asset value, beginning of period                        $         10.90         
                                                             --------------         
Income from investment operations:                                                  
  Net investment income                                                   - (c)     
  Net realized and unrealized gain                                     1.21         
                                                             --------------         

      Total from investment operations                                 1.21         
                                                             --------------         

Net asset value, end of period                              $         12.11         
                                                             ==============         

Total Return (a)                                                     11.10%         

Ratios/Supplemental Data:                                                           

      Net assets, end of period (000's)                     $       219,785         
      Net expenses to average                                                       
          daily net assets                                             0.69 *       
      Net investment income to average                                              
          daily net assets                                            0.26% *       
      Portfolio turnover rate                                           19%         
      Average broker commission rate per equity share (b)   $        0.0153         
      Fees and expenses voluntarily waived or borne by                              
          the Manager consisted of the following per                                
          share amount:                                     $      (d)              

*   Annualized.                                                                 
(a) The total return would have been lower had certain expenses not been waived 
during the period shown.                                                
(b) The average broker commission rate will vary depending on the markets in    
which trades are executed.                                              
(c) Net investment income earned was less than $.01 per share. Computed using   
average shares outstanding throughout the period.                       
(d) Fees or expenses voluntarily waived or borne by the manager were less than  
$.01 per share.                                                         

24             See accompanying notes to the financial statements.              


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

   GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
     Fund is registered under the Investment Company Act of 1940, as amended, as
 an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the    
    "Manager" or "GMO"). The Trust was established as a Massachusetts Business
     Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
     The Declaration of Trust permits the Trustees to create an unlimited number
    of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.                         

    The Fund commenced operations on June 28, 1996 subsequent to a transaction
    involving the reorganization of the GMO International Equities Pool of The
    Common Fund for Nonprofit Organizations (the "GMO Pool"). The GMO Pool was
    discontinued and its net assets distributed pro rata to the unitholders of
the GMO Pool as a liquidating distribution. Such net assets were      
immediately thereafter transferred by the unitholders to the Fund in  
     exchange for shares of the Fund. The portfolio of the Fund on June 28, 1996
was the same as the portfolio of the GMO Pool prior to the transfer.  

    The Fund seeks maximum total return through investment primarily in equity
securities of non-U.S. issuers.                                       

At the beginning of the fiscal year the Fund offered three classes of 
    shares: Class I, Class II and Class III. The principal economic difference
     between the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  

    Effective January 9, 1998, Class I shares ceased operations and all shares
     were exchanged for Class II shares. Additionally, Class IV shares commenced
operations on January 9, 1998.                                        

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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.                                                            

                                                                              25


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Portfolio valuation                                                   
Portfolio securities listed on a securities exchange for which market 
   quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

     Certain investments in securities held by the Fund were valued on the basis
  of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the 
   securities existed and the differences could be material to the financial
statements.                                                           

Foreign currency translation                                          
The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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 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                                       

26                                                                              


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
   contracts or if the value of the currency changes unfavorably to the U.S.
  dollar. There were no open forward currency contracts as of February 28,
1998.                                                                 

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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
     securities. At February 28, 1998 the Fund loaned securities having a market
  value of $39,067,463 collateralized by cash in the amount of $41,830,578
which was invested in a short-term instrument.                        

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for federal income or
     excise tax is necessary. Taxes on foreign interest and dividend income have
   been withheld in accordance with the applicable country's tax treaty with
     the United States. 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.                                 

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
  differing treatments for foreign currency and passive foreign investment
company 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

                                                                              27


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Distributions in Excess of     Distributions in Excess of                     
    Net Investment Income            Net Realized Gain         Paid-in Capital
----------------------------   -----------------------------   -----------------
  $3,052,577                    ($3,052,577)                   -

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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 of domestic securities.
     These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages 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.                                                              

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .75% 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 .28%
  for Class I shares, .22% for Class II shares, .15% for Class III shares,
and .09% for Class IV shares.                                         

28                                                                              


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including stamp duties and transfer taxes), shareholder
   service fees and extraordinary expenses) exceed .60% of average daily net
assets.                                                               

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $8,197. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
 short-term investments, for the year ended February 28, 1998 aggregated
$484,290,643 and $163,395,052, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                   Gross Unrealized     Gross Unrealized      Net Unrealized
Aggregate Cost       Appreciation         Depreciation         Appreciation 
-----------------  -------------------  -------------------   ----------------
$1,014,608,048       $222,372,914         ($79,475,512)        $142,897,402 

4.   Principal shareholder                                                      

 At February 28, 1998, 11.88% of the outstanding shares of the Fund were
held by one shareholder.                                              

                                                                              29


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:                                               

                                                        [Enlarge/Download Table]


                                                                            Period from July 10, 1996   
                                       Period from March 1, 1997           (commencement of operations) 
                                          to January 9, 1998                   to February 28, 1997     
                                  ------------------------------------   -------------------------------
 Class I:                             Shares             Amount              Shares           Amount    
                                  ---------------   ------------------   --------------    -------------
                                                                                                        
 Shares sold                           826,358      $     9,729,112           455,993      $   4,521,631
 Shares issued to shareholders in                                                                       
 reinvestment of distributions                                                                          
                                        24,544              270,157             3,119             32,692
 Shares repurchased                 (1,310,014)         (14,265,159)            -                  -    
                                  ---------------    -----------------   --------------     ------------
 Net increase / (decrease)            (459,112)     $    (4,265,890)          459,112      $   4,554,323
                                  ===============    =================   ==============     ============



                                                                       Period from September 30, 1996   
                                          Year Ended                    (commencement of operations)    
                                       February 28, 1998                     to February 28, 1997       
                              -----------------------------------   ----------------------------------- 
Class II:                         Shares              Amount            Shares               Amount     
                              ---------------    ----------------   ---------------      -------------- 
                                                                                                        
Shares sold                       2,339,569      $     25,766,240      2,052,856         $   21,100,000 
Shares issued to                                                                                        
shareholders in reinvestment                                                                            
of distributions                     59,960               659,581          8,244                 86,399 

Shares repurchased                    -                    -               -                      -     
                              ---------------     ---------------   ---------------       --------------
Net increase                      2,399,529      $     26,425,821      2,061,100         $   21,186,399 
                              ===============     ===============   ===============       ==============


30                                                                              


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                                                       Period from June 28, 1996       
                                                  Year Ended                          (commencement of operations)     
                                               February 28, 1998                          to February 28, 1997         
                                  --------------------------------------------   --------------------------------------
Class III:                              Shares                 Amount                 Shares                Amount     
                                  -------------------   ----------------------   -----------------    -----------------
                                                                                                                       
Shares sold                             29,233,963    $        347,802,219          64,118,750      $     644,703,588  
Shares issued to shareholders in                                                                                       
reinvestment of distributions                                                                                          
                                           851,431               9,367,832             167,499              1,757,065  
Shares repurchased                     (23,128,254)           (259,011,326)         (1,233,785)           (12,802,593) 
                                  ------------------    --------------------     ---------------      -----------------
Net increase                             6,957,140    $         98,158,725          63,052,464      $     633,658,060  
                                  ==================    ====================     ===============      =================



                                                                                    Period from January 9, 1998        
                                                                                   (commencement of operations)        
                                                                                       to February 28, 1998            
                                                                            ------------------------------------------ 
Class IV:                                                                         Shares                 Amount        
                                                                            -------------------   -------------------- 
                                                                                                                       
Shares sold                                                                       18,491,750    $        202,184,682   
Shares issued to shareholders in                                                                                       
reinvestment of distributions                                                        -                       -         
Shares repurchased                                                                  (339,056)             (3,990,690)  
                                                                            ------------------    -------------------- 
Net increase                                                                      18,152,694    $        198,193,992   
                                                                            ==================    ==================== 


                                                                              31


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------
     For the fiscal year ended February 28, 1998, all the Fund's distributions
are from investment company taxable income, except that the Fund has
designated 1.51% of distributions as net capital gain dividends.    

32                                                                              


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GMO Foreign Fund                                                                
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. Jui Lai and Ms. Ann Spruill are responsible for the management of the GMO   
International Active Division. Mr. Jui and Ms. Spruill have been portfolio      
managers with GMO for ten and eight years, respectively. The GMO Foreign Fund is
managed on a geographic basis by Ms. Spruill, Mr. Lai, Mr. Hoyt Ludington, Mr.  
Richard Mattione and Mr. Joshua Rosenthal.                                      

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

For the fiscal year ended February 28, 1998, the Class III shares of the GMO    
Foreign Fund returned 16.0%, outperforming its EAFE benchmark by 0.5% after     
fees.  Stock selection more than accounted for the outperformance, as country   
selection was negative; there was also a small boost from hedging.              

Seventeen of the twenty-one equity markets within the Morgan Stanley Capital    
International Europe, Australasia and Far East (EAFE) Index posted positive     
returns in local currencies over the past twelve months.  The four exceptions   
were all in Asia: Japan, Singapore, Hong Kong and Malaysia.  However, while the 
S&P 500 returned 35%, the EAFE Index returned only 15.5%.  EAFE's lower return  
was the result of three major influences -- the strong dollar, a small decline  
in the Japanese stock market, and substantial weakness in the other Asian       
markets.  Stripping out the effects of the strong dollar and the weakness in    
Japan and Asia, the EAFE index excluding the four Asian markets returned 40.5%  
in local terms over this period.  In dollar terms that same group returned      
34.7%, nearly matching the return of the S&P 500.                               

Nine of the twenty-one EAFE markets outperformed the S&P 500 in local terms.    
However, once adjusted into U.S. dollars, only six countries posted a return    
higher than that of the S&P 500.  Portugal did best, with a return of 61.5%, but
most of that came before its inclusion in the index in December 1997.  Of those 
markets in the EAFE index for the full year, Spain did best with a return of    
61.1%.                                                                          

The major influence on the Foreign Fund's return was the decline in the Japanese
stock market. That market had the worst performance among the major developed   
country markets, falling by 8.4% in dollar terms over the past fiscal year.  Our
country selection benefited as we were underweight in Japan throughout the year,
having started the fiscal year with a Japanese weight of 22.2% in the GMO       
Foreign Fund, against the benchmark EAFE weight of 30.2%.  Our stock selections 
were slanted away from the financial companies and toward the exporters, which  
had a further positive influence on our returns.                                

Another key influence on the Foreign Fund's return was the weakness in other    
Asian markets. Excess capital spending, financial leverage, and dependence on   
foreign debt caused a once-in-a-decade meltdown in currency and stock markets   
throughout the region. Only three of the countries - Hong Kong, Singapore and   
Malaysia - are in the EAFE index, but they fell sharply, with declines in dollar
terms of 19%, 28.5%, and 60.1%, respectively. We were helped by our lower       
aggregate weight of 4.8% in these markets, against 8% in the EAFE benchmark. We 
had no exposure at all to Malaysia until prices had fallen to levels that in our
opinion reflected value.                                                        

We are currently at a weight of 19.0% in Japan.  This is 5.1% underweight       
relative to the benchmark.  On  balance we are slightly more negative on Japan  
than was the case a year ago.  Japan's statistical positives are numerous: the  
long-term underperformance of the market, a weak                                


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currency, its recent attractiveness on the price-to-book ratio, and an ROE that 
seems considerably below what could be accomplished. There are even stronger    
negatives, however. First, most of the truly cheap stocks available in Japan a  
year ago did substantially outperform the market during the past fiscal year, so
there are very few bargains available on a global comparison derived from       
earnings rather than book value. Second, Japanese management still shows little 
interest in taking the truly radical measures necessary to boost earnings,      
rather than the more modest measures that at best allow short-term survival. We 
are currently most overweight in Spain, Belgium, Germany and Hong Kong.         

Currency Hedging                                                                

Currency hedging added 40 basis points to our total return over the past fiscal 
year.  All of this was due to a hedge of the Korean won implemented in November 
1997 and closed out in February 1998.                                           

Our policy is generally to be unhedged, recognizing that in doing so we achieve 
the desired exposure to the underlying real assets (the business operations).   
However, to protect the dollar value of our investments, we will on occasion    
hedge out a particular currency, either because it is significantly overvalued  
or because the currency seems at risk due to unfavorable economic developments. 
After the end of the fiscal year we hedged our 0.3% exposure to the Malaysian   
ringgit.                                                                        

Emerging Markets                                                                

Emerging markets have grown considerably in recent years in terms of the number 
of investable markets and the number of stocks listed, although the sharp       
setback last year in a number of the markets reduced market capitalization.  Our
investments in emerging markets have been on an opportunistic stock-picking     
basis using GMO's traditional long-term value investment philosophy.  Our policy
is to invest from 0% to 10% of the portfolio in emerging markets, subject to    
stock selection opportunities and attractive valuations relative to the         
developed markets.  At the end of the fiscal year only 2.2% of the GMO Foreign  
Fund was invested in emerging markets, with Russia and Korea still comprising   
the majority of the emerging exposure.  Because of the extremely weak           
performance of emerging markets, our exposure to emerging markets diminished our
returns by 146 basis points during the past fiscal year, and thus reduced the   
amount by which the Fund beat the EAFE index.                                   

Outlook                                                                         

The Foreign Fund is managed with a long-term investment horizon and consequent  
low turnover.  We typically buy company stocks at relatively low price-to-      
earnings, low price-to-cash flow, and low price-to-book or asset ratios.        
Currently the Foreign Fund stands at a discount to the market on all of these   
ratios as well as a premium on yield.                                           

We believe that this is an opportune time to invest in foreign markets.  In     
Europe we see an increasing number of companies starting to adopt a more        
positive attitude to shareholder value which, in line with the U.S. experience, 
should be good for returns.  In much of Asia there has been a return to         
realistic valuations.  Furthermore, the relative inefficiencies of foreign      
markets should allow us to achieve superior returns.                            

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management.  They are not meant as investment advice.                   


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Foreign Fund                                                                    

Comparison of Change in Value of a $10,000 Investment in  
GMO Foreign Fund Class III Shares and the MSCI EAFE Index 
As of February 28, 1998 

------------------------------------------------- 
Average Annual Total Return 
------------------------------------------------- 
                                 Since
1 Year     5 Year     10 Year     Inception 
------------------------------------------------- 
Class                                        9/30/96            
II        15.9%      n/a         n/a         18.7%            
------------------------------------------------- 
Class                                                           
III       16.0%     16.7%       12.7%         n/a             
------------------------------------------------- 
Class                                        1/9/98             
IV         n/a       n/a         n/a         11.1%            
------------------------------------------------- 

[LINE GRAPH APPEARS HERE] 

GMO Foreign Fund         MSCI EAFE
Date              Class III Shares           Index                    
---------------        ----------------         ---------                       

2/29/88                $10,000               $10,000                    
2/28/89                $12,365               $12,084                    
2/28/90                $14,759               $11,695                    
2/28/91                $15,429               $11,426                    
2/29/92                $15,832               $10,577                    
2/28/93                $15,278               $10,140                    
2/28/94                $22,070               $14,113                    
2/28/95                $21,421               $13,485                    
2/29/96                $25,553               $15,757                    
2/28/97                $28,579               $16,268                    
2/28/98                $33,137               $18,784                    

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period. 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.    
Class III shares are a redesignation of the single class of shares that has been
offered by the Fund since inception. Performance for Class IV and Class II      
shares may vary due to different shareholder service fees. Past performance is  
not indicative of future performance. Information is unaudited.                 


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO Global Properties Fund (A Series of GMO Trust)                              

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 Properties Fund at      
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian provide a reasonable     
basis for the opinion expressed above.                                          

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares         Description                                                     Value ($)     
--------------------------------------------------------------------------------------------------
                                                                                                  
                 REAL ESTATE INVESTMENTS - 97.5%                                                  
                 Canada - 11.4%                                                                   
      13,700     Brookfield Properties Corp                                               228,630 
      40,000     Burcon Properties Ltd *                                                  414,573 
      10,000     Cambridge Shopping Centres Ltd                                           104,346 
       9,000     Canadian Hotel Income Properties                                          59,762 
      10,000     Oxford Properties Group *                                                240,312 
       4,000     Trizec Hahn Corp (Sub-Voting)                                             98,250 
                                                                                  ----------------
                                                                                        1,145,873 
                                                                                  ----------------
                 France - 11.0%                                                                   
       2,665     Klepierre                                                                407,021 
       1,357     Silic                                                                    209,703 
      11,500     Sophia SA                                                                487,252 
                                                                                  ----------------
                                                                                        1,103,976 
                                                                                  ----------------
                 Hong Kong - 5.5%                                                                 
      35,000     Cheung Kong Holdings                                                     245,237 
      30,000     Great Eagle Holdings Ltd                                                  44,172 
      30,000     Sun Hung Kai Properties Ltd                                              224,734 
     115,000     Tai Cheung Holdings Ltd                                                   39,361 
                                                                                  ----------------
                                                                                          553,504 
                                                                                  ----------------
                 Japan - 7.6%                                                                     
       8,000     Daibiru Corp                                                              65,859 
       5,000     Hankyu Realty Co Ltd                                                      29,288 
      10,000     Heiwa Real Estate Co Ltd                                                  41,954 
       5,000     Keihanshin Real Estate                                                    23,352 
      26,000     Mitsubishi Real Estate Co Ltd                                            290,192 
      13,000     Mitsui Fudosan Co Ltd                                                    139,951 
       7,000     Sankei Building Co Ltd                                                    24,990 
      11,000     Sumitomo Realty and Development Co Ltd                                    72,706 
       6,000     TOC Co Ltd                                                                57,943 
       5,000     Tokyo Rakutenchi                                                          14,763 
                                                                                  ----------------
                                                                                          760,998 
                                                                                  ----------------
                 Netherlands - 16.9%                                                              
      65,000     Breevast NV                                                              571,610 
      16,880     German City Estates NV (Bearer)                                          217,716 
      11,586     Nagron National                                                          275,662 
       8,500     Vastned (Offices) NV                                                     321,836 
       2,700     Vastned Retail NV                                                        148,531 
       5,896     VIB NV                                                                   161,309 
                                                                                  ----------------
                                                                                        1,696,664 
                                                                                  ----------------
                 New Zealand - 9.7%                                                               
     500,000     Trans Tasman Properties                                                  205,328 
   1,736,363     Trans Tasman Properties Ltd                                              774,164 
                                                                                  ----------------
                                                                                          979,492 
                                                                                  ----------------

See accompanying notes to the financial statements. 


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares         Description                                                     Value ($)     
--------------------------------------------------------------------------------------------------
                                                                                                  
                 Singapore - 0.9%                                                                 
      25,000     DBS Land Ltd                                                              38,711 
      20,000     Singapore Land Ltd                                                        56,015 
                                                                                  ----------------
                                                                                           94,726 
                                                                                  ----------------
                 United Kingdom - 9.4%                                                            
     750,000     Hemingway Properties Plc                                                 580,391 
     150,000     Nursing Home Properties                                                  361,818 
                                                                                  ----------------
                                                                                          942,209 
                                                                                  ----------------
                 United States - 25.1%                                                            
       6,000     Arden Realty Group Inc                                                   171,375 
       2,500     Avalon Properties                                                         71,874 
       4,500     Bedford Properties Investments Inc                                        88,313 
       3,000     Boston Properties Inc                                                    102,000 
       3,000     Bradley Real Estate Inc                                                   64,313 
       2,000     Brandywine Realty Trust                                                   47,250 
       4,000     Crescent Real Estate Equities                                            136,250 
       4,500     Eastgroup Properties Inc                                                  91,125 
       5,000     Felcor Suite Hotels Inc                                                  179,375 
       2,500     First Industrial Realty Trust Inc                                         90,313 
       3,000     Gables Residential Trust                                                  79,313 
       2,000     Glimcher Realty Trust                                                     45,000 
       8,000     Host Marriott Corp *                                                     158,500 
       1,000     HRE Properties                                                            18,625 
       2,000     Mills Corp                                                                53,375 
       2,000     Parkway Properties Inc                                                    65,250 
       5,498     Patriot American Hospitality Preferred                                   137,450 
       3,500     Prentiss Properties Trust                                                 93,406 
       6,000     Reckson Associates Realty Corp                                           151,125 
       2,812     Security Capital Atlantic Inc                                             59,052 
         349     Security Capital Group Inc Class B Warrants 9/18/98 *                      1,287 
       2,857     Security Capital Pacific Trust                                            65,532 
       4,000     Simon DeBartolo Group Inc                                                123,500 
       3,000     Smith (Charles E) Residential Realty                                      99,000 
       3,000     Starwood Hotels & Resorts                                                169,688 
       5,000     Urban Shopping Centers Inc                                               166,875 
                                                                                  ----------------
                                                                                        2,529,166 
                                                                                  ----------------

                 TOTAL REAL ESTATE INVESTMENTS (Cost $9,834,115)                        9,806,608 
                                                                                  ----------------

2             See accompanying notes to the financial statements.               


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Par Value     Description                                                     Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                 SHORT-TERM INVESTMENTS - 2.0%                                                    
                 Cash Equivalents - 2.0%                                                          
$    200,000     First National Bank of Chicago Time Deposit, 5.60%, due 3/2/98           200,000 
                                                                                  ----------------

                 TOTAL SHORT-TERM INVESTMENTS (Cost $200,000)                             200,000 
                                                                                  ----------------

                 TOTAL INVESTMENTS - 99.5%                                                        
                 (Cost $10,034,115)                                                    10,006,608 

                 Other Assets and Liabilities (net) -  0.5%                                54,451 
                                                                                  ----------------

                 TOTAL NET ASSETS - 100.0%                                      $      10,061,059 
                                                                                  ================

Notes to the Schedule of Investments:                             

    *  Non-income producing security. A dividend has not been declared for
the twelve months ended February 28, 1998.                  

              See accompanying notes to the financial statements.              3


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities - February 28, 1998                         
--------------------------------------------------------------------------------

Assets:                                                                         
    Investments, at value (cost $10,034,115) (Note 1)         $     10,006,608
    Foreign currency, at value (cost $109,297)                         108,358
    Cash                                                                14,328
    Dividends and interest receivable                                    3,351
    Foreign withholding taxes receivable                                 3,949
                                                                ----------------

        Total assets                                                10,136,594
                                                                ----------------

Liabilities:                                                                    
Payable to affiliate for (Note 2):                                    
        Management fee                                                   5,740
        Shareholder service fee                                          1,148
    Accrued expenses and other liabilities                              68,647
                                                                ----------------

        Total liabilities                                               75,535
                                                                ----------------

Net assets                                                     $     10,061,059 
                                                                ================

Net assets consist of:                                                          
    Paid-in capital                                           $      9,981,711
     Distributions in excess of net investment income                  (111,901)
    Accumulated undistributed net realized gain                        219,695
     Net unrealized depreciation                                        (28,446)
                                                                ----------------

                                                              $     10,061,059
                                                                ================

Net assets attributable to Class III Shares                    $     10,061,059 
                                                                ================

Shares outstanding - Class III                                          992,142 
                                                                ================

Net asset value per share - Class III                          $          10.14 
                                                                ================

4              See accompanying notes to the financial statements.              


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Operations - Year Ended February 28, 1998                          
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                      
Investment income:                                                                    
     Dividends (net of foreign tax expense of $14,213)                  $     275,629 
     Interest                                                                 154,424 
                                                                          ------------
         Total income                                                         430,053 
                                                                          ------------

Expenses:                                                                             
     Management fee (Note 2)                                                   74,657 
     Custodian fees                                                            67,776 
     Transfer agent fees                                                       29,867 
     Audit fees                                                                20,169 
     Legal fees                                                                12,233 
     Trustees fee (Note 2)                                                         90 
     Fees waived or borne by Manager (Note 2)                                 (77,290)
                                                                          ------------
                                                                              127,502 
     Shareholder service fee - Class III (Note 2)                              14,931 
                                                                          ------------
         Net expenses                                                         142,433 
                                                                          ------------
             Net investment income                                            287,620 
                                                                          ------------

Realized and unrealized gain (loss):                                                  
         Net realized gain (loss) on:                                                 
             Investments                                                       90,805 
             Foreign currency and foreign currency related transactions        (4,151)
                                                                          ------------
                    Net realized gain                                          86,654 
                                                                          ------------

         Change in net unrealized appreciation (depreciation) on:                     
             Investments                                                       16,578 
             Foreign currency and foreign currency related transactions          (939)
                                                                          ------------
                    Net unrealized gain                                        15,639 
                                                                          ------------
         Net realized and unrealized gain                                     102,293 
                                                                          ------------

Net increase in net assets resulting from operations                    $     389,913 
                                                                          ============

               See accompanying notes to the financial statements.             5


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Changes in Net Assets                                                                                 
-------------------------------------------------------------------------------------------------------------------

                                                                             Year Ended            Period Ended    
                                                                         February 28, 1998      February 28, 1997 *
                                                                        -------------------     -------------------
                                                                                                                   
Increase (decrease) in net assets:                                                                                 
Operations:                                                                                                        
      Net investment income                                             $         287,620      $          42,303   
      Net realized gain (loss)                                                     86,654                 (1,952)  
      Change in net unrealized appreciation (depreciation)                         15,639                (44,085)  
                                                                        ------------------     ------------------  

      Net increase (decrease) in net assets resulting from operations             389,913                 (3,734)  
                                                                        ------------------     ------------------  

Distributions to shareholders from:                                                                                
      Net investment income - Class III                                          (306,831)                     -   
                                                                        ------------------     ------------------  

Net share transactions - Class III (Note 5)                                       513,622              9,468,089   
                                                                        ------------------     ------------------  

      Total increase in net assets                                                596,704              9,464,355   

Net assets:                                                                                                        
      Beginning of period                                                       9,464,355                      -   
                                                                        ------------------     ------------------  

      End of period (including distributions in excess of net                                                      
          investment income of $111,901 and accumulated                                                            
          undistributed net investment income of $40,351,                                                          
          respectively)                                                 $      10,061,059      $       9,464,355   
                                                                        ==================     ==================  

*     Period from December 20, 1996 (commencement of operations) to February 28,
1997.                                                               

6              See accompanying notes to the financial statements.              


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


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

                                                         Year Ended                 Period Ended                   
                                                      February 28, 1998           February 28, 1997 *              
                                                     --------------------        --------------------              
                                                                                                                   
Net asset value, beginning of period                $               10.06        $              10.00              
                                                     --------------------        --------------------              

Income from investment operations:                                                                                 
     Net investment income                                           0.30                        0.04              
     Net realized and unrealized gain                                0.10                        0.02(c)           
                                                     --------------------        --------------------              
         Total from investment operations                            0.40                        0.06              
                                                     --------------------        --------------------              

Less distributions to shareholders:                                                                                
     From net investment income                                     (0.32)                         --              
                                                     --------------------        --------------------              

Net asset value, end of period                      $               10.14       $               10.06              
                                                     ====================        ====================              

Total Return (a)                                                     4.07%                       0.60%             

Ratios/Supplemental Data:                                                                                          

     Net assets, end of period (000's)              $              10,061       $               9,464              
     Net expenses to average                                                                                       
         daily net assets                                            1.43%                       1.98%**           
     Net investment income to average                                                                              
         daily net assets                                            2.89%                       2.39%**           
     Portfolio turnover rate                                           15%                          0%             
     Average broker commission rate (b)             $              0.0158       $              0.0062              
     Fees and expenses voluntarily waived or                                                                       
         borne by the Manager consisted of                                                                         
         the following per share amounts:           $                0.08       $                0.05              

*   Period from December 20, 1996 (commencement of operations) to February 28,  
1997.                                                                   

**  Annualized.                                                                 

(a) Calculation excludes purchase premiums and redemption fees.  The total      
 returns would have been lower had certain expenses not been waived during
the periods shown.                                                      

(b) The average broker commission rate will vary depending on the markets in    
which trades are executed.                                              

(c) The amount shown for a share outstanding does not correspond with the       
aggregate net realized and unrealized gain (loss) on investments for the
period ended February 28, 1997 due to the timing of purchases and       
  redemptions of Fund shares in relation to fluctuating market values of the
investments of the Fund.                                                

                See accompanying notes to the financial statements.            7


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

GMO Global Properties Fund (the "Fund"), which commenced operations on
December 20, 1996, 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
    securities of issuers throughout the world which are engaged in or related
  to the real estate industry or which own significant real estate assets.

At the beginning of the fiscal year, the Fund offered three classes of
     shares: Class I, Class II, and Class III. The principal economic difference
     between the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  
Effective January 9, 1998, Class I and Class II shares ceased to be   
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

8                                                                               


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements  - continued                                      

--------------------------------------------------------------------------------
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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for federal income or
     excise tax is necessary. Taxes on foreign interest and dividend income have
   been withheld in accordance with the applicable country's tax treaty with
     the United States. 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.                                 

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are due to differing
treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

                                                                               9


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements  - continued                                      

--------------------------------------------------------------------------------
Distributions in            Accumulated                                 
Excess of Net           Undistributed Net                             
Investment Income           Realized Gain                Paid-in Capital  
-----------------------    ------------------------    -------------------------

($133,041)                $133,041                          -     

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

     The Fund's investments in REIT equity securities may at times result in the
  Fund's receipt of cash in excess of its interest in the REIT's earnings.
    The excess amount cannot be determined by the Fund at the time of receipt.
     If the Fund distributes amounts which are subsequently determined to exceed
  REIT earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.                         

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. In determining the
   net gain or loss on securities sold, the cost of securities is determined
  on the identified cost basis. Dividends representing a return of capital
are reflected as a reduction of cost.                                 

Allocation of operating activity                                      
The majority of expenses of the Trust are directly identifiable to an 
    individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
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 .60% of the amount    
  invested. In the case of cash redemptions, the fee is .30% of the amount
 redeemed. All purchase premiums and redemption fees are paid to and are
    recorded by the Fund as paid-in capital. These fees are allocated relative
    to each class' net assets on the share transaction date. Purchase premiums
   are included as part of each class' "shares sold" and redemption fees are
included as part of each class' "shares repurchased", respectively, as
summarized in Note 5. For the year ended February 28, 1998, the Fund  
  received $1,461 in purchase premiums and no redemption fees. There is no
premium for reinvested distributions.                                 

10                                                                              


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements  - continued                                      

--------------------------------------------------------------------------------

Investment risks                                                      
 There are certain additional risks involved in investing in real-estate
     related securities 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 values
    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. Additionally, 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 and the possible  
 imposition of currency exchange blockages 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.  

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .75% 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 .28%
for Class I shares, .22% for Class II shares, and .15% for Class III  
shares.                                                               

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
   management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including stamp duties and transfer taxes),  
     shareholder service fees and extraordinary expenses) exceed .60% of average
daily net assets.                                                     

The Fund's portion of the fee paid by the Trust to the unaffiliated   
   Trustees during the year ended February 28, 1998 was $90. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

                                                                              11


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements  - continued                                      

--------------------------------------------------------------------------------
3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$7,465,951 and $1,106,058, respectively.                              

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                    Gross Unrealized     Gross Unrealized     Net Unrealized
Aggregate Cost        Appreciation         Depreciation        Depreciation 
------------------  -------------------- -------------------  ------------------
$10,165,897            $703,464             $862,753            $159,289  

4.   Principal shareholder                                                      

     At February 28, 1998, 70.7% of the outstanding shares of the Fund were held
by one shareholder, who is an affiliate of the Manager.               

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
 shares, including purchase premiums and redemption fees received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]


Class III:                                                            Period from December 20, 1996      
                                   Year Ended                         (commencement of operations)       
                                February 28, 1998                          to February 28, 1997          
                   ------------------------------------------  ------------------------------------------
                         Shares                Amount               Shares                 Amount        
                   ------------------    --------------------  ----------------     ---------------------
                                                                                                         
Shares sold                   24,144   $             243,500           940,343    $            9,468,089 
Shares issued  to                                                                                        
shareholders                                                                                             
in reinvestment of                                                                                       
distributions                 27,655                 270,122              -                         -    
Shares                                                                                                   
repurchased                     -                       -                 -                         -    

                   ------------------    --------------------  ----------------     ---------------------
Net increase                  51,799   $             513,622           940,343    $            9,468,089 
                   ==================    ====================  ================     =====================

12                                                                              


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements  - continued                                      

--------------------------------------------------------------------------------
For the fiscal year ended February 28, 1998, all the Fund's distributions are   
from investment company taxable income.                                         

                                                                              13


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GMO Global Properties Fund                                                      
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. Eyk Van Otterloo and Mr. Wilson Magee are primarily responsible for the day-
to-day management of the Fund's portfolio.  Mr. Van Otterloo has been with GMO  
since its founding in 1977.  Mr. Magee joined GMO in January 1997 following 15  
years of experience in the real estate industry.                                

Management Discussion and Analysis of Performance                               
-------------------------------------------------                               

The Class III shares of the Global Properties Fund (GPF) returned 4.0% during   
the twelve months ended February 28, 1998.  During the same period, the Salomon 
Brothers World Property Equity Index and the Global Property Research/LIFE      
Global Property Index returned -8.2% and -11.0%, respectively, and the MSCI     
World Equity Index returned 23.9%.                                              

Most significant in terms of value-added were country allocations.  The most    
significant country allocations included a large overweighting in Canadian      
property stocks and the absence of fund holdings, until December 1997, in Hong  
Kong, Singapore and emerging Asia.  Foreign exchange added modest value,        
although the Fund did not employ any currency hedges during the fiscal year.    
Stock selection added value overall and was positive in seven of the ten        
countries in which the Fund invested.                                           

Security Selection                                                              

Property stocks are selected using a three-tier process.  First, property       
markets are analyzed to identify prospective fundamental trends that affect each
property type within the context of macroeconomic trends that are particularly  
meaningful to property investment, namely interest rate changes, inflation, real
GDP growth, and demographics.  Second, country allocations are established      
utilizing our country models of relative real estate and (real estate)          
securities index values.  Initial currency hedging strategies are also          
established.  Finally, fundamental securities analysis is employed to select    
securities of undervalued companies.                                            


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Outlook                                                                         

The outlook for property stocks varies by country.  We remain positive on Canada
due to attractive valuations of high quality property companies and a property  
cycle that lags that of the United States where we think property trends        
continue to be positive.  In Europe, France, Netherlands and Sweden are         
recovering markets with improving prospects for property companies.  We have    
become more cautious about the soaring UK property market.  Despite the steep   
decline in prices for property companies in Asia, our outlook is not for a rapid
recovery as supplies of most property types are quite excessive.  We are        
particularly cautious about property equities in emerging Asian markets such as 
Thailand, Malaysia and Indonesia, where companies borrowed liberally in US      
dollars.  We remain optimistic about the long-term outlook for property         
companies with significant commercial exposure in Japan.                        

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management.  They are not meant as investment advice.                   


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Global Properties Fund                                                          

Comparison of Change in Value of a $10,000 Investment in  
GMO Global Properties Fund Class III Shares and the Salomon Brothers  
World Equity Property Industry Index  
As of February 28, 1998 

-----------------------------                                     
Average Annual Total Return                                     
-----------------------------                                     
Since                         
Inception                         
1 Year       12/20/96                                       
-----------------------------                                     
Class                                                                     
III     3.1%           3.2%                                             
-----------------------------                                     

[LINE GRAPH APPEARS HERE] 

           GMO Global            Salomon BMI
Date          Properties Fund         World Index     
----          ---------------         -----------     

12/20/96           $ 9,940                $10,000         
2/28/97           $10,000                $10,413        
2/28/98           $10,375                $ 9,553        

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    
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions.  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 30 bp on the redemption.           
Transaction fees are paid to the Fund to cover trading costs.  Information is   
unaudited.                                                                      


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO Evolving Countries Fund (A Series of GMO Trust)                             

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 Evolving Countries Fund at     
February 28, 1998, and the results of its operations, the changes in its net    
assets and the financial highlights for the period August 29, 1997 (commencement
of operations) through February 28, 1998, in conformity with generally accepted 
accounting principles. These financial statements and financial highlights      
(hereafter referred to as "financial statements") are the responsibility of the 
Trust'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 generally accepted auditing standards   
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 28, 1998 by correspondence with the      
custodian and brokers and the application of alternative auditing procedures    
where confirmations from brokers were not received, provides a reasonable basis 
for the opinion expressed above.                                                

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 20, 1998                                                                  


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares      Description                                                                    Value ($)    
-------------------------------------------------------------------------------------------------------------
                                                                                                             
                 STOCK AND EQUIVALENTS - 90.3%                                                               
                 Argentina - 0.8%                                                                            
       14,800    Banco Frances del Rio de la Plata SA                                               147,334  
        3,000    YPF SA ADR                                                                          94,875  
        2,900    YPF SA Class D                                                                      92,266  
                                                                                             --------------- 
                                                                                                    334,475  
                                                                                             --------------- 
                 Brazil - 8.5%                                                                               
    1,953,911    Banco Bradesco Receipts*                                                            16,597  
   22,791,000    Electrobras Class B Preferred (Registered)                                       1,068,817  
      540,000    Itaubanco SA Preferred (Registered)                                                319,179  
      172,838    Souza Cruz (Registered)                                                          1,506,397  
        3,900    Telebras ADR                                                                       477,506  
                                                                                             --------------- 
                                                                                                  3,388,496  
                                                                                             --------------- 
                 Chile - 7.5%                                                                                
       13,800    Chilectra SA ADR                                                                   339,894  
       30,100    Chilgener ADR                                                                      722,400  
       24,600    Compania de Telefones de Chile ADR                                                 673,425  
       14,800    Embotelladora Andina ADR Class A                                                   310,800  
       26,800    Empresa Natl de Electricidad ADR                                                   494,125  
       41,000    Quinenco SA ADR*                                                                   440,750  
                                                                                             --------------- 
                                                                                                  2,981,394  
                                                                                             --------------- 
                 Colombia - 1.3%                                                                             
        6,600    Banco Ganadero SA ADR                                                              231,000  
       22,600    Banco Industrial Colombia ADR                                                      265,550  
                                                                                             --------------- 
                                                                                                    496,550  
                                                                                             --------------- 
                 India - 8.7%                                                                                
        5,250    Bajaj Auto Ltd GDR (Registered)*                                                   103,688  
        6,800    ITC Ltd                                                                            114,313  
       20,000    ITC Ltd GDR* (a)                                                                   555,000  
       30,000    Larsen & Toubro GDR                                                                393,750  
      119,000    Mahanagar Telephone                                                                788,696  
       12,000    Mahanagar Telephone GDR 144A*                                                      204,000  
       43,500    Mahindra & Mahindra GDR 144A                                                       368,663  
       28,700    Reliance Industries GDR (Registered)                                               248,255  
       65,000    Satyam Computer Service                                                            339,123  
       15,600    State Bank of India GDR (Registered)                                               309,660  
       13,000    Steel Authority of India GDR                                                        32,825  
                                                                                             --------------- 
                                                                                                  3,457,973  
                                                                                             --------------- 
                 Indonesia - 1.2%                                                                            
      264,000    Aneka Tambang*                                                                      46,983  
      385,000    Astra International                                                                 72,867  
      377,000    Barito Pacific Timber                                                               85,198  
      101,000    HM Sampoerna                                                                        58,203  
      447,000    Indah Kiat Pulp & Paper                                                             98,492  
       41,500    International Nickel                                                                46,893  
      158,000    Telekomunikasi Indonesia                                                            62,486  
                                                                                             --------------- 
                                                                                                    471,122  
                                                                                             --------------- 

              See accompanying notes to the financial statements.              1


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares      Description                                                                      Value ($)  
-------------------------------------------------------------------------------------------------------------
                                                                                                             
                 Israel - 4.5%                                                                               
       46,000    Bank Hapoalim                                                                      107,695  
      229,000    Bank Leumi Le Israel                                                               388,520  
        7,900    Formula Systems Ltd*                                                               240,506  
       40,100    Makhteshim Chemicals Works Ltd*                                                    308,836  
        8,050    Supersol Ltd ADR                                                                   126,788  
        7,000    Tadiran Ltd ADR                                                                    280,000  
        8,100    Teva Pharmaceutical Industries Ltd ADR                                             340,200  
                                                                                             --------------- 
                                                                                                  1,792,545  
                                                                                             --------------- 
                 Korea - 4.6%                                                                                
       76,600    Daewoo Corp                                                                        294,579  
       11,783    Housing & Commercial Bank Korea GDR                                                 88,373  
       15,700    Kookmin Bank GDS 144A                                                              100,480  
        4,020    Pohang Iron & Steel                                                                241,008  
        1,650    Samsung Display Devices                                                             95,989  
        4,350    Samsung Electronics                                                                251,730  
       33,614    Samsung Electronics GDS 144A (Non Voting)                                          466,394  
          629    SK Telecom                                                                         285,800  
        2,307    SK Telecom ADR                                                                      19,898  
                                                                                             --------------- 
                                                                                                  1,844,251  
                                                                                             --------------- 
                 Malaysia - 0.0%                                                                             
          600    Oriental Holdings Berhad                                                             1,224  
                                                                                             --------------- 

                 Mexico - 10.0%                                                                              
       11,000    Alfa SA Class A                                                                     62,592  
       87,000    Carso Global Telecom Class A                                                       285,798  
       94,000    Cemex SA Class B                                                                   449,956  
       17,000    El Puerto de Liverpool SA                                                           23,335  
       39,000    Empresas ICA Sociedad Controladora                                                  77,602  
       37,000    Empresas La Moderna SA de CV Class A*                                              186,443  
       56,000    Fomento Economico Mexicano SA de CV Class B                                        417,200  
       20,000    Grupo Carso SA de CV Class A                                                       122,485  
      110,000    Grupo Mexico Class B                                                               379,422  
       39,500    Grupo Televisa SA PTG Certs (1A,L & D)                                             692,820  
       25,200    Telefonos de Mexico ADR Class L                                                  1,277,325  
                                                                                             --------------- 
                                                                                                  3,974,978  
                                                                                             --------------- 
                 Pakistan - 2.3%                                                                             
       26,000    Hub Power Co Ltd GDR                                                               786,500  
       16,800    Pakistan State Oil                                                                 112,621  
                                                                                             --------------- 
                                                                                                    899,121  
                                                                                             --------------- 
                 Russia - 9.6%                                                                               
      103,000    Irkutskenergo ADR                                                                  721,000  
        7,800    Lukoil Holding Co ADR                                                              546,975  
        7,000    Mosenergo ADR*                                                                     272,125  
           37    Norilsk Nickel RDC 144A*                                                           185,000  

2             See accompanying notes to the financial statements.               


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares      Description                                                                      Value ($)  
-------------------------------------------------------------------------------------------------------------
                                                                                                             
                 Russia - continued                                                                          
       59,000    Norilsk Nickel (Registered)*                                                       312,700  
       77,000    Rostelekom*                                                                        269,500  
       35,000    Surgutneftegaz ADR                                                                 245,000  
        8,500    Unified Energy Systems ADR*                                                        232,688  
       37,830    Unified Energy Systems GDR*                                                      1,035,596  
                                                                                             --------------- 
                                                                                                  3,820,584  
                                                                                             --------------- 
                 South Africa - 17.6%                                                                        
      123,700    Amalgamated Bank of South Africa Group Limited                                     951,250  
        8,520    Anglo American Corp of South Africa                                                356,904  
       16,000    Anglo American Industrial Ltd                                                      376,242  
       21,600    Anglo American Platinum Corp                                                       307,728  
      103,200    De Beers Centenary Link Units                                                    2,046,666  
        2,900    De Beers Consolidated Mines Ltd ADR                                                 57,819  
       43,300    First National Bank Holdings                                                       490,701  
       37,200    Liberty Life Association of Africa Ltd                                           1,129,212  
       26,700    Nedcor Ltd                                                                         778,063  
       23,200    Rembrandt Group Ltd                                                                158,689  
       36,200    Sasol Ltd                                                                          309,145  
                                                                                             --------------- 
                                                                                                  6,962,419  
                                                                                             --------------- 
                 Thailand - 10.3%                                                                            
       38,200    Advanced Info Service Public Co Ltd (Foreign Registered)                           290,710  
      531,000    Bangkok Expressway Plc (Foreign Registered)*                                       517,448  
      402,000    Cogeneration Public Co (Foreign Registered)                                        419,722  
      130,000    Electricity Generating Public Co Ltd (Foreign Registered)                          340,835  
      110,400    Hana Microelectronic Plc (Foreign Registered)                                      435,452  
       13,300    KCE Electronics Plc (Foreign Registered)                                            98,747  
       16,100    KR Precision Plc (Foreign Registered)                                               56,032  
      340,847    Land & House Public Co Ltd (Foreign Registered)                                    211,547  
       10,800    PTT Exploration and Production Public Co Ltd (Foreign Registered)                  140,325  
      101,636    Shinawatra Computer and Communications Public Co Ltd (Foreign Registered)          655,564  
      110,000    Thai Airways International Plc                                                     135,267  
      223,300    Thai Airways International (Foreign Registered)                                    274,592  
       49,000    Thai Farmers Bank Plc (Foreign Registered)                                         146,659  
    1,313,000    Thai Petrochemical (Foreign Registered)                                            350,336  
                                                                                             --------------- 
                                                                                                  4,073,236  
                                                                                             --------------- 
                 Venezuela - 3.4%                                                                            
       37,600    Compania Anonima Nacional Telefonos de Venezuela (CANTV) ADR                     1,332,450  
                                                                                             --------------- 

                 TOTAL STOCK AND EQUIVALENTS (Cost $36,774,895)                                  35,830,818  
                                                                                             --------------- 

                 INVESTMENT FUNDS - 1.0%                                                                     
                 Russia - 0.5%                                                                               
        8,100    Morgan Stanley Russia & New Europe Fund                                            190,350  
                                                                                             --------------- 

                 United States - 0.5%                                                                        
       15,000    Morgan Stanley Emerging Markets Fund                                               190,313  
                                                                                             --------------- 

              See accompanying notes to the financial statements.              3


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


  Par Value      Description                                                                     Value ($)   
-------------------------------------------------------------------------------------------------------------
                                                                                                             
                 TOTAL INVESTMENT FUNDS (Cost $445,889)                                             380,663  
                                                                                             --------------- 

                 SHORT-TERM INVESTMENTS - 10.6%                                                              
                 Cash Equivalents - 10.6%                                                                    
$   4,200,000    Wachovia Bank Time Deposit, 5.63%, due 3/2/98                                    4,200,000  
                                                                                             --------------- 

                 TOTAL SHORT-TERM INVESTMENTS (Cost $4,200,000)                                   4,200,000  
                                                                                             --------------- 

                 TOTAL INVESTMENTS - 101.8%                                                                  
                 (Cost $41,420,784)                                                              40,411,481  

                 Other Assets and Liabilities (net) -  (1.8%)                                      (713,129) 
                                                                                             --------------- 

                 TOTAL NET ASSETS - 100.0%                                                 $     39,698,352  
                                                                                             =============== 

Notes to the Schedule of Investments:                 

ADR  American Depositary Receipt                      
GDR Global Depository Receipt                         
GDS Global Depository Shares                          
RDC Russian Depository Certificate                    

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 buyers.

      *     Non-income producing security. A dividend has not been
             declared for the twelve months ended February 28, 1998.

(a)   Warrants included in position of security.      

4             See accompanying notes to the financial statements.               


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

       At February 28, 1998, industry sector diversification
  of the Fund's equity investments was as follows:

Industry Sector (Unaudited)                   

                Utilities                                                19.7%
               Telecommunications                                       14.2
               Banking                                                  11.9
               Conglomerates                                             9.7
               Food and Beverage                                         6.0
               Electronic Equipment                                      5.7
               Oil and Gas                                               3.9
               Communications                                            3.7
               Metals and Mining                                         3.3
               Insurance                                                 3.1
               Transportation                                            2.5
               Consumer Goods                                            2.4
               Machinery                                                 2.1
               Construction                                              2.0
               Chemicals                                                 1.8
               Financial Services                                        1.6
               Computers                                                 1.6
               Automotive                                                1.3
               Textiles                                                  0.7
               Paper and Allied Products                                 0.5
               Health Care                                               0.2
               Retail Trade                                              0.1
               Miscellaneous                                             2.0
                                                                 -----------
                                                                        100.0%
                                                                 ===========

                 See accompanying notes to the financial statements.           5


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities - February 28, 1998                         
--------------------------------------------------------------------------------

Assets:                                                                         
  Investments, at value (cost $41,420,784) (Note 1)        $    40,411,481
  Foreign currency, at value (cost $471,758) (Note 1)              472,314
  Cash                                                              70,705
  Receivable for investments sold                                  167,042
  Dividends and interest receivable                                 48,814
  Receivable for expenses waived or borne by Manager                 5,882
                                                              --------------
      Total assets                                              41,176,238
                                                              --------------

Liabilities:                                                                    
  Payable for investments purchased                              1,349,155
Payable to affiliate for (Note 2):                                    
      Management fee                                                21,255
      Shareholder service fee                                        3,985
  Accrued expenses                                                 103,491
                                                              --------------

      Total liabilities                                          1,477,886
                                                              --------------

Net assets                                                    $    39,698,352   
                                                              ==============

Net assets consist of:                                                          
  Paid-in capital                                          $    42,117,498
  Accumulated undistributed net investment income                  137,543
   Accumulated net realized loss                                 (1,553,325)
   Net unrealized depreciation                                   (1,003,364)
                                                              --------------

                                                           $    39,698,352
                                                              ==============

Net assets attributable to Class III Shares                   $    39,698,352   
                                                              ==============

Shares outstanding - Class III                                      4,612,685   
                                                              ==============

Net asset value per share - Class III                         $          8.61   
                                                              ==============

6              See accompanying notes to the financial statements.              


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Operations - Period from August 29, 1997                                
(commencement of operations) to February 28, 1998                                    
-------------------------------------------------------------------------------------
                                                                                     
Investment income:                                                                   
     Dividends (net of foreign tax expense of $15,498)              $        186,718 
     Interest                                                                102,450 
                                                                      ---------------
             Total income                                                    289,168 
                                                                      ---------------

Expenses:                                                                            
     Management fee (Note 2)                                                  94,952 
     Custodian fees                                                           75,188 
     Audit fees                                                               40,959 
     Stamp duties and transfer taxes                                          19,065 
     Transfer agent fees                                                      14,697 
     Registration fees                                                         2,511 
     Legal fees                                                                  460 
     Trustees fee (Note 2)                                                       372 
     Miscellaneous                                                             7,937 
     Fees waived or borne by Manager (Note 2)                                (77,826)
                                                                      ---------------
                                                                             178,315 
     Shareholder service fee - Class III (Note 2)                             17,804 
                                                                      ---------------

         Net expenses                                                        196,119 
                                                                      ---------------

             Net investment income                                            93,049 
                                                                      ---------------

Realized and unrealized gain (loss):                                                 
         Net realized gain (loss) on:                                                
             Investments                                                  (1,553,323)
             Foreign currency, forward contracts and foreign                         
                currency related transactions                                 44,492 
                                                                      ---------------
                   Net realized loss                                      (1,508,831)
                                                                      ---------------

         Change in net unrealized appreciation (depreciation) on:                    
             Investments                                                  (1,009,303)
             Foreign currency, forward contracts and foreign                         
                currency related transactions                                  5,939 
                                                                      ---------------
                   Net unrealized loss                                    (1,003,364)
                                                                      ---------------

         Net realized and unrealized loss                                 (2,512,195)
                                                                      ---------------

Net decrease in net assets resulting from operations                $     (2,419,146)
                                                                      ===============


                See accompanying notes to the financial statements.            7


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                          Period from August 29, 1997
                                                         (commencement of operations)
                                                             to February 28, 1998    
                                                           -----------------------   
                                                                                     
Increase (decrease) in net assets:                                                   
Operations:                                                                          
      Net investment income                                   $         93,049       
      Net realized loss                                             (1,508,831)      
      Change in net unrealized depreciation                         (1,003,364)      
                                                                ---------------      

      Net decrease in net assets resulting from operations          (2,419,146)      
                                                                ---------------      

Net share transactions - Class III (Note 5)                         42,117,498       
                                                                ---------------      

      Total increase in net assets                                  39,698,352       

Net assets:                                                                          
      Beginning of period                                               -            
                                                                ---------------      

      End of period (including accumulated undistributed                             
          net investment income of $137,543)                  $     39,698,352       
                                                                ===============      


8                 See accompanying notes to the financial statements.           


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

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

                                                                [Download Table]


                                                       Period from August 29, 1997 
                                                       (commencement of operations)
                                                          to February 28, 1998     
                                                             -----------------     
                                                                                   
Net asset value, beginning of period                         $      10.00          
                                                              ------------         

Income from investment operations:                                                 
  Net investment income                                              0.30 +        
  Net realized and unrealized loss                                  (1.42)         
                                                              ------------         

         Total from investment operations                           (1.39)         
                                                              ------------         

Net asset value, end of period                               $       8.61          
                                                              ============         

Total Return (a)                                                  (13.90%)         

Ratios/Supplemental Data:                                                          

     Net assets, end of period (000's)                       $     39,698          
     Net expenses to average                                                       
         daily net assets                                           1.65% *(b)     
     Net investment income to average                                              
         daily net assets                                           0.78% *        
     Portfolio turnover rate                                          56%          
     Average broker commission rate (c)                      $     0.0013          
     Fees and expenses voluntarily waived or borne by                              
         the Manager consisted of the following per                                
         share amount:                                       $       0.03          


+    Computed using average shares outstanding throughout the period.           
*    Annualized.                                                                
(a)  Calculation excludes purchase premiums and redemption fees. The total      
return would have been lower had certain expenses not been waived     
during the period shown.                                              
(b)  Includes stamp duties and transfer taxes not waived or borne by the        
manager, which approximates .16% of average daily net assets.         
(c)  The average broker commission rate will vary depending on the markets in   
which trades are executed.                                            

                See accompanying notes to the financial statements.            9


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

 GMO Evolving Countries Fund (the "Fund"), which commenced operations on
August 29, 1997, 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 into classes.                                   

At the beginning of the fiscal year, the Fund offered three classes of
    shares: Class I, Class II and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  
Effective January 9, 1998, Class I and Class II shares ceased to be   
offered.                                                              

 The Fund seeks long-term capital appreciation consistent with a prudent
  level of risk through investment in equity and equity-related securities
traded in the securities markets of newly industrializing countries in
   Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and
Africa.                                                               

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

10                                                                              


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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 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.
     When a forward currency contract is extinguished through delivery or offset
by entering into another forward currency contract, the Fund records a
realized gain or loss equal to the difference between the value of the
 contract at the time it was opened and the value of the contract at the
     time it was extinguished or offset. 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
 the value of the currency changes unfavorably to the U.S. dollar. There
were no open forward currency contracts as of February 28, 1998.      

Taxes                                                                 
 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
    federal income tax purposes. Therefore, no provision for federal income or
     excise tax is necessary. Taxes on foreign interest and dividend income have
   been withheld in accordance with the applicable country's tax treaty with
the United States.                                                    

                                                                              11


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are due to the differing
treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated                                                         
Undistributed Net           Accumulated Net Realized                    
   Investment Income                 Gain/(Loss)               Paid-in Capital
 ------------------------    ------------------------------    -----------------
$44,494                        $(44,494)                        -   

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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             

12                                                                              


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
    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 1.60% of the amount   
  invested. In the case of cash redemptions, the fee is .40% of the amount
     redeemed. These fees may be reduced by 50% with respect to any portion of a
purchase or redemption that is offset by a corresponding redemption or
  purchase, respectively, occurring on the same day. 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. Purchase premiums are included as part of each
class' "shares sold" and redemption fees are included as part of each 
     class' "shares repurchased", respectively, as summarized in Note 5. For the
period ended February 28, 1998, the Fund received $681,488 in purchase
    premiums and $1,902 in redemption fees. 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. Investing in equity securities of
  Russian companies includes the risk of loss from Russia's underdeveloped
   systems of share registration and transfer. 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.   

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .80% of 
   average daily net assets. In addition, 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 .28% for Class
I shares, .22% for Class II shares, and .15% for Class III shares.    

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
   management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including stamp duties and transfer taxes),  
     shareholder service fees and extraordinary expenses) exceed .65% of average
daily net assets.                                                     

    The Manager has entered into a Consulting Agreement with Dancing Elephant,
  Ltd. (the "Consultant") with respect to the management of the portfolio.
Payments made by the Manager to                                       

                                                                              13


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
the Consultant will not affect the amounts payable by the Fund to the 
Manager or the Fund's expense ratio.                                  

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the period ended February 28, 1998, was $372. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
    short-term investments, for the period ended February 28, 1998, aggregated
$50,240,655 and $11,466,548, respectively.                            

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                      Gross Unrealized     Gross Unrealized       Net Unrealized
    Aggregate Cost     Appreciation         Depreciation          Depreciation
    ----------------  ------------------  --------------------   ---------------
    $41,791,498         $2,367,593          $3,747,610              $1,380,017

4.   Principal shareholders                                                     

   At February 28, 1998, 69% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
 shares, including purchase premiums and redemption fees received by the
Fund, were as follows:                                                

                                         Period from August 29, 1997
                                          (commencement of operations)
                                          to February 28, 1998
                                            ------------------------------------
 Class III:                                 Shares              Amount
                                            ----------------    ----------------
    Shares sold                                 4,671,266    $    42,593,027

Shares issued to shareholders in                                    
 reinvestment of distributions                   -                   -
     Shares repurchased                            (58,581)          (475,529)
                                            ----------------    ----------------
    Net increase                                4,612,685     $   42,117,498
                                            ================    ================

14                                                                              


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------
At February 28, 1998, the Fund had a capital loss carryforward available to     
offset future capital gains, if any, of the following amount:                   

Year of Expiration                    Amount  
------------------                   -------- 
    2006                            $353,921

The Fund has also elected to defer to March 1, 1998 post-October losses of      
$828,688.                                                                       

                                                                              15


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GMO Evolving Countries Fund                                                     
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. R. Jeremy Grantham and Mr. Arjun Divecha are primarily responsible for the  
day-to-day management of the Fund's portfolio. Mr. Grantham has been with GMO   
since its founding in 1977. Mr. Divecha is the principal of Dancing Elephant    
Ltd., which serves as consultant to the Fund. Dancing Elephant Ltd. has an      
exclusive consulting management agreement with GMO.                             

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

The GMO Evolving Countries Fund was launched August 29, 1997. Since inception,  
the Fund is down -13.9% compared to the Fund's benchmark, the IFC Investable    
Composite, which is down -14.2% during the same period. The Fund has country    
weights that are similar to the GMO Emerging Markets Fund, but stock selection  
is focused on larger and more liquid companies within each of these markets.    
Consistent with the Fund's investment objectives and policies, the Fund was     
invested substantially in equity securities throughout the period.              

During the period, the Fund held overweight positions in Russia, Korea and Chile
which underperformed the benchmark. Our underweight positions in Taiwan and     
Portugal hurt us. Our overweight positions in India and South Africa positively 
impacted relative performance.                                                  

Korea and Russia were badly hit by the Asian contagion, impacting negatively on 
performance. Russia was particularly hard hit, with political fears and worries 
concerning Mr. Yeltsin's health re-emerging. For foreign investors, these issues
compounded the existing Asia worries. Portugal continued to do well on prospects
of convergence with other European Union countries. While the Taiwanese market  
was expensive going into the Asia crisis, its strong economic fundamentals      
protected it from the meltdown. As a result, it outperformed the other Asian    
markets.                                                                        

Outlook                                                                         

The Asian crisis has had a positive impact on the behavior of other emerging    
market policy makers, especially in Brazil and Russia. In these and other       
emerging countries, policy makers have acted quickly to address macroeconomic   
imbalances, lest global investors punish them. In the long run, this bodes well 
for emerging markets as an asset class.                                         

We have been gradually increasing our weights in Asia, reducing our exposure to 
Latin America and continue to be overweight Russia.                             

The ASEAN markets have now fallen more than 70% from their peak in US$ terms and
are already discounting poor profitability and weaker economic conditions. The  
principal factors that influenced a V shaped recovery in Mexico were a strong   
bailout package, rapid change in the trade deficit and a strong commitment by   
the government to implement tough IMF conditions. The first two conditions are  
now present in Asia. However, hubris amongst Asian governments helped cause the 
crisis and only when they begin to accept reality will they make the appropriate
structural changes that are so desperately needed. We think Thailand and Korea  
are aggressively addressing these issues and are enthusiastic about them.       

The new political coalition in Thailand has shown a strong willingness to accept
and implement tough policies. We continue to be underweight Malaysia,           
Philippines and are neutral in Indonesia. While Indonesian political risk has   
increased substantially with Mr. Suharto's recent                               


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stroke, the currency has fallen from 2,300 to the dollar to over 8,000. Our     
currency model has the Indonesian rupiah at the cheapest level we have ever seen
in any currency. We continue to be overweight India and Pakistan, and are       
hopeful that the new coalition government in India will accelerate the pace of  
reforms.                                                                        

In order to protect the real, the Brazilian government has made all the right   
moves; reducing government spending and increasing the pace of liberalization   
and privatization. We are impressed by their actions, but all of Latin America  
remains vulnerable to further contagion from Asia as well as a downdraft in the 
U.S. equity market. As a result we remain close to neutral on Brazil. The       
Mexican economy continues to surprise with strong economic growth. We have been 
overweight for quite a while but valuations are starting to get stretched.      
Accordingly, we are close to neutral but are gradually reducing our weight in   
Mexico. We also like Chile, which is likely to be a safe harbor if the storm    
comes to Latin America.                                                         

We have been underweight South Africa for the last 3 years, but are gradually   
increasing our weight there. Valuations are starting to get attractive, while   
inflation is at a 25 year low and interest rates are likely to fall. However,   
the currency remains vulnerable.                                                

Despite the risks, we continue to be overweight Russia. We think the biggest    
risk to the Russian market will come from capital outflows caused by a volatile 
external environment and domestic concerns (Mr. Yeltsin's health, etc.). Under  
this scenario, economic recovery would be threatened by higher domestic interest
rates, which would have to be raised in order to defend the ruble. On the other 
hand, key macroeconomic indicators point to an economic recovery in 1998. The   
40% drop in the market during the last quarter led to the big blue chips        
becoming cheap again. Our portfolio is well positioned to take advantage of the 
anticipated industrial recovery.                                                

We have continued to take profits in Turkey and Hungary. Both these markets had 
strong moves in 1997, up 100% and 70%, respectively, and our model has turned   
quite negative. We remain positive on Israel; with growth slowing down, we      
anticipate falling interest rates.                                              

Overall, emerging markets in general and Asia in particular are starting to look
extremely cheap on a three- to five-year view.                                  

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.                    


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Comparison of Change in Value of a $10,000 Investment in  
GMO Evolving Countries Fund Class III Shares and the IFC Investable Composite 
As of February 28, 1998 

----------------------------------                                              
Average Annual Total Return                                               
----------------------------------                                              
Since                     
Inception                     
1 Year        8/29/97                                   
----------------------------------                                              

Class III   n/a            -15.6%                                               
----------------------------------                                              

[LINE GRAPH APPEARS HERE] 

     GMO Evolving Countries Fund        IFC Investable Composite
     ---------------------------        ------------------------
8/29/97                 $9,840                           $10,000                
2/28/98                 $8,438                            $8,578                

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 160 bp on the purchase and 40 bp on the redemption.          
Transaction fees are paid to the Fund to cover trading costs. Past performance  
is not indicative of future performance. Information is unaudited.              


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants 

To the Trustees of GMO Trust and the Shareholders of                            
GMO Currency Hedged International Core Fund (A Series of GMO Trust)             

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  
Core Fund at February 28, 1998, the results of its operations for the year then 
ended, the changes in its net assets and the financial highlights for the       
periods presented, in conformity with generally accepted accounting principles. 
These financial statements and financial highlights (hereafter referred to as   
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers and the      
application of alternative auditing procedures where confirmations from brokers 
were not received, provide a reasonable basis for the opinion expressed above.  

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 20, 1998                                                                  


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                             Value ($)    
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   STOCK AND EQUIVALENTS - 97.6%                                                        
                   Australia - 4.3%                                                                     
       103,100     Advance Property Fund                                                        120,105 
        12,100     Amalgamated Holdings Ltd                                                      50,778 
        51,300     Amcor Ltd                                                                    224,017 
       360,395     Australia and New Zealand Banking Group Ltd                                2,479,743 
         4,200     Australian Gas & Light                                                        33,477 
       156,708     Australian National Industries Ltd                                           133,447 
        49,800     Austrim Ltd                                                                  126,884 
       436,209     Boral Ltd                                                                  1,057,916 
        54,900     Broken Hill Proprietary Ltd                                                  542,309 
       139,229     Burns Philp & Co Ltd                                                          22,764 
        42,600     Capcount Property Trust                                                       29,602 
        68,900     Capital Property Trust                                                       112,182 
        76,000     Capral Aluminum Ltd                                                          160,503 
        21,300     Coca-Cola Amatil Ltd                                                         183,559 
       461,098     Coles Myer Ltd                                                             2,393,617 
        38,700     Comalco Ltd                                                                  169,787 
        48,656     Commonwealth Bank of Australia                                               604,931 
       109,196     Consolidated Rutile Ltd *                                                     43,146 
         3,300     Coventry Group Ltd                                                            13,264 
        19,500     CRA Ltd                                                                      256,123 
         7,700     CSL Ltd                                                                       59,485 
       518,763     CSR Ltd                                                                    1,721,094 
       107,100     Cultus Petroleum *                                                           191,160 
        39,100     Email Ltd                                                                     87,902 
         3,600     Faulding (FH) & Co Ltd                                                        18,948 
        62,690     Foodland Associated                                                          471,919 
       109,029     Fosters Brewing Group Ltd                                                    241,397 
         6,910     G E Crane Holdings Ltd                                                        57,666 
       528,127     Goodman Fielder Ltd                                                          913,858 
        57,700     Hardie (James) Industries Ltd                                                179,245 
        29,150     Incitec Ltd                                                                  106,878 
        28,700     Jupiters Ltd                                                                  56,309 
        16,700     KLZ Ltd                                                                       22,754 
         8,200     Macquarie Bank Ltd                                                            77,090 
       421,300     MIM Holdings Ltd                                                             235,349 
        47,700     Mirvac Ltd                                                                    76,365 
        99,366     National Australia Bank Ltd                                                1,374,170 
        68,430     National Consolidated Ltd                                                     32,166 
       108,200     National Mutual Property Trust                                                93,613 
       366,003     News Corp Ltd                                                              2,331,325 
       205,315     Normandy Mining Ltd                                                          204,211 
        54,749     North Broken Hill Peko Ltd                                                   148,743 
        17,500     Oil Search Ltd                                                                33,977 
        15,500     Pacific Dunlop Ltd                                                            27,454 

              See accompanying notes to the financial statements.              1


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                            Value ($)     
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Australia - continued                                                                
        39,900     Pasminco Ltd                                                                  44,334 
       622,752     Pioneer International Ltd                                                  1,803,062 
        51,674     PMP Communications Ltd                                                       108,073 
        22,000     Pacific Dunlop Ltd                                                            35,221 
       172,500     Qantas Airways Ltd                                                           294,964 
       156,535     QCT Resources Ltd                                                            134,046 
        30,269     Rothmans Holdings Ltd                                                        183,112 
       138,904     Santos Ltd                                                                   534,177 
       199,197     Schroders Property                                                           360,970 
        42,245     Sea World Property Trust                                                      33,384 
        13,600     Seven Network Ltd                                                             48,827 
        27,651     Simsmetal Ltd                                                                157,291 
        31,100     Southcorp Holdings Ltd                                                       115,257 
        47,600     Stockland Trust Group                                                        121,603 
        61,500     Sydney Harbour Casinos Preferred *                                            59,494 
         3,549     W H Soul Pattison & Co Ltd                                                    72,533 
        56,800     Westfarmers Ltd                                                              548,695 
        86,300     Westfield Holdings Ltd                                                       423,302 
       266,065     Westfield Trust Units                                                        576,397 
       121,250     Westpac Banking Corp                                                         840,884 
        11,800     Wills (WD & HO) Holdings Ltd                                                  16,158 
        65,700     Woodside Petroleum Ltd                                                       404,613 
                                                                                     -------------------
                                                                                             24,437,629 
                                                                                     -------------------
                   Austria - 1.7%                                                                       
           156     Bank Austria AG Preferred *                                                   10,239 
         3,068     Bank Austria AG (Participating Certificate)                                  180,934 
         3,896     Bank Austria AG *                                                            266,656 
         1,092     Bau Holdings AG                                                               64,315 
         7,886     Bau Holdings AG Preferred 2.42% (Non Voting)                                 375,518 
         4,641     Boehler Uddeholm (Bearer)                                                    296,928 
         7,476     Brau Union AG                                                                439,138 
         1,794     EA-Generali AG                                                               587,593 
           273     EA-Generali AG Preferred 6.00%                                                51,743 
         1,781     Interunfall Versicherung AG                                                  272,697 
        13,853     Lenzing AG *                                                                 905,943 
        20,797     Leykam-Muerztaler Papier und Zellstoff AG *                                  479,685 
           182     Mayr-Melnhof Karton AG (Bearer)                                               10,548 
         1,870     Oesterreichische Brau Beteiligungs AG                                        109,550 
        14,959     Oesterreichische Elektrizitaetswirtschafts AG                              1,572,850 
        18,492     Oesterreichische Laenderbank AG                                            1,252,767 
         8,320     Oesterreichische Laenderbank AG Preferred (Non Voting)                       567,560 
        22,490     Radex-Heraklith AG                                                           903,602 
        33,007     Voest-Alpine Stahl AG                                                      1,299,527 
                                                                                     -------------------
                                                                                              9,647,793 
                                                                                     -------------------

2             See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                            Value ($)     
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Canada - 4.6%                                                                        
        10,798     Abitibi Consolidated Inc                                                     154,024 
        50,561     Agrium Inc                                                                   667,918 
        85,000     Air Canada Inc *                                                             779,433 
        14,400     Anderson Exploration Ltd *                                                   169,989 
        14,800     BC Telecom Inc                                                               501,774 
        58,796     BCE Inc                                                                    2,086,356 
        13,900     Biochem Pharma Inc *                                                         312,546 
        65,400     Bombardier Inc Class B                                                     1,406,205 
        41,900     CAE Industries Inc                                                           323,859 
        11,900     Canadian Hotel Inc                                                           739,177 
        50,000     Canadian Marconi Co                                                          667,533 
        22,600     Canadian Tire Corp Ltd Class A                                               540,723 
        32,589     Cominco Ltd                                                                  549,581 
         8,400     Co-Steel Inc                                                                 116,277 
        34,300     Cott Corp                                                                    294,038 
        36,200     Dofasco Inc                                                                  634,641 
        12,500     Donohue Inc Class A                                                          251,203 
         1,600     Edperbrascan Corp Ltd Class A (Voting Shares)                                 30,243 
        10,693     Fletcher Challenge Ltd Class A                                               142,759 
        59,798     Gulf Canada Resources Ltd *                                                  350,851 
        34,100     Imasco Ltd                                                                 1,297,484 
        26,693     Imperial Oil Ltd                                                           1,574,590 
        26,800     Inco Ltd                                                                     466,079 
        14,250     Ipsco Inc                                                                    405,526 
        19,400     Laidlaw Inc                                                                  282,858 
        49,981     Macmillan Bloedel Ltd                                                        630,404 
         5,000     Magna International Class A                                                  301,268 
        25,900     Methanex Corp *                                                              211,109 
        13,900     Molson Co Ltd Class A                                                        249,549 
        17,500     Moore Corporation Ltd                                                        272,986 
        18,800     Newbridge Networks Corp *                                                    440,558 
        37,700     Noranda Forest Inc                                                           231,792 
        12,700     Noranda Inc                                                                  243,175 
        49,996     Norcen Energy Resource                                                       693,828 
       101,100     Nova Corp of Alberta                                                       1,115,322 
        24,900     Nova Scotia Power Inc                                                        332,432 
         4,300     Potash Corp of Saskatchewan                                                  384,482 
        22,800     Quebecor Inc Class B                                                         442,174 
        22,200     Rogers Cantel Mobile Communications Class B *                                206,689 
        24,600     Seagram Ltd                                                                  933,422 
         8,200     Suncor Energy Inc                                                            301,058 
        17,794     Teck Corp Class B                                                            255,691 
        28,400     Telus Corp                                                                   714,415 
         9,900     Thomson Corp                                                                 296,343 
        47,900     Transalta Corp                                                               806,103 

              See accompanying notes to the financial statements.              3


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                            Value ($)     
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Canada - continued                                                                   
        47,900     Transcanada Pipelines Ltd                                                  1,075,365 
        14,899     United Dominion Industries Ltd                                               427,136 
        24,500     Westcoast Energy Inc                                                         619,752 
         2,000     Weston (George) Ltd                                                          168,640 
                                                                                     -------------------
                                                                                             26,099,360 
                                                                                     -------------------
                   Finland - 0.6%                                                                       
        18,800     Amer Group Class A *                                                         375,297 
       185,400     Enso OY Class R                                                            1,675,575 
         5,300     Instrumentarium OY Class A                                                   298,169 
         2,800     Metra AB Class A                                                              73,172 
         2,000     Metra AB Class B                                                              50,632 
        23,500     Partek OY                                                                    400,886 
        46,095     Rautaruukki OY                                                               386,474 
           700     Stockmann AB Class A                                                          57,928 
        15,300     Valmet OY                                                                    229,626 
                                                                                     -------------------
                                                                                              3,547,759 
                                                                                     -------------------
                   France - 8.7%                                                                        
         4,535     Accor SA                                                                   1,047,126 
         1,668     Air Liquide L Shares                                                         269,543 
         8,053     Alcatel Alsthom Cie Generale d'Electricite SA                              1,047,416 
        31,500     Assurances Generales De France (Bearer)                                    1,709,693 
           355     Axa SA                                                                        34,338 
        52,199     Banque Nationale de Paris                                                  3,154,614 
         3,720     Bouygues                                                                     521,719 
           400     Canal Plus                                                                    84,280 
           195     Carrefour                                                                    117,014 
        15,859     Cerus *                                                                       89,462 
         1,970     CGIP                                                                         847,301 
             1     Colas SA                                                                         161 
        15,890     Credit Commercial de France                                                1,174,544 
         5,830     Credit Local de France SA                                                    743,919 
        17,126     Credit Lyonnais *                                                          1,251,561 
         3,727     Credit National                                                              226,463 
        27,020     Elf Aquitaine SA                                                           3,075,068 
        12,848     Elf Sanofi SA                                                              1,455,864 
        17,064     Eridania Beghin-Say SA                                                     3,043,315 
       155,500     Eurotunnel SA Units (Bearer) *                                               148,113 
       155,500     Eurotunnel SA Warrants 12/31/01 & 10/31/03 *                                  28,090 
        41,380     Financiere de Paribas SA                                                   3,934,642 
        37,325     GAN (Group Assurances National) *                                            918,835 
         9,010     Generale Des Eaux                                                          1,417,511 
         3,420     Generale Des Eaux Warrants 5/2/2001 *                                          3,426 
         8,340     Groupe Danone                                                              1,684,641 
         1,520     GTM-Entrepose                                                                 98,600 
           262     Havas Advertising                                                             39,154 

4             See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


     Shares        Description                                                            Value ($)     
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   France - continued                                                                   
           412     Labinal SA                                                                   115,158 
        13,223     Lafarge Coppee SA                                                            975,669 
         7,157     Lyonnaise Des Eaux                                                           943,806 
         1,000     Metaleurop SA *                                                               10,215 
        14,703     Michelin SA Class B                                                          910,298 
        11,210     Pernod-Ricard                                                                732,698 
        14,395     Peugeot SA                                                                 2,049,590 
           410     Pinault Printemps Redoute                                                    268,788 
        15,980     Renault SA *                                                                 556,351 
        75,685     Rhone Poulenc SA Class A                                                   3,487,656 
        10,400     Saint-Gobain                                                               1,456,863 
        24,460     Seita                                                                      1,068,499 
         8,890     SGS Thomson Microelectronics *                                               681,067 
         2,240     Societe Eurafrance                                                         1,042,887 
        24,037     Societe Generale Paris                                                     3,623,758 
         4,140     Sommer Allibert                                                              161,405 
        14,859     SPIE Batignolles                                                             924,837 
         3,020     Synthelabo                                                                   421,563 
         1,140     Technip SA                                                                   128,804 
         9,867     Thomson CSF                                                                  340,283 
         7,350     Total SA                                                                     806,306 
        29,100     Usinor Sacilor                                                               436,554 
         8,303     Worms et Compagnie SA                                                        518,149 
                                                                                     -------------------
                                                                                             49,827,617 
                                                                                     -------------------
                   Germany - 3.8%                                                                       
         6,100     Adidas Salomon AG                                                            961,345 
        17,705     AGIV AG *                                                                    380,490 
        46,600     Bankgesellschaft Berlin AG                                                   989,905 
        29,300     BASF AG                                                                    1,061,081 
        54,900     Bayer AG                                                                   2,333,950 
         7,700     Bayerische Hypotheken und Wechsel - Bank AG                                  357,898 
           500     Bayerische Vereinsbank                                                        30,968 
        18,430     Berliner Kraft & Licht Class A                                               812,454 
        10,300     BHF Bank AG                                                                  300,813 
         5,450     Bilfinger & Berger                                                           143,251 
        42,490     Continental AG                                                             1,020,837 
           250     Deutsche Babcock & Wilcox *                                                   13,776 
        14,600     Douglas Holdings AG                                                          516,501 
           100     Escada AG                                                                     13,886 
         1,981     FAG Kugelfischer                                                              27,127 
         4,200     Fresenius Medical Care AG Preferred .82 (Non Voting)                         863,259 
           300     Friedrich Grohe AG Preferred (Non Voting)                                     83,979 
         1,200     Friedrich Krupp AG                                                           216,228 
         3,050     Gerresheimer Glas AG                                                          43,361 
           450     Hamburgische Electricitaets-Werke AG                                         117,289 

              See accompanying notes to the financial statements.              5


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Shares       Description                                                            Value ($)     
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Germany - continued                                                                  
         8,155     Heidelberg Port-Zement                                                       600,812 
        20,750     Henkel KGAA Preferred                                                      1,345,791 
        27,096     Klockner Humboldt Deutz *                                                    219,485 
           393     Klockner-Werke AG *                                                           26,810 
            50     Krones Preferred                                                              15,567 
        22,805     Lufthansa AG *                                                               438,570 
           400     MAN AG                                                                       120,105 
           350     MAN AG Preferred                                                              81,678 
           790     Metallgesellschaft *                                                          16,063 
           796     Porsche AG Preferred (Non Voting) .12%                                     1,390,450 
           900     Preussag AG                                                                  291,114 
         6,250     Puma AG Preferred                                                            126,567 
        15,150     RWE Preferred                                                                710,854 
         1,100     SAP AG Preferred                                                             454,184 
        10,700     Schering AG                                                                1,201,631 
         1,950     Schwarz Pharma AG                                                            159,030 
        25,050     Siemens AG                                                                 1,548,759 
        13,150     SKW Trostberg AG                                                             449,263 
           150     Strabag Bau AG *                                                              10,415 
         1,000     Thyssen AG                                                                   217,661 
        20,200     Veba AG                                                                    1,362,436 
         1,050     Viag AG                                                                      568,756 
           350     Walter Bau AG                                                                 34,716 
           150     Wella AG                                                                     104,229 
                                                                                     -------------------
                                                                                             21,783,344 
                                                                                     -------------------
                   Hong Kong - 6.2%                                                                     
     2,516,000     Allied Properties Ltd                                                        243,720 
       472,400     Allied Properties Ltd Warrants 7/3/00 *                                       10,616 
     1,550,000     Amoy Properties Ltd                                                        1,311,269 
        18,000     Asia Satellite Telecom                                                        33,245 
     1,839,000     Cathay Pacific Airways Ltd                                                 1,567,633 
       585,500     Century City International                                                   103,602 
        38,275     Century City International Warrants 12/31/98 *                                   855 
        38,275     Century City International Warrants 12/31/99 *                                   534 
        70,000     Champion Technology Holdings                                                   8,047 
       145,600     Champion Technology Holdings Warrants 6/30/98 *                                1,504 
       702,000     Cheung Kong Holdings                                                       4,918,760 
     1,086,000     China Overseas Land & Investment Ltd                                         329,622 
       778,000     CLP Holdings Limited                                                       4,009,325 
        12,400     Dah Sing Financial Services                                                   33,953 
       181,500     Dao Heng Bank                                                                520,413 
        44,133     Dickson Concept International Ltd                                             76,381 
     2,240,000     Elec & Eltek International Holdings Ltd                                      643,720 
        58,000     Far East Consortium                                                            7,416 
         9,400     Gold Peak Industries Ltd Warrants 8/6/00 *                                       668 

6             See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                            Value ($)     
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Hong Kong - continued                                                                
       540,281     Great Eagle Holdings Ltd                                                     795,506 
       111,656     Great Eagle Holdings Ltd Warrants 11/30/98 *                                   9,518 
        55,700     Guoco Group                                                                  141,723 
     1,221,300     Hang Lung Development Co Ltd                                               1,790,346 
        36,800     Hang Seng Bank                                                               348,156 
     1,616,000     Henderson Investment Ltd                                                   1,356,668 
       245,000     Henderson Land Development Co Ltd                                          1,278,398 
       100,000     HKCB Bank Holding Co Ltd                                                      55,538 
       323,968     HKR International Ltd                                                        242,688 
       158,300     Hong Kong Aircraft Engineering Co Ltd                                        338,375 
       921,500     Hong Kong Electric Holdings Ltd                                            3,273,006 
       143,000     Hong Kong Ferry Co Ltd                                                       147,756 
        74,000     Hong Kong & Shanghai Hotels                                                   63,558 
        34,000     Hung Hing Printing Group Ltd                                                  15,260 
       163,000     Hutchison Whampoa                                                          1,152,632 
       154,600     Hysan Development Co Ltd                                                     294,524 
           100     Innovative International Holding Warrants 8/31/99 *                                2 
         1,000     Innovative International Holdings                                                183 
       187,400     International Bank of Asia                                                    78,058 
       107,085     International Bank of Asia Rights 3/20/98 *                                   18,672 
        92,000     K Wah International Holdings Ltd                                              13,902 
         8,400     Kowloon Motor Bus Co Ltd                                                      16,654 
       212,127     Kumagai Gumi Ltd                                                             143,838 
       116,400     Lai Sun Garment International Ltd                                             63,142 
        71,049     Lai Sun Hotel International Warrants 4/30/99 *                                   395 
       220,000     Lane Crawford International Ltd Class B                                       14,776 
        44,796     Leading Spirit Conrowa Electric *                                              9,546 
        32,900     Liu Chong Hing Bank Ltd                                                       49,504 
       142,000     Liu Chong Hing Investment Ltd                                                121,963 
       233,000     Mandarin Oriental                                                            194,555 
        67,000     Mingly Corp                                                                   11,942 
       192,600     New Asia Realty & Trust A Shares                                             388,061 
       312,815     New World Development Co Ltd                                               1,151,466 
         1,000     Oriental Press Group                                                             258 
        65,300     Oriental Press Group Warrants 10/2/98 *                                          152 
        18,100     Realty Development Corp Ltd Class A                                           43,716 
     5,102,000     Regal Hotels International Ltd                                               797,342 
        47,000     Ryoden Development                                                             7,892 
       181,800     Semi Tech (Global) Co Ltd                                                     21,133 
        70,000     Shanghai Petrochemical Co Class H                                             11,572 
       126,900     Shaw Brothers Ltd                                                             79,082 
     1,144,000     Shun Tak Holdings Ltd                                                        285,169 
     1,431,972     South China Morning Post Ltd                                               1,035,718 
       142,000     Sun Hung Kai Properties Ltd                                                1,063,739 
       134,600     Sun Hung Kai Properties Warrants 2/18/00 *                                     3,025 
       118,500     Swire Pacific Ltd Class A                                                    713,219 

              See accompanying notes to the financial statements.              7


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                          Value ($)       
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Hong Kong - continued                                                                
       597,500     Swire Pacific Ltd Class B                                                    601,937 
       153,500     Tai Cheung Holdings Ltd                                                       52,538 
       108,000     Tem Fat Hing Fung                                                             11,159 
        38,000     Union Bank of Hong Kong                                                       53,252 
        27,000     VTech Holdings Ltd                                                            94,156 
       480,000     Wharf Holdings Ltd                                                         1,010,526 
     1,467,200     Wheelock & Co Ltd                                                          1,696,021 
        31,480     Wing Lung Bank                                                               138,646 
        49,000     Yue Yuen Industrial Holdings                                                  94,298 
                                                                                     -------------------
                                                                                             35,216,144 
                                                                                     -------------------
                   Italy - 5.6%                                                                         
        17,136     Alitalia Linee Aeree *                                                       148,430 
        28,000     Alleanza Assicurazioni SPA                                                   346,587 
       129,250     Assicurazioni Generali SPA                                                 3,690,897 
       133,500     Assicurazioni Generali SPA Rights 3/10/98 *                                  274,542 
       245,169     Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39%             917,954 
       117,000     Banca Commerciale Italiana SPA                                               534,181 
       577,017     Banca di Roma *                                                              796,464 
       135,718     Banca Fideuram SPA                                                           861,960 
        11,500     Banca Popolare di Bergamo Credit                                             243,566 
        32,000     Banca Popolare di Milano                                                     274,498 
        31,000     Banco Ambrosiano Veneto SPA (Non Convertible)                                 70,941 
        60,997     Banco di Napoli di Risp *                                                     88,967 
        51,000     Bulgari SPA                                                                  296,404 
        33,900     Cartiere Burgo SPA                                                           230,269 
       120,500     COFIDE SPA *                                                                  76,430 
       105,000     Compart SPA *                                                                 81,796 
       227,500     Credito Italiano                                                             873,411 
        58,750     Credito Italiano (Non Convertible)                                           179,587 
         4,000     Edison SPA                                                                    27,338 
       289,700     Fiat SPA                                                                   1,018,309 
       208,500     Fiat SPA Preferred                                                           408,972 
       538,270     Fiat SPA (Non Convertible)                                                 1,126,503 
       157,500     Finmeccanica SPA *                                                           131,936 
        50,500     Gruppo Editoriale L' Express *                                               334,277 
       490,480     HPI SPA *                                                                    367,562 
        80,000     IFI Istituto Finanziario Preferred                                         1,551,315 
        33,000     IFIL Finanziaria di Partecipazioni SPA                                       141,077 
       112,900     IFIL Finanziaria di Partecipazioni SPA (Non Convertible)                     292,116 
        69,700     Industriali Riunite SPA (Non Convertible) *                                   49,779 
       210,700     Industriali Riunite SPA *                                                    267,871 
        99,500     Istituto Bancario San Paolo                                                1,167,677 
        73,000     Istituto Mobilaire Italiano                                                1,017,827 
       550,892     Istituto Nazionale Delle Assicurazioni                                     1,496,178 
        48,750     Italcementi Fabbriche Riunite Cemento SPA (Non Convertible)                  226,117 

8             See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                          Value ($)        
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
                   Italy - continued                                                                     
         4,500     Italmobiliare SPA                                                             140,825 
         2,650     Luxottica Group Sponsored ADR                                                 203,388 
        59,000     Mediobanca SPA                                                                603,370 
        62,500     Merloni Elettrodomestici SPA                                                  304,737 
        12,500     Mondadori Editore                                                             134,818 
     1,089,200     Montedison SPA                                                              1,124,229 
       160,000     Montedison SPA (Non Convertible)                                              120,618 
        76,333     Montefibre SPA                                                                 62,493 
       187,136     Olivetti and Co SPA *                                                         184,475 
        90,535     Parmalat Finanziaria SPA                                                      148,746 
     1,721,269     Permafin Finanziaria *                                                      1,615,989 
       142,200     Pirelli SPA (Non Convertible)                                                 313,890 
        29,500     RAS SPA                                                                       347,844 
        15,000     RAS SPA (Non Convertible)                                                     135,461 
       258,000     Seat SPA *                                                                    103,376 
        32,650     Sirti SPA                                                                     189,939 
       166,240     SMI (Societa Metallurgica Italy) *                                            119,377 
       220,000     Sopaf SPA *                                                                   194,864 
        31,549     Stefanel SPA *                                                                 81,982 
       727,500     Telecom Italia Mobile SPA                                                   3,327,608 
       507,646     Telecom Italia Mobile SPA (Non Convertible)                                 1,489,363 
       214,936     Telecom Italia SPA (Non Convertible)                                        1,043,180 
        53,000     Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible)        268,932 
                                                                                         ----------------
                                                                                              31,871,242 
                                                                                         ----------------
                   Japan - 15.1%                                                                         
         8,100     Advantest Corp                                                                572,572 
         6,000     Aiwa Co                                                                       170,031 
        45,000     Amada Co Ltd                                                                  210,876 
        17,000     Anritsu Corp                                                                  172,247 
       171,000     Aoki Corp *                                                                   158,371 
         7,000     Aoyama Trading                                                                151,825 
         4,600     Arabian Oil Co Ltd                                                             87,390 
        35,000     Asahi Breweries Ltd                                                           468,218 
        99,000     Atsugi Nylon Industrial                                                       188,079 
        12,000     Bandai Co                                                                     178,580 
        22,000     Banyu Pharmaceutical Co Ltd                                                   287,343 
        51,000     Brother Industries Ltd                                                        138,874 
        42,000     Canon Inc                                                                     960,817 
        24,000     Canon Sales Co Inc                                                            322,964 
        37,000     Casio Computer Co                                                             304,599 
        32,100     Chubu Electric Power Co Inc                                                   513,275 
         9,000     Chudenko Corp                                                                 245,072 
        58,000     Chugai Pharmaceutical Co Ltd                                                  369,128 
        12,000     Chugoku Bank Ltd                                                              156,732 
        13,100     Chugoku Electric Power Co Inc                                                 189,765 

              See accompanying notes to the financial statements.              9


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                          Value ($)       
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Japan - continued                                                                    
        42,000     Citizen Watch Co                                                              304,203
       222,000     Cosmo Oil Co Ltd                                                              509,618
       123,000     Daicel Chemical Industries Ltd                                                272,619
        27,000     Daiichi Seiyaku Co Ltd                                                        369,746
        36,000     Dainippon Pharmaceutical Co Ltd                                               163,287
        44,000     Dainippon Screen Manufacturing Co Ltd                                         255,996
        98,000     Daishowa Paper Manufacturing *                                                572,501
        19,500     Daito Trust Construction Co Ltd                                               172,881
        18,000     Daiwa House Industry Co Ltd                                                   140,774
        64,000     Daiwa Securities Co Ltd                                                       315,618
        49,000     Denso Corp                                                                  1,000,712
           243     East Japan Railway Co                                                       1,148,350
        27,000     Eisai Co Ltd                                                                  472,334
        43,000     Ezaki Glico Co Ltd                                                            268,899
         5,300     Familymart                                                                    206,831
        20,900     Fanuc Co                                                                      761,023
       122,000     Fuji Heavy Industries Ltd                                                     457,754
        49,800     Fuji Photo Film Co Ltd                                                      1,951,318
        49,000     Fujikara Ltd                                                                  344,819
        25,000     Fujisawa Pharmaceutical Co Ltd                                                251,326
        33,000     Fukuyama Transporting Co Ltd                                                  161,957
        56,000     Gakken Co Ltd                                                                 139,634
        52,000     General Sekiyu (KK)                                                           257,674
        77,000     Hankyu Corp                                                                   359,004
       172,000     Haseko Corp *                                                                 157,936
        16,000     Heiwa Corp                                                                    176,047
        64,000     Hino Motors                                                                   202,137
       369,000     Hitachi Ltd                                                                 2,769,033
        14,000     Hitachi Maxell Ltd                                                            259,321
        62,000     Hitachi Metals Ltd                                                            282,197
        22,900     Hokkaido Electric Power                                                       329,914
        25,000     Honda Motor Co Ltd                                                            864,799
        33,000     House Foods Corp                                                              462,360
         5,000     Hoya Corp                                                                     132,589
        33,000     INAX Corp                                                                     138,447
        23,000     Intec Inc                                                                     160,215
        75,000     Itochu Corp                                                                   222,631
        34,000     Itoham Foods Inc                                                              152,331
        28,000     Ito-Yokado                                                                  1,529,328
        13,000     Japan Airport Terminal Co Ltd                                                  87,366
       142,000     Japan Energy Co Ltd                                                           196,707
        43,000     Japan Radio Co                                                                274,345
        87,000     Japan Synthetic Rubber Co Ltd                                                 452,458
           384     Japan Tobacco Inc                                                           2,823,842
        50,000     Kamigumi Co Ltd                                                               228,370

10            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                          Value ($)       
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Japan - continued                                                                    
        28,000     Kandenko Co                                                                   195,045
        44,000     Kaneka Corp                                                                   250,772
       129,000     Kankaku Securities Co Ltd *                                                   126,621
        47,700     Kansai Electric Power                                                         819,354
        49,000     Kao Corp                                                                      663,263
        10,000     Katokichi Co Ltd                                                              132,985
       132,000     Kawasaki Kisen *                                                              212,111
        90,000     Keio Teito Electric Railway Co Ltd                                            364,759
        38,000     Keisei Electric Railway                                                       150,099
        52,000     Kikkoman Corp                                                                 328,885
        19,000     Kinden Corp                                                                   254,176
        83,000     Kirin Brewery Co Ltd                                                          722,710
        17,000     Kissei Pharmaceutical Co Ltd                                                  266,445
         4,000     Kokusai Denshin Denwa                                                         167,814
        26,000     Kokusai Electric                                                              240,798
         8,000     Kokuyo Co Ltd                                                                 139,951
        60,000     Konica Corp                                                                   313,940
        27,000     Koyo Seiko Co Ltd                                                             133,792
        59,000     Kubota Corp                                                                   169,999
        64,000     Kurabo Industries Ltd                                                         110,948
        21,000     Kyocera Corp                                                                1,130,373
        57,000     Kyowa Hakko Kogyo Co Ltd                                                      279,292
        39,500     Kyushu Electric Power Co Inc                                                  575,319
        26,000     Kyushu Matsushita Electric                                                    267,553
        88,000     Lion Corp                                                                     319,037
         7,300     Mabuchi Motor Co                                                              390,050
        57,000     Maeda Corp                                                                    201,235
        20,000     Maeda Road Construction                                                       118,420
        17,000     Makita Corp                                                                   196,470
        49,000     Marudai Food Co Ltd                                                           135,756
        15,000     Matsushita Communications                                                     491,570
        16,000     Matsushita Kotubuki                                                           436,951
        10,000     Meiji Milk Products                                                            30,080
        48,000     Meiji Seika Kaisha Ltd                                                        184,279
        35,000     Minolta Co Ltd                                                                210,560
       177,000     Mitsubishi Electric Corp                                                      538,019
        60,000     Mitsubishi Gas Chemical Co Inc                                                196,628
       177,000     Mitsubishi Oil Co Ltd                                                         367,086
        10,000     Mitsubishi Warehouse & Transportation Co Ltd                                  113,196
       168,000     Mitsui Petrochemical Industries Ltd                                           472,097
        10,000     Mochida Pharmaceutical Co Ltd                                                  48,682
         4,000     MOS Food Services                                                              55,410
         4,200     Namco Ltd                                                                     101,401
        19,000     National House Industrial                                                     178,976
        72,000     NEC Corp                                                                      803,610

              See accompanying notes to the financial statements.             11


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                               Value ($)  
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Japan - continued                                                                    
        81,000     New Oji Paper Co Ltd                                                          436,001
        23,000     NGK Spark Plug Co                                                             166,223
        15,000     Nichicon Corp                                                                 157,920
        90,000     Nichii Co Ltd                                                                 697,459
        59,000     Nichirei                                                                      149,450
       127,000     Nikko Securities                                                              501,646
         6,000     Nikon Corp                                                                     58,418
        20,800     Nintendo Co Ltd                                                             1,909,918
        24,000     Nippon Carbon Co Ltd *                                                         51,104
        29,000     Nippon Chemi-Con Corp                                                          94,119
         9,000     Nippon Electric Glass Co                                                      114,700
        26,000     Nippon Express Co Ltd                                                         162,384
        10,000     Nippon Flour Mills Co Ltd                                                      24,935
        48,000     Nippon Hodo Co                                                                229,114
        12,000     Nippon Kayaku Co Ltd                                                           56,424
        38,000     Nippon Meat Packers Inc                                                       499,327
       152,000     Nippon Oil Co Ltd                                                             548,658
        47,000     Nippon Paper Industries                                                       239,223
           759     Nippon Telegraph & Telephone                                                6,969,366
         1,700     Nippon Television Network                                                     514,051
        39,000     Nishimatsu Construction                                                       200,974
        29,000     Nisshin Oil Mills Ltd                                                          80,345
       120,000     Nisshinbo Industries Inc                                                      698,171
       216,000     Nissho Iwai Corp                                                              615,531
         8,000     Nissin Food Products Co Ltd                                                   166,548
        39,000     Nomura Securities Co Ltd                                                      537,165
        80,000     Oki Electric Industry                                                         206,443
        21,000     Okumura Corp                                                                   93,256
        27,000     Olympus Optical Co Ltd                                                        212,444
        92,000     Omron Corp                                                                  1,485,633
        20,000     Ono Pharmaceutical Co Ltd                                                     460,698
        55,000     Onward Kashiyama Co Ltd                                                       783,662
         3,300     Orix Corp                                                                     240,323
        34,000     Q.P. Corp                                                                     223,652
       108,000     Renown Inc*                                                                   112,847
        11,000     Rinnai Corp                                                                   178,501
         4,000     Rohm Co Ltd                                                                   395,789
        21,000     Royal Co Ltd                                                                  317,502
        10,000     Ryosan Co                                                                     166,231
       100,000     Sagami Railway Co Ltd                                                         284,968
        22,000     Sanden Corp                                                                   117,723
        20,000     Sankyo Co Ltd                                                                 536,690
        17,000     Sanwa Shutter Corp                                                            104,290
        30,000     Sapporo Breweries Ltd                                                         135,360
        14,500     Secom Co Ltd                                                                  903,309

12            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                              Value ($)    
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
                   Japan - continued                                                                     
        75,000     Seino Transportation Co Ltd                                                   447,637 
        33,000     Sekisui House Ltd                                                             259,915 
        34,000     Sharp Corp                                                                    265,907 
        31,900     Shikoku Electric Power                                                        467,150 
        81,000     Shionogi and Co Ltd                                                           419,330 
        72,000     Shiseido Co Ltd                                                               906,198 
       213,000     Showa Denko                                                                   286,630 
       121,000     Showa Shell Sekiyu                                                            822,758 
        16,000     Skylark Co Ltd                                                                178,580 
        58,000     Snow Brand Milk Products Co Ltd                                               201,551 
        99,000     Stanley Electric Co Ltd                                                       342,460 
        87,000     Sumitomo Bakelite Co Ltd                                                      556,447 
       310,000     Sumitomo Corp                                                               2,154,516 
        52,000     Sumitomo Heavy Industries Ltd                                                 185,229 
        22,000     Suzuki Motor Corp                                                             233,357 
        18,000     Taiyo Yuden Co Ltd                                                            192,353 
        23,000     Takara Standard Co                                                            147,653 
        64,000     Takeda Chemical Industries Ltd                                              1,773,134 
        25,000     Takuma Corp                                                                   219,663 
        50,000     Tanabe Seiyaku Co Ltd                                                         284,968 
        12,700     TDK Corp                                                                      970,118 
       132,000     Teikoku Oil Co Ltd                                                            437,806 
        32,000     Toei Co Ltd                                                                   142,611 
        40,600     Tohoku Electric Power Co Inc                                                  591,340 
        41,000     Tokio Marine & Fire Insurance Co                                              464,102 
        53,000     Tokyo Electric Co Ltd                                                         174,108 
        12,000     Tokyo Electron                                                                431,251 
        67,000     Tokyo Steel Manufacturing Co                                                  307,607 
        20,000     Tomen Corp                                                                     27,072 
        38,000     Toppan Printing Co Ltd                                                        448,191 
       159,000     Toshiba Corp                                                                  712,372 
         8,000     Tostem Corp                                                                   111,454 
        25,000     Toyo Suisan Kaisha                                                            184,042 
        31,000     Toyo Trust & Banking Co Ltd                                                   220,605 
       137,000     Toyobo Co Ltd                                                                 229,906 
        68,000     Toyota Motor Corp                                                           1,878,572 
        21,000     Tsumura and Co                                                                109,713 
        20,000     Ushio Inc                                                                     158,157 
        19,000     Victor Co of Japan Ltd                                                        168,448 
        19,000     Wacoal Corp                                                                   198,528 
        37,000     Yakult Honsha Co Ltd                                                          250,416 
        18,000     Yamaha Corp                                                                   199,478 
        22,000     Yamaha Motor Co                                                               141,756 
        51,000     Yamanouchi Pharmaceutical Co Ltd                                            1,239,373 
        27,000     Yamato Transport Co Ltd                                                       339,824 
        30,000     Yamazaki Baking Co Ltd                                                        337,212 
        52,000     Yoshitomi Pharmaceutical Industries Ltd                                       275,786 
                                                                                         ----------------
                                                                                              86,148,305 
                                                                                         ----------------

              See accompanying notes to the financial statements.             13


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                              Value ($)   
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   Malaysia - 2.7%                                                                      
       186,500     AMMB Holdings Berhad                                                          230,397
       351,500     Arab Malaysian Finance (Foreign Registered)                                   169,294
        73,000     Berjaya Leisure Berhad                                                         70,716
       268,700     Berjaya Sports Toto                                                           753,091
        62,700     Carlsberg Brew Malaysia                                                       245,682
       101,000     Cement Industries of Malaysia Berhad                                           82,174
       213,000     DMIB Berhad                                                                    72,449
       213,500     Edaran Otomobil Berhad                                                        464,762
        59,000     Genting Berhad                                                                195,864
        65,000     Golden Hope Plantations Berhad                                                 86,667
        92,000     Guinness Anchor Berhad                                                        145,197
       361,000     Highlands and Lowlands Berhad                                                 398,819
       753,000     Hong Leong Properties Berhad                                                  264,318
       332,300     IGB Corp Berhad                                                               141,962
        40,000     Jaya Tiasa Holdings Berhad                                                     66,939
       171,300     Kedah Cement Berhad                                                            63,393
        62,000     Kuala Lumpur Kepong Berhad                                                    150,993
       472,900     Kumpulan Guthrie Berhad                                                       334,569
       132,000     Magnum Corp Berhad                                                            111,347
       291,550     Malayan Cement Berhad                                                         170,567
        83,840     Malaysia Mining Corp Berhad                                                    52,756
       293,000     Malaysian Airline Systems                                                     338,046
        83,500     Malaysian International Ship                                                  154,503
        37,000     Malaysian Pacific Industries                                                  110,748
       589,600     Malaysian Resources Corp                                                      399,484
         3,000     Matsushita Electric                                                            10,367
       830,000     MBF Capital Berhad                                                            395,238
        92,000     Nestle Malaysia                                                               495,673
        92,000     New Straits Times                                                             142,694
       438,680     Oriental Holdings Berhad                                                      895,265
        22,000     OYL Industries Berhad                                                          79,020
       386,500     Pan Malaysia Cement                                                           140,928
        92,300     Perlis Plantations                                                            153,205
        37,000     Pernas International Hotel & Property                                          12,686
       512,000     Perusahaan Otomobil                                                           968,272
       149,100     Petronas Dagangan Berhad                                                      174,457
       204,300     Petronas Gas Berhad                                                           567,037
       195,000     Rashid Hussain Berhad                                                         307,755
       542,000     Renong Berhad                                                                 256,620
        88,000     Resorts World Berhad                                                          191,565
       310,000     RHB Capital Berhad                                                            293,551
       161,000     RJ Reynolds Berhad                                                            313,238
       150,000     Rothmans of Pall Mall Berhad                                                1,336,735
       202,000     Sarawak Enterprises Corp                                                      112,680
        33,000     Shell Refinery Co                                                              59,265
       567,000     Sime Darby Berhad                                                             740,571

14            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                            Value ($)      
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
                   Malaysia - continued                                                                  
       584,000     TA Enterprise Berhad                                                          222,476 
       894,400     Tan Chong Motor Holdings Berhad                                               635,207 
       223,000     Telekom Malaysia Berhad                                                       758,503 
       234,000     UMW Holdings Berhad                                                           305,633 
       197,000     YTL Corp                                                                      340,395 
                                                                                         ----------------
                                                                                              15,183,773 
                                                                                         ----------------
                   Norway - 0.2%                                                                         
           449     Bona Shipholding Ltd*                                                           4,152 
        30,800     Norsk Hydro AS                                                              1,346,924 
                                                                                         ----------------
                                                                                               1,351,076 
                                                                                         ----------------
                   Portugal - 0.7%                                                                       
        16,483     Banco Commercial Portugues (Registered)                                       546,639 
         9,310     Banco Espirito Santo e Commercial de Lisboa (Registered)                      378,252 
         6,633     Banco Totta & Acores (Registered)                                             184,027 
         8,775     BPI-SGPS SA (Registered)                                                      315,004 
         9,032     Cimpor Cimentos De Portugal SA (Registered)                                   261,522 
        38,155     Electricidade De Portugal*                                                    809,078 
         2,989     Est Jeronimo Martins Filho Admin                                              103,229 
        10,165     Portucel Industrial Empresa                                                    77,138 
        20,065     Portugal Telecom SA                                                         1,052,898 
         4,403     Sonae Investimentos                                                           198,224 
                                                                                         ----------------
                                                                                               3,926,011 
                                                                                         ----------------
                   Singapore - 4.2%                                                                      
       113,800     Asia Food & Properties Ltd Warrants 7/12/02*                                   15,932 
       343,500     City Developments                                                           1,557,511 
       331,000     Comfort Group                                                                 160,293 
       110,000     Creative Technology Ltd*                                                    2,619,371 
        54,000     Cycle & Carriage Ltd                                                          239,852 
       284,000     DBS Land Ltd                                                                  439,753 
       245,900     Development Bank of Singapore (Foreign Registered)                          1,926,545 
        45,000     First Capital Corp Ltd                                                         45,527 
       469,984     Hai Sun Hup Group Ltd                                                         191,357 
        13,564     Haw Paw Brothers International Ltd                                             15,564 
         9,500     Haw Paw Brothers International Ltd Warrants 7/18/2001*                          2,872 
         7,495     Highlands and Lowlands Berhad                                                   8,091 
        88,000     Hotel Properties Ltd                                                           57,002 
       225,708     Inchcape Berhad                                                               341,138 
       225,708     Inchcape Marketing Services*                                                   57,088 
       658,441     Jardine Matheson Holdings Ltd                                               3,081,504 
       470,500     Jardine Strategic Holdings Ltd                                              1,340,925 
        18,000     Keppel Bank Ltd                                                                25,429 
        95,000     Keppel Land Ltd                                                               100,802 
       260,000     Marco Polo Developments Ltd                                                   356,077 
        51,000     Metro Holdings Ltd                                                             69,846 
       265,000     Natsteel Ltd                                                                  366,194 

              See accompanying notes to the financial statements.             15


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                             Value ($)     
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
                   Singapore - continued                                                                 
        41,500     Neptune Orient Lines Ltd                                                       19,457 
        90,000     Overseas Union Bank Ltd (Foreign Registered)                                  338,680 
           900     Parkway Holdings Ltd                                                            1,932 
        83,800     Robinson and Co Ltd                                                           302,424 
        10,000     Shangri-La Hotel Ltd                                                           16,533 
       920,000     Singapore Airlines Ltd (Foreign Registered)                                 6,810,611 
       206,000     Singapore Press Holdings (Foreign Registered)                               2,948,304 
       121,000     Singapore Tech Industrial Corp                                                106,743 
       345,000     Straits Trading Co Ltd                                                        378,840 
         9,000     Times Publishing Ltd                                                           17,767 
                                                                                         ----------------
                                                                                              23,959,964 
                                                                                         ----------------
                   Spain - 3.4%                                                                          
         3,230     Acerinox SA                                                                   485,082 
         2,500     Azucarera de Espana SA                                                        141,220 
       105,913     Banco Bilbao Vizcaya SA                                                     4,834,389 
        34,400     Banco Popular Espanol                                                       3,053,261 
         1,700     Compania Espanola de Petroleos SA                                              51,713 
         2,660     Cristaleria Espanola SA                                                       213,297 
        34,250     Dragados & Construcciones SA                                                  934,000 
        41,797     FENOSA SA                                                                     518,341 
         9,060     Fomento de Construcciones y Contratas SA                                      388,248 
         1,200     Grupo Anaya SA                                                                 27,504 
        73,196     Iberdrola SA                                                                1,057,437 
        89,760     Repsol SA                                                                   3,998,011 
        99,558     Telefonica de Espana SA                                                     3,419,549 
                                                                                         ----------------
                                                                                              19,122,052 
                                                                                         ----------------
                   Sweden - 4.5%                                                                         
        45,487     Assi Doman                                                                  1,119,222 
        86,000     Avesta Sheffield AB                                                           537,070 
        14,838     Celsius Industrier AB Class B                                                 274,284 
        44,300     Electrolux AB Class B                                                       3,375,175 
         1,800     Euroc Industri AB Class A                                                      71,942 
         6,328     Industrivarden AB Class A                                                     403,878 
         1,884     Industrivarden AB Class C (Bearer)                                            116,715 
         9,900     Kinnevik Investment Class B                                                   187,331 
        55,700     Marieberg Tidnings AB Class A                                               1,287,033 
       109,400     Mo Och Domsjo AB Class B                                                    3,183,728 
        93,855     Skanska AB Class B                                                          4,243,544 
        10,000     SKF AB Class B                                                                206,710 
        35,800     Ssab Swedish Steel Class A                                                    670,713 
         9,800     Ssab Swedish Steel Class B                                                    183,603 
       230,950     Stora Kopparberg Bergslags Class A                                          3,360,521 
        51,850     Stora Kopparberg Bergslags Class B                                            747,978 
       133,900     Svenska Cellulosa Class B                                                   3,043,790 
        73,900     Trelleborg AB Class B                                                       1,043,003 
        23,350     Volvo AB Class A                                                              621,197 
        45,650     Volvo AB Class B                                                            1,234,416 
                                                                                         ----------------
                                                                                              25,911,853 
                                                                                         ----------------

16            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                          Value ($)        
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
                   Switzerland - 7.8%                                                                    
        43,300     CS Holdings (Registered)                                                    7,818,547 
         1,670     Holderbank Financiere Glarus AG (Registered)                                  326,581 
            70     Jelmoli (Bearer)                                                               68,588 
         9,705     Nestle AG (Registered)                                                     16,994,992 
         5,933     Novartis AG (Registered)                                                   10,822,187 
           268     Roche Holdings (Participating Certificate)                                  3,137,258 
           370     Saurer Group Holdings (Registered) *                                          372,622 
           490     Swiss Reinsurance (Bearer)                                                  1,032,686 
         7,410     Zurich Insurance                                                            4,039,248 
                                                                                         ----------------
                                                                                              44,612,709 
                                                                                         ----------------
                   United Kingdom - 23.5%                                                                
       157,500     Abbey National                                                              3,228,581 
       155,590     AMEC                                                                          355,448 
        63,900     Anglian Water Plc                                                             883,775 
        23,140     Arcadia Group *                                                               187,928 
       254,000     Arjo Wiggins Appleton Plc                                                     685,866 
        58,738     ASDA Group                                                                    194,632 
        26,100     Bank of Scotland                                                              297,593 
       112,510     Barclays Plc                                                                3,349,279 
       165,590     Barratt Development                                                           766,129 
       260,500     BAT Industries                                                              2,599,214 
       968,700     BG Plc *                                                                    4,860,654 
        81,531     Booker Plc                                                                    323,520 
       312,181     British Airways Plc                                                         2,929,834 
        48,500     British Energy Plc *                                                          357,752 
       118,500     British Land Co                                                             1,434,060 
       323,200     British Steel Plc                                                             775,607 
       175,200     British Telecom Plc                                                         1,765,417 
       157,250     BTR                                                                           417,496 
        39,400     Cable & Wireless                                                              430,751 
       358,182     Coats Viyella                                                                 489,490 
       124,300     Courtaulds Textiles Plc                                                       691,751 
        46,280     Debenhams Plc *                                                               318,516 
        68,700     Electrocomponents Plc                                                         525,983 
       236,100     English China Clays Plc                                                       948,522 
        40,000     Enterprise Oil                                                                369,804 
       384,690     FKI                                                                         1,133,772 
        31,500     Great Portland Estates Plc                                                    151,964 
       112,456     Greenalls Group Plc                                                           767,483 
        48,300     Hammerson                                                                     400,016 
       279,012     Hazlewood Foods                                                               854,471 
       583,944     Hillsdown Holdings                                                          1,528,727 
        19,000     Hyder Plc                                                                     293,439 
        30,110     Imperial Chemical Industries Plc                                              549,551 
        27,100     Kingfisher                                                                    467,396 
       285,991     Ladbroke Group                                                              1,440,906 

              See accompanying notes to the financial statements.             17


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                             Value ($)    
--------------------------------------------------------------------------------------------------------
                                                                                                        
                   United Kingdom - continued                                                           
        44,500     Land Securities                                                               833,438
       551,600     Lasmo                                                                       2,508,919
        82,675     Legal & General Group                                                         927,007
       607,600     Lloyds TSB Group                                                            9,143,778
       802,603     Lonrho                                                                      1,242,197
       214,011     Marley                                                                        385,844
        58,600     Meyer International                                                           365,678
       130,100     Mirror Group Plc                                                              364,156
        91,970     National Grid Group Plc *                                                     519,400
       489,093     National Power                                                              5,069,311
        25,700     Next                                                                          350,580
     1,736,285     Norcros Plc                                                                 1,858,216
       225,800     Northern Foods Plc                                                          1,007,523
       184,200     Peninsular & Oriental Steam Navigation Co                                   2,373,207
       870,137     Pilkington                                                                  1,633,256
       224,659     Powergen                                                                    3,138,610
        28,740     Provident Financial Plc *                                                     466,106
        64,600     Prudential Corp                                                               968,975
       124,000     Railtrack Group Plc                                                         1,888,536
       231,500     Rentokil Plc                                                                1,142,541
       244,573     Reuters Holdings Plc *                                                      2,462,446
        70,460     RMC Group                                                                   1,074,275
        21,500     Royal Bank of Scotland Group *                                                332,758
       123,908     Safeway Plc                                                                   730,372
       101,000     Sainsbury (J)                                                                 778,682
        17,260     Schroders                                                                     652,207
       193,616     Scottish Hydro-Electric Plc                                                 1,736,602
       368,442     Scottish Power Plc                                                          3,142,394
       798,712     Sears                                                                         690,417
       276,400     Sedgwick Group                                                                673,856
        93,015     Severn Trent Plc                                                            1,431,945
       112,700     Slough Estates                                                                746,881
       772,828     Smithkline Beecham Plc                                                      9,670,706
       204,100     Smiths Industries Plc                                                       3,054,700
       255,089     Southern Electric Plc                                                       2,152,521
        30,900     Southwest Water                                                               458,273
       490,730     Storehouse Plc                                                              2,092,686
       213,500     T & N                                                                         889,365
     1,116,340     Tarmac                                                                      1,847,244
       432,766     Taylor Woodrow Plc                                                          1,439,349
       145,900     Thames Water                                                                2,123,583
       223,600     TI Group Plc                                                                1,932,826
       163,915     Transport Development Group                                                   628,834
        44,000     Unigate                                                                       473,072
       443,412     Unilever Plc                                                                4,015,428

18            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Shares         Description                                                             Value ($)     
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
                   United Kingdom - continued                                                            
       221,452     United Biscuits                                                               977,184 
       328,300     United Utilities                                                            4,410,855 
        37,240     Viglen Technology Plc *                                                        20,847 
       432,130     Vodafone Group Plc                                                          3,842,111 
       135,800     Waste Management International *                                              402,470 
       164,270     Whitbread Plc Class A                                                       2,650,611 
       561,269     Wilson (Connolly) Holdings                                                  1,501,710 
       278,175     Wimpey (George)                                                               563,359 
       202,688     Yorkshire Water                                                             1,712,013 
                                                                                         ----------------
                                                                                             134,275,187 
                                                                                         ----------------

                   TOTAL STOCK AND EQUIVALENTS (Cost $546,015,700)                           556,921,818 
                                                                                         ----------------

                   INVESTMENT FUNDS - 0.0%                                                               
                   Australia - 0.0%                                                                      
        54,100     Franked Income Fund                                                           187,964 
                                                                                         ----------------

                   Netherlands - 0.0%                                                                    
         8,275     Schroders International Property Fund                                          15,221 
                                                                                         ----------------

                   TOTAL INVESTMENT FUNDS (Cost $188,572)                                        203,185 
                                                                                         ----------------
  Par Value/                                                                                             
    Shares         DEBT OBLIGATIONS - 0.0%                                                               
                   United Kingdom - 0.0%                                                                 
GBP     90,537     Viglen Technology Plc Floating Rate Note, 6.75% due 9/1/2000                  149,069 
GBP     23,882     Viglen Technology Plc Floating Rate Note, 6.99% due 1/1/2001                   39,322 
                                                                                         ----------------
                                                                                                 188,391 
                                                                                         ----------------

                   TOTAL DEBT OBLIGATIONS (Cost $99,516)                                         188,391 
                                                                                         ----------------

                   SHORT-TERM INVESTMENTS - 4.4%                                                         
                   Cash Equivalents - 2.2%                                                               
    12,906,326     The Boston Global Investment Trust (b)                                     12,906,326 
 $     100,000     Wachovia Bank Time Deposit, 5.63%, due 3/2/98                                 100,000 
                                                                                         ----------------
                                                                                              13,006,326 
                                                                                         ----------------
                   U.S. Government - 2.2%                                                                
 $  12,850,000     U.S. Treasury Bill, 5.39% due 1/7/99 (a)                                   12,280,520 
                                                                                         ----------------

                   TOTAL SHORT-TERM INVESTMENTS (Cost $25,297,573)                            25,286,846 
                                                                                         ----------------

                   TOTAL INVESTMENTS - 102.1%                                                            
                   (Cost $571,601,361)                                                       582,600,240 

                   Other Assets and Liabilities (net) -  -2.1%                               (12,118,595)
                                                                                         ----------------

                   TOTAL NET ASSETS - 100.0%                                           $     570,481,645 
                                                                                         ================

              See accompanying notes to the financial statements.             19


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

Notes to the Schedule of Investments:                   

ADR  American Depositary Receipt                        
GBP  British Pounds                                     

           (a) This security is held as collateral for open futures contracts.

          (b) Represents investment of security lending collateral (Note 1).

           *   Non-income producing security. A dividend has not been declared
for the twelve months ended February 28, 1998.  

20            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments - continued                                             
(showing percentage of total net assets)                                        
February 28, 1998                                                               

--------------------------------------------------------------------------------

 At February 28, 1998, industry sector diversification
of the Fund's equity investments was as follows:    

Industry Sector (Unaudited)                         

           Banking                                                   11.7%
          Consumer Goods                                             9.0
          Utilities                                                  7.6
          Conglomerates                                              5.5
          Services                                                   4.9
          Telecommunications                                         4.8
          Health Care                                                4.7
          Construction                                               4.7
          Chemicals                                                  4.5
          Transportation                                             4.2
          Electronic Equipment                                       4.0
          Real Estate                                                3.9
          Oil and Gas                                                3.6
          Insurance                                                  3.2
          Paper and Allied Products                                  3.1
          Automotive                                                 2.7
          Food and Beverage                                          2.6
          Machinery                                                  2.5
          Retail Trade                                               2.4
          Metals and Mining                                          2.0
          Communications                                             1.8
          Financial Services                                         1.0
          Textiles                                                   0.7
          Aerospace                                                  0.5
          Computers                                                  0.3
          Miscellaneous                                              4.1
                                                            ------------
                                                                    100.0%
                                                            ============

               See accompanying notes to the financial statements.            21


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Assets and Liabilities - February 28, 1998                                     
------------------------------------------------------------------------------------------- 
                                                                                            
Assets:                                                                                     
     Investments, at value (cost $571,601,361) (Note 1)                     $   582,600,240 
     Foreign currency, at value (cost $296,546) (Note 1)                            297,228 
     Cash                                                                            32,016 
     Dividends and interest receivable                                              618,876 
     Foreign withholding taxes receivable                                           608,145 
     Receivable for open forward foreign currency contracts (Notes 1 and 6)      25,384,100 
     Receivable for expenses waived or borne by Manager (Note 2)                     98,436 
                                                                              --------------

         Total assets                                                           609,639,041 
                                                                              --------------

Liabilities:                                                                                
     Payable for investments purchased                                               69,755 
     Payable for open forward foreign currency contracts (Notes 1 and 6)         25,017,163 
     Payable upon return of securities loaned (Note 1)                           12,906,326 
     Payable for variation margin on open futures contracts (Notes 1 and 6)         498,421 
     Payable to affiliate for (Note 2):                                                     
         Management fee                                                             325,892 
         Shareholder service fee                                                     48,699 
     Accrued expenses                                                               291,140 
                                                                              --------------

         Total liabilities                                                       39,157,396 
                                                                              --------------

Net assets                                                                  $   570,481,645 
                                                                              ==============

Net assets consist of:                                                                      
     Paid-in capital                                                        $   528,193,303 
     Distributions in excess of net investment income                            (7,787,554)
     Accumulated undistributed net realized gain                                 33,155,953 
     Net unrealized appreciation                                                 16,919,943 
                                                                              --------------

                                                                            $   570,481,645 
                                                                              ==============

Net assets attributable to:                                                                 
         Class III shares                                                   $   207,653,004 
                                                                              ==============
         Class IV shares                                                    $   362,828,641 
                                                                              ==============

Shares outstanding:                                                                         
         Class III                                                               17,425,016 
                                                                              ==============
         Class IV                                                                30,435,120 
                                                                              ==============

Net asset value per share:                                                                  
         Class III                                                          $         11.92 
                                                                              ==============
         Class IV                                                           $         11.92 
                                                                              ==============


22               See accompanying notes to the financial statements.            


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Operations - Year Ended February 28, 1998                                
--------------------------------------------------------------------------------------
                                                                                      
Investment income:                                                                    
     Dividends (net of foreign tax expense of $1,564,794)             $    14,287,074 
     Interest (including securities lending income of $222,696)             1,896,900 
                                                                        --------------
         Total income                                                      16,183,974 
                                                                        --------------

Expenses:                                                                             
     Management fee (Note 2)                                                4,457,931 
     Custodian fees                                                           893,856 
     Audit fees                                                                52,343 
     Transfer agent fees                                                       29,295 
     Legal fees                                                                12,410 
     Registration fees                                                          9,500 
     Trustees fee (Note 2)                                                      5,474 
     Miscellaneous                                                              4,665 
     Stamp duties and transfer taxes                                              796 
     Fees waived or borne by Manager (Note 2)                              (2,255,760)
                                                                        --------------
                                                                            3,210,510 

     Shareholder service fee - (Note 2)                                               
         Class III                                                            823,838 
         Class IV                                                              40,570 
                                                                        --------------

         Net expenses                                                       4,074,918 
                                                                        --------------

             Net investment income                                         12,109,056 
                                                                        --------------

Realized and unrealized gain (loss):                                                  

         Net realized gain (loss) on:                                                 
             Investments                                                   43,241,077 
             Closed futures contracts                                       8,579,522 
             Closed swap contracts                                            978,030 
             Foreign currency, forward contracts and foreign currency                 
                 related transactions                                      34,769,811 
                                                                        --------------
                 Net realized gain                                         87,568,440 
                                                                        --------------

         Change in net unrealized appreciation (depreciation) on:                     
             Investments                                                  (12,894,473)
             Open futures contracts                                         6,987,281 
             Foreign currency, forward contracts and foreign currency                 
                 related transactions                                      (1,035,332)
                                                                        --------------
                 Net unrealized loss                                       (6,942,524)
                                                                        --------------

         Net realized and unrealized gain                                  80,625,916 
                                                                        --------------
Net increase in net assets resulting from operations                  $    92,734,972 
                                                                        ==============


                 See accompanying notes to the financial statements.          23


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                                              Year Ended               Year Ended       
Increase (decrease) in net assets:                                         February 28, 1998        February 28, 1997   
                                                                         ---------------------   -----------------------
                                                                                                                        
Operations:                                                                                                             
      Net investment income                                             $          12,109,056   $            11,550,285 
      Net realized gain                                                            87,568,440                56,218,667 
      Change in net unrealized appreciation (depreciation)                         (6,942,524)               11,580,140 
                                                                         ---------------------   -----------------------

      Net increase in net assets resulting from operations                         92,734,972                79,349,092 
                                                                         ---------------------   -----------------------

Distributions to shareholders from:                                                                                     
      Net investment income                                                                                             
          Class III                                                               (12,103,195)              (12,206,199)
          Class IV                                                                  -                         -         
                                                                         ---------------------   -----------------------
          Total distributions from net investment income                          (12,103,195)              (12,206,199)
                                                                         ---------------------   -----------------------

      Net realized gains                                                                                                
          Class III                                                              (108,544,439)              (18,177,235)
          Class IV                                                                  -                         -         
                                                                         ---------------------   -----------------------
          Total distributions from net realized gains                            (108,544,439)              (18,177,235)
                                                                         ---------------------   -----------------------

                                                                                 (120,647,634)              (30,383,434)
                                                                         ---------------------   -----------------------

Net share transactions - (Note 5)                                                                                       
          Class III                                                              (313,055,281)              124,906,849 
          Class IV                                                                330,350,503                 -         
                                                                         ---------------------   -----------------------
          Increase in net assets resulting from net share transactions             17,295,222               124,906,849 
                                                                         ---------------------   -----------------------

      Total increase (decrease) in net assets                                     (10,617,440)              173,872,507 

Net assets:                                                                                                             
      Beginning of period                                                         581,099,085               407,226,578 
                                                                         ---------------------   -----------------------
                                                                         ---------------------   -----------------------
      End of period (including distributions in excess of net                                                           
          investment income of $(7,787,554) and accumulated                                                             
          undistributed net investment income of $31,487,338,                                                           
          respectively)                                                 $         570,481,645   $           581,099,085 
                                                                         =====================   =======================

24                See accompanying notes to the financial statements.           


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                     Year Ended February 28/29              
                                                          -----------------------------------------------   
                                                            1998              1997                 1996*    
                                                          --------          --------             --------   
                                                                                                            
Net asset value, beginning of period                      $  12.68          $  11.54             $  10.00   
                                                          --------          --------             --------   

Income from investment operations:                                                                          
  Net investment income                                       0.27+             0.22                 0.23   
  Net realized and unrealized gain                            1.72              1.63                 1.44   
                                                          --------          --------             --------   

         Total from investment operations                     1.99              1.85                 1.67   
                                                          --------          --------             --------   
Less distributions to shareholders from:                                                                    
     Net investment income                                   (0.27)            (0.28)               (0.06)  
     Net realized gains                                      (2.48)            (0.43)               (0.07)  
                                                          --------          --------             --------   

         Total distributions                                 (2.75)            (0.71)               (0.13)  
                                                          --------          --------             --------   

Net asset value, end of period                            $  11.92          $  12.68             $  11.54   
                                                          ========          ========             ========   

Total Return (a)                                             17.98%            16.55%               16.66%  

Ratios/Supplemental Data:                                                                                   

     Net assets, end of period (000's)                    $207,653          $581,099             $407,227   
     Net expenses to average                                                                                
         daily net assets                                     0.69%             0.72%(c)             0.69%**
     Net investment income to average                                                                       
         daily net assets                                     2.15%             2.25%                1.89%**
     Portfolio turnover rate                                    96%               84%                   7%  
     Average broker commission rate per equity share (b)  $ 0.0086          $ 0.0067                   N/A  
     Fees and expenses voluntarily waived or borne by                                                       
         the Manager consisted of the following per                                                         
         share amounts:                                   $   0.05          $   0.04             $   0.05   

*    Period from June 30, 1995 (commencement of operations) to February 29,     
1996.                                                                 
**   Annualized.                                                                
+    Computed using average shares outstanding throughout the period.           
(a)  Calculation excludes purchase premiums.  The total returns would have been 
lower had certain expenses not been waived during the periods shown.  
(b)  For fiscal years beginning on or after September 1, 1995, a fund is        
required to disclose its average commission rate per share for        
security trades on which commissions are charged. The average broker  
commission rate will vary depending on the markets in which trades are
executed.                                                             
(c)  Includes stamp duties and transfer taxes not waived or borne by the        
Manager, which approximates .03% of average daily net assets.         

                 See accompanying notes to the financial statements.          25


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class IV share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                                [Download Table]


                                                       Period from January 9, 1998 
                                                       (commencement of operations)
                                                          to February 28, 1998     
                                                            -------------          

                                                                                   
Net asset value, beginning of period                       $       10.87           
                                                            -------------          

Income (loss) from investment operations:                                          
  Net investment income                                             0.01 +         
  Net realized and unrealized gain                                  1.04           
                                                            -------------          

    Total from investment operations                                1.05           
                                                            -------------          

Net asset value, end of period                             $       11.92           
                                                            =============          

Total Return (a)                                                   9.66%           

Ratios/Supplemental Data:                                                          

     Net assets, end of period (000's)                     $     362,829           
     Net expenses to average                                                       
           daily net assets                                        0.63% *         
     Net investment income to average                                              
           daily net assets                                        0.72% *         
     Portfolio turnover rate                                         96%           
     Average broker commission rate (b)                    $      0.0086           
     Fees and expenses voluntarily waived or borne by                              
           the Manager consisted of the following per                              
           share amount:                                   $        0.01           

+    Computed using average shares outstanding throughout the period.           
*    Annualized                                                                 
(a)  Calculation excludes purchase premiums.  The total returns would have been 
lower had certain expenses not been waived during the period shown.   
(b)  The average broker commission rate will vary depending on the markets in   
which trades are executed.                                            

26            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------
1.   Significant accounting policies                                            

     GMO Currency Hedged International 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, 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 into classes.

  The Fund seeks maximum total return through investment in a portfolio of
common stocks of non-U.S. issuers and through management of the Fund's
foreign currency positions.                                           

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
   as those shares. Effective January 9, 1998, Class IV commenced operations
and Class I and Class II shares ceased to be offered.                 

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

                                                                              27


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     
The Fund may use futures contracts to manage its exposure to the stock
market. 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 obligations in accordance with the  
  initial margin requirements of the broker or exchange. 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 subsequently settled. Gains or losses are recognized but
   not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the  
variation margin disclosed in the Statement of Assets and Liabilities.
     Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if        
   counterparties do not perform under the contract terms. Futures contracts
 are valued at the settlement price established each day by the board of
     trade or exchange on which they are traded. See Note 6 for all open futures
contracts as of February 28, 1998.                                    

28                                                                              


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
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
    the value of the currency changes unfavorably to the U.S. dollar. The U.S.
 dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has  
acquired or hedged through currency contracts as of February 28, 1998.

Swap agreements                                                       
    The Fund may invest in swap agreements. 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 swap agreements to manage its exposure
  to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in 
exchange for a market linked return based on a notional amount. To the
extent that 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. Equity swaps are marked to market daily based
   upon quotations from market makers and the change, if any, is recorded as
   unrealized gain or loss in the Statement of Operations. Payments received
    or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
    involves, to varying degrees, elements of credit and market risk in excess
    of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
     obligation to perform or that there may be unfavorable changes in the price
 of the security or index underlying these transactions. At February 28,
1998, there were no open swap agreements.                             

                                                                              29


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $11,983,549 collateralized by cash in the amount of   
$12,906,326, which was invested in a short-term instrument.           

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
     necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States.                                                               

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
  differing treatments for foreign currency and passive foreign investment
company 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

30                                                                              


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------

Accumulated                                                   
Undistributed Net      Accumulated Net Realized                   
    Investment Income           Gain/(Loss)                Paid-in Capital
     ---------------------- ----------------------------  ----------------------
$(39,280,753)              $39,280,753                      -   

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income 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 accretion of discounts. 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 in such a manner as deemed equitable by the Trustees,
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 .60% of the amount    
    invested. Prior to June 1, 1996, the premium on cash purchases was .75% of
    the amount invested. All purchase premiums 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. Purchase premiums are included as
 part of each class' "shares sold" as summarized in Note 5. For the year
  ended February 28, 1998, the Fund received $95,602 in purchase premiums.
There is no premium for cash redemptions or 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 and the
possible imposition of currency exchange blockages or other foreign   
governmental laws or restrictions. In addition, the securities of some
foreign companies and                                                 

                                                                              31


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
securities markets are less liquid and at times more volatile than    
securities of comparable U.S. companies and U.S. securities markets.  

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .75% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, .15%
for Class III shares, and .09% for Class IV shares.                   

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including stamp duties and transfer taxes), shareholder
   service fees and extraordinary expenses) exceed .54% of average daily net
     assets. Prior to June 1, 1996, a similar waiver existed for annual expenses
   exceeding .69%; thus, the net annual expense ratio after the waiver for a
Class III shareholder is unchanged.                                   

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $5,474. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$535,168,488 and $557,420,651, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                                                        [Enlarge/Download Table]

                                     Gross Unrealized             Gross Unrealized              Net Unrealized        
       Aggregate Cost                  Appreciation                 Depreciation                 Appreciation         
-----------------------------  -----------------------------  --------------------------  ----------------------------
                                                                                                                      
        $574,060,003                   $77,004,229                   $68,463,992                  $8,540,237          

4.   Principal shareholders                                                     

   At February 28, 1998, 39% 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.                                                   

32                                                                              


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]


 Class III:                          Year Ended                                     Year Ended                   
                                 February 28, 1998                               February 28, 1997               
                    ---------------------------------------------  ----------------------------------------------
                           Shares                  Amount                 Shares                   Amount        
                    ---------------------    --------------------  ---------------------    ---------------------
                                                                                                                 
Shares sold                    8,582,791   $         112,053,373             16,351,665   $          195,574,666 
Shares issued to                                                                                                 
shareholders in                                                                                                  
reinvestment of                                                                                                  
distributions                 10,291,607             116,658,063              2,179,223               26,037,897 
Shares repurchased           (47,260,509)           (541,766,717)            (7,998,316)             (96,705,714)
                    ---------------------    --------------------  ---------------------    ---------------------
Net increase /                                                                                                   
(decrease)                   (28,386,111)  $        (313,055,281)            10,532,572   $          124,906,849 
                    =====================    ====================  =====================    =====================

                                                                [Download Table]

                             Period from January 9, 1998         
                             (commencement of operations)        
Class IV:                        to February 28, 1998            
                    ---------------------------------------------
                          Shares                      Amount     
                    ------------------         ------------------
                                                                 
Shares sold                31,203,675         $      339,183,949 
Shares issued to                                          -      
shareholders in                                                  
reinvestment                                                     
of distributions               -                          -      

Shares repurchased           (768,555)                (8,833,446)
                    ==================         ==================
Net increase               30,435,120         $      330,350,503 
                    ==================         ==================

                                                                              33


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]

                                                                                                 Net Unrealized   
    Settlement                                     Units of                                       Appreciation    
      Date             Deliver/Receive             Currency                   Value              (Depreciation)   
-----------------  -----------------------  -----------------------   ----------------------   -------------------
                                                                                                                  
Buys                                                                                                              
3/6/98                      ATS                        955,539,347  $            74,850,877  $        (1,869,470) 
7/16/98                     ATS                        486,606,944               38,397,291              (75,096) 
4/17/98                     AUD                         25,425,134               17,336,128                71,221 
3/6/98                      BEF                      1,472,252,440               39,308,441             (727,772) 
7/16/98                     BEF                        631,152,927               16,976,516              (94,034) 
4/17/98                     CAD                         37,300,196               26,237,189             (280,643) 
3/6/98                      CHF                        225,541,095              153,741,550           (1,424,771) 
7/16/98                     CHF                         17,730,700               12,292,712             (140,754) 
3/6/98                      DEM                        327,862,361              180,698,163           (3,585,555) 
7/16/98                     DEM                         76,079,089               42,256,477               135,400 
3/6/98                      DKK                        115,267,641               16,663,899             (127,715) 
7/16/98                     DKK                          5,186,232                  754,578                  (25) 
3/6/98                      ESP                      2,941,219,734               19,098,298             (959,586) 
7/16/98                     ESP                      2,647,250,574               17,268,713              (24,935) 
3/6/98                      FIM                         54,923,288                9,969,285             (586,781) 
7/16/98                     FIM                         49,423,287                9,042,610               (8,041) 
3/6/98                      FRF                        466,461,505               76,617,849             (661,636) 
7/16/98                     FRF                         77,077,451               12,757,366               (2,534) 
3/6/98                      GBP                        181,932,441              299,508,099             (198,856) 
7/16/98                     GBP                         11,944,681               19,534,302                 5,942 
4/17/98                     HKD                        235,137,594               30,336,910               459,761 
3/6/98                      IEP                         26,962,816               36,762,917           (2,251,374) 
7/16/98                     IEP                         12,689,015               17,290,052             (168,382) 
3/6/98                      ITL                    107,653,204,006               60,157,490             (996,937) 
4/17/98                     JPY                      5,219,508,890               41,593,026             (437,214) 

34                                                                              


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                                

Buys - continued                                                  

                                                        [Enlarge/Download Table]

                                                                                                 Net Unrealized   
   Settlement                                      Units of                                       Appreciation    
     Date             Deliver/Receive              Currency                   Value              (Depreciation)   
-----------------  -----------------------  -----------------------   ----------------------   -------------------
                                                                                                                  
4/17/98                     MYR                         18,394,646  $             4,990,578  $          (160,541) 
3/6/98                      NLG                         97,276,693               47,533,681             (929,191) 
7/16/98                     NLG                         20,160,115                9,929,807                 7,439 
3/6/98                      NOK                        457,061,132               60,395,395           (3,012,159) 
7/16/98                     NOK                        178,656,585               23,749,866              (57,922) 
4/17/98                     NZD                         31,007,423               18,119,033             (725,901) 
3/6/98                      PTE                      1,381,590,000                7,436,256              (10,464) 
3/6/98                      SEK                        445,326,606               55,626,540           (2,127,559) 
7/16/98                     SEK                        179,766,820               22,543,414                35,705 
4/17/98                     SGD                         10,612,425                6,544,013             (108,117) 
                                                                                               -------------------
                                                                                            $        (21,038,497) 
                                                                                               ===================

Sales                                                                                                             
3/6/98                      ATS                        955,539,347               74,850,877 $           1,039,807 
7/16/98                     ATS                        413,053,753               32,593,339               151,492 
4/17/98                     AUD                         73,864,302               50,364,374             1,178,612 
3/6/98                      BEF                      1,472,252,440               39,308,440               842,324 
7/16/98                     BEF                        703,730,233               18,928,674                46,445 
4/17/98                     CAD                         26,421,598               18,585,116               207,290 
3/6/98                      CHF                        225,541,094              153,741,550             3,280,886 
7/16/98                     CHF                        108,271,845               75,064,976               144,718 
3/6/98                      DEM                        327,862,361              180,698,163             3,703,549 
7/16/98                     DEM                        155,473,964               86,354,635               469,013 
3/6/98                      DKK                        115,267,642               16,663,899               559,264 
7/16/98                     DKK                        110,081,409               16,016,442                81,662 
3/6/98                      ESP                      2,941,219,734               19,098,297                79,131 
7/16/98                     ESP                        134,944,800                  880,281                 7,748 

                                                                              35


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Forward currency contracts - continued                                

Sales - continued                                                     

                                                        [Enlarge/Download Table]

                                                                                                  Net Unrealized  
   Settlement                                      Units of                                        Appreciation   
      Date            Deliver/Receive              Currency                   Value               (Depreciation)  
-----------------  -----------------------  -----------------------   ----------------------   -------------------
                                                                                                                  
3/6/98                      FIM                         54,923,287  $             9,969,286  $             50,582 
7/16/98                     FIM                          5,500,000                1,006,294                 8,747 
3/6/98                      FRF                        466,461,504               76,617,849             1,658,654 
7/16/98                     FRF                        175,760,408               29,090,736               225,219 
3/6/98                      GBP                        181,932,440              299,508,099           (1,436,341) 
7/16/98                     GBP                        110,459,760              180,645,615               (1,909) 
4/17/98                     HKD                        604,331,680               77,969,478           (1,789,844) 
3/6/98                      IEP                         26,962,815               36,762,917             1,097,807 
7/16/98                     IEP                            271,250                  369,605                   331 
3/6/98                      ITL                    107,653,204,006               60,157,491             1,556,717 
7/16/98                     ITL                     37,523,272,854               20,963,864                49,953 
4/17/98                     JPY                     17,140,897,085              136,591,737             2,268,107 
4/17/98                     MYR                        111,167,918               30,160,523             1,953,300 
3/6/98                      NLG                         97,276,694               47,533,681             1,058,500 
7/16/98                     NLG                         57,333,161               28,239,285               238,689 
3/6/98                      NOK                        457,061,132               60,395,395               839,383 
7/16/98                     NOK                          6,062,060                  805,865                 7,212 
4/17/98                     NZD                         37,037,971               21,642,953             1,433,322 
3/6/98                      PTE                      1,381,590,000                7,436,256               123,744 
7/16/98                     PTE                      1,381,590,000                7,471,487                 5,459 
3/6/98                      SEK                        445,326,606               55,626,540              (35,104) 
7/16/98                     SEK                        340,894,037               42,749,354                 7,740 
4/17/98                     SGD                         71,527,119               44,106,258               293,225 
                                                                                               -------------------
                                                                                             $         21,405,434 
                                                                                               ===================

36                                                                              


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - continued                                       

--------------------------------------------------------------------------------
Currency Abbreviations:                                                         

ATS    Austrian Schilling                  HKD     Hong Kong Dollar           
AUD    Australian Dollar                   IEP     Irish Pound                
BEF    Belgian Franc                       ITL     Italian Lira               
CAD    Canadian Dollar                     JPY     Japanese Yen               
CHF    Swiss Franc                         MYR     Malaysian Ringgit          
DEM    German Mark                         NLG     Netherlands Guilder        
DKK    Danish Krona                        NOK     Norwegian Kroner           
ESP    Spanish Peseta                      NZD     New Zealand Dollar         
FIM    Finnish Markka                      PTE     Portuguese Escudo          
FRF    French Franc                        SEK     Swedish Krona              
GBP    British Pound                       SGD     Singapore Dollar           

Futures contracts                                                               

                                                        [Enlarge/Download Table]

                                                                                          Net Unrealized   
Number of                                                               Contract           Appreciation    
Contracts               Type                Expiration Date              Value            (Depreciation)   
--------------  ----------------------  --------------------------------------------   --------------------
                                                                                                           
 Buys                                                                                                      
191             DAX                           March 1998        $        49,535,280   $          5,081,505 
248             MIB 30                        March 1998                 40,254,872              6,486,408 
14              TSE 35                        March 1998                  1,883,357                130,645 
                                                                                       --------------------
                                                                                      $         11,698,558 
                                                                                       ====================
Sales                                                                                                      
274             ALL ORDS                      March 1998        $        12,599,727   $          (588,698) 
168             FTSE 100                      March 1998                 39,977,410            (3,239,967) 
178             HANG SENG                     March 1998                 13,276,719            (1,196,543) 
161             IBEX 35                       March 1998                  9,355,907              (788,305) 
23              MATIF CAC 40                  March 1998                  2,592,635              (172,606) 
131             OMX STOCK                     March 1998                  4,496,253               (99,298) 
71              TOPIX                         March 1998                  7,171,377               (32,150) 
                                                                                       --------------------
                                                                                      $        (6,117,567) 
                                                                                       ====================

At February 28, 1998, the Fund has cash and/or securities to cover any margin   
requirements on open futures contracts.                                         

                                                                              37


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           

--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all the Fund's distributions are   
from investment company taxable income, except that the Fund has designated     
22.54% of distributions as net capital gain dividends.                          

38                                                                              


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GMO Currency Hedged International Core Fund                                     
(A Series of GMO Trust)                                                         

Portfolio Managers                                                              
------------------                                                              

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
fifteen years.                                                                  

Management Discussion and Analysis of Fund Performance                          
------------------------------------------------------                          

The Class III shares of the GMO Currency Hedged International Core Fund returned
18.0% for the fiscal year ended February 28, 1998 as compared to 25.1% for the  
GMO EAFE-Lite Hedged Index. Consistent with the Fund's investment objective and 
policies, the Fund was invested substantially in common stocks throughout the   
period.                                                                         

Overseas markets were mixed during the fiscal year.  Although a strong bull     
market prevailed in Europe, the investment climate was difficult for investors  
in the Far East. Poor economic conditions in Japan combined with the fallout    
from the Asian currency crisis caused most stock markets in the Pacific Rim to  
fall significantly.  Hedging currency exposure back to the strong-performing    
U.S. dollar added to the absolute performance of the fund.                      

Within Europe, ten of the fourteen EAFE markets returned in excess of 30% for   
the year, led by strong performance of the largest international blue chip      
companies. On the other hand, small European stocks performed poorly throughout 
the region.                                                                     

Weakness in the Pacific Rim countries offset the strong performance of the      
European markets. Many of the Pacific Rim countries represented in the index    
(Japan, Malaysia, Hong Kong and Singapore) were significantly affected by the   
debt crisis in the Asian markets. Weakening currencies further depressed returns
for dollar-based investors. In the crisis environment pervading these markets,  
both large and small stocks performed poorly in absolute terms, however, smaller
stocks were more drastically affected by the turn of events.                    

Impact of country selection                                                     

Country selection contributed negatively to the Fund's performance for the year,
primarily in some of the Asian countries where the Fund had slight overweights  
in the latter part of the year. In Europe, where the Fund was underweight in    
many of the expensive markets, including the Netherlands, Switzerland, and the  
United Kingdom, performance was also negatively affected. These decisions were  
somewhat offset by the Fund's overweighting of the Italian market, which was one
of the best performing EAFE markets for the year, as well as by underweighting  
Japan.                                                                          


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Impact of stock selection                                                       

Stock selection was negative for the year as the Fund's value orientation was   
not rewarded in a market environment that favored the largest, growth-oriented  
international stocks. This trend was perhaps best exemplified by the remarkable 
spread between large and small stocks in the U.K., where the largest 20% of the 
market outperformed the smallest 20% by a margin of twenty-seven percentage     
points (27%).  As a group, the largest multinational stocks are very expensive  
relative to their historical levels, and the Fund maintained a significant      
underweight in these stocks during the year. Our bias in favor of smaller, less 
expensive companies, was not rewarded.                                          

Current portfolio structure and outlook                                         

Country selection.  The International Core Fund remains underweight in Japan.   
The Fund holds no weight in the Netherlands and we have increased our           
underweight in the U.K. as the market (and the British pound) appear expensive  
on all of our valuation measures. The Fund's largest overweight positions are in
Italy and Canada.                                                               

Stock selection. Small stocks in EAFE are now cheaper than they have been in    
more than twenty years. Value stocks are also very attractive in many European  
markets, following the strong run over the last several years in multinational  
companies.  While small stocks also appear attractive in a number of the Pacific
Rim countries, we are somewhat more cautious about their outlook given their    
higher risk of bankruptcy in what will likely be a difficult economic           
environment. Overall, the Fund remains about 20% overweight in smaller stocks   
and 20% underweight in large, multinational stocks.                             

The Fund is very well positioned to outperform the benchmark over the next three
years. Although the restructuring craze in Europe may well provide support for  
large companies in the short term, we believe large cap companies (whose        
valuations are historically high) are susceptible to earnings disappointments,  
and eventually, shrinking profit margins. We expect value and small stocks to do
well in many countries over the next several years.                             

The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management.  They are not meant as investment advice.                   


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Currency Hedged International Core Fund                                         

Comparison of Change in Value of a $10,000 Investment in  
GMO Currency Hedged International Core Fund Class III Shares and  
the MSCI EAFE Index 
As of February 28, 1997 

------------------------------                                      
Average Annual Total Return                                     
------------------------------                                      
Since                     
1 Year           Inception                                      
------------------------------                                      
Class                     6/30/95                                               
III     17.3%             19.1%                                               
------------------------------                                      
Class                      1/9/98                                               
IV       n/a               9.0%                                               
------------------------------                                      

[LINE GRAPH APPEARS HERE] 

GMO Currency                                    
Hedged                                    
International   MSCI EAFE-Lite       MSCI       
Date         Core Fund       Hedged Index     EAFE Index                
-------      -------------   --------------    ----------                 
6/30/95         $9,940          $10,000         $10,000                   
2/29/96        $11,596          $12,010         $10,919                   
2/28/97        $13,515          $14,193         $11,273                   
2/28/98        $15,945          $17,756         $13,017                   

Performance shown is net of all fees after reimbursement from the manager.      
Returns and net asset value 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     
waived during the periods shown and do not include the effect of taxes on       
reinvestment distributions. 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. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that had been offered by the Fund since inception. Performance for    
Class IV shares may be different due to lower shareholder service fees. Past    
performance is not indicative of future performance. Information is unaudited.  


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of                            
GMO Growth Fund (A Series of GMO Trust)                                         

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 at February 28,    
1998, the results of its operations for the year then ended, the changes in its 
net assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and   
financial highlights (hereafter referred to as "financial statements") are the  
responsibility of the Trust'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 generally accepted      
auditing standards 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 28, 1998 by       
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide 
a reasonable basis for the opinion expressed above.                             

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 13, 1998                                                                  


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                   Value ($)    
--------------------------------------------------------------------------------
COMMON STOCKS -- 95.8%                      
Advertising -- 0.3%                         
10,700        Interpublic Group Inc                             583,150 
                                                       ---------------
Aerospace -- 0.3%                           
3,300        Teleflex Inc                                      133,856
4,000        Thiokol Corp                                      382,500
                                                       ---------------
                                                               516,356
                                                       ---------------
Automotive -- 0.9%                          
1,000        Bandag Inc                                         56,063
3,200        Borg Warner Automotive Inc                        187,600
  800        Breed Technologies Inc                             17,400
16,600        Ford Motor Co                                     938,938 
8,050        Genuine Parts Co                                  297,850
7,100        Lear Corp *                                       375,413
                                                       ---------------
                                                             1,873,264
                                                       ---------------
Banking and Financial Services -- 4.7%      
10,200        Ahmanson (HF) & Co                                636,863 
  150        Amsouth Bancorp                                     8,428
6,096        Bear Stearns Inc                                  284,233
4,800        Beneficial Corp                                   566,400
22,900        Charles Schwab & Co Inc                           864,475 
1,000        City National Corp                                 37,188
  400        Countrywide Credit Industry Inc                    17,775
9,000        Dime Bancorp Inc                                  274,500
3,000        Donaldson Lufkin & Jenrette                       245,625
9,700        Edwards (AG) Inc                                  408,006
18,201        Franklin Resources Inc                            928,231 
3,300        Golden State Bancorp *                            117,563
  700        John Nuveen and Co Inc, Class A                    24,719
  750        Liberty Financial Cos                              27,188
8,800        MGIC Investment Corp                              648,450
13,200        Morgan Stanley Dean Witter Discover & Co          919,875 
1,200        New England Investment Co, L.P.                    42,000
2,600        Northfork Bancorp                                  88,888
3,650        Paine Webber Group Inc                            153,300
  100        Peoples Heritage Finance Group Inc                  4,656
7,200        Raymond James Financial Corp                      287,100
11,000        Rowe (T) Price & Associates Inc                   730,125 
36,145        Travelers Group Inc                             2,015,083 
1,200        Unionbancal Corp                                  111,750
                                                       ---------------
                                                             9,442,421
                                                       ---------------

               See accompanying notes to the financial statements.             1


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                    Value ($)   
--------------------------------------------------------------------------------
Chemicals -- 0.5%                           
6,200        Great Lakes Chemical Corp                         301,475
2,700        Lubrizol Corp                                     104,119
5,800        Morton International Inc                          191,763
1,600        Praxair Inc                                        76,500
1,300        Scherer (RP) Corp *                                79,056
7,600        Wellman Inc                                       163,400
                                                       ---------------
                                                               916,313
                                                       ---------------

Communications -- 0.2%                      
17,000        DSC Communications Corp *                         333,625 
                                                       ---------------

Computer and Office Equipment -- 5.1%       
52,700        Computer Associates International Inc           2,483,487 
58,200        EMC Corp                                        2,226,149 
17,700        Gateway 2000 Inc                                  778,800 
21,400        HBO & Co                                        1,158,275 
29,000        Hewlett Packard Co                              1,942,999 
10,400        Lexmark International Group Inc *                 444,600 
12,100        Micron Technology Inc *                           401,569 
7,100        Quantum Corp                                      178,388
29,400        Silicon Graphics Inc *                            442,838 
4,700        Stratus Computer Inc *                            235,881
                                                       ---------------
                                                            10,292,986
                                                       ---------------

Construction -- 2.6%                        
  400        Centex Corp                                        29,225
76,000        Home Depot Inc                                  4,849,749 
3,500        Lowes Co Inc                                      204,531
4,900        McDermott International Inc                       192,938
                                                       ---------------
                                                             5,276,443
                                                       ---------------

Consumer Goods -- 4.6%                      
  642        Block Drug Co Inc, Class A                         27,044
11,900        Colgate-Palmolive Co                              966,131 
2,800        Department 56 Inc *                                92,225
11,100        Eastman Kodak Co                                  728,438 
1,300        First Brands Corp                                  33,475

2              See accompanying notes to the financial statements.              


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares            Description                                    Value ($)    
--------------------------------------------------------------------------------
Consumer Goods -- continued               
 10,200        Fortune Brands Inc                                404,813
  5,700        Hasbro Inc                                        206,981
  1,700        Johnson Controls                                   94,456
  9,300        Jones Apparel Group Inc *                         511,500
  5,800        Kohls Corp *                                      465,088
  6,000        Lancaster Colony Corp                             264,000
 32,800        Mattel Co                                       1,387,849
  3,500        Maytag Corp                                       157,500
  7,300        Miller Herman Inc                                 447,125
  7,800        Newell Co                                         357,825
  1,000        Nine West Group Inc *                              27,500
 18,000        Procter and Gamble Co                           1,528,874
  5,000        Reebok International Ltd *                        155,938
  3,700        Russell Corp                                      100,363
 10,700        Sunbeam Corp                                      442,713
  5,300        Terra Industries Inc                               62,938
  6,600        Unifi Inc                                         242,550
 13,200        VF Corp                                           629,475
    500        Wallace Computer Services                          18,188
                                                          --------------
                                                               9,352,989
                                                          --------------

Electronic Equipment -- 4.0%              
 13,100        Cypress Semiconductor Corp *                      123,631
  6,400        Dallas Semiconductor Corp                         304,000
    900        Integrated Device Technology Inc *                 13,556
 11,900        Linear Technology Corp                            901,425
  3,000        Litton Industries *                               186,750
 20,100        Maxim Integrated Products Inc                     811,538
  2,300        Microchip Technology Inc *                         55,631
  5,750        Molex Inc                                         173,938
 52,100        Motorola Inc                                    2,904,574
 18,100        Raytheon Co, Class B                            1,064,506
 10,400        Read Rite Corp *                                  148,200
 21,100        Texas Instruments                               1,221,163
  2,300        Vicor Corp *                                       64,975
  3,900        Vishay Intertechnology Inc                         79,463
                                                          --------------
                                                               8,053,350
                                                          --------------

Environmental Control -- 0.1%             
 14,400        Wheelabrator Technology Inc                       234,900
                                                          --------------

              See accompanying notes to the financial statements.              3


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares          Description                                    Value ($)  
--------------------------------------------------------------------------------
Food and Beverage -- 4.0%                 
 3,000        Anheuser Busch Cos Inc                           140,625
 4,800        Bestfoods                                        505,800
48,900        Coca Cola Co                                   3,358,818
32,800        Coca Cola Enterprises Inc                      1,084,450
 2,200        Dean Foods Co                                    121,000
 8,300        IBP Inc                                          185,194
 2,400        Kellogg Co                                       102,300
12,500        McDonald's Corp                                  684,375
 5,500        Pepsico Inc                                      201,094
   300        Quality Food Centers Inc *                        25,088
 8,300        Sara Lee Corp                                    468,950
 4,500        Smithfield Foods Inc                             142,313
11,200        Sysco Corp                                       527,100
 1,900        Tootsie Roll Industries Inc                      141,788
 6,000        Unilever NV ADR                                  385,875
 6,700        Whitman Corp                                     119,344
                                                          ------------
                                                             8,194,114
                                                          ------------

Health Care -- 8.4%                       
 5,500        Bard (CR)                                        191,813
 2,400        Beckman Instruments Inc                          116,100
 3,200        Becton Dickinson & Co                            203,600
22,800        BioMet Inc                                       679,725
 8,300        Boston Scientific Corp *                         495,925
   350        Cardinal Health Inc                               28,656
58,200        Columbia HCA Healthcare Corp                   1,578,674
 4,400        Forest Laboratories Inc *                        275,275
 7,400        Health Care & Retirement *                       324,675
 1,800        Health Management Associates Inc                  50,063
 2,400        Hillenbrand Industries Inc                       134,850
72,400        Johnson & Johnson                              5,466,199
 4,100        Laboratory Corporation of America Holdings         7,944
 6,500        Lincare Holdings Inc *                           421,890
 8,400        Mallinckrodt Inc                                 326,025
 1,900        Marquette Medical Systems, Class A *              52,250
11,800        McKesson Corp                                    615,075
57,000        Medtronic Inc                                  3,028,124
 6,800        Novacare Corp *                                   95,200
 9,200        Paragon Health Network Inc                       171,350
 9,100        Perrigo Co *                                      97,825

4             See accompanying notes to the financial statements.               


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares          Description                                    Value ($)  
--------------------------------------------------------------------------------
Health Care -- continued                  
 3,100        Safeskin Corp *                                  190,263
 5,900        Sofamor Denek Group Inc *                        443,975
 9,000        Steris Corp *                                    532,688
 4,200        Stryker Corp                                     171,938
 4,100        Universal Health Services, Class B *             214,225
17,700        Wellpoint Health Network *                     1,034,344
                                                          ------------
                                                            16,948,671
                                                          ------------
Insurance -- 3.6%                         
 3,100        Aetna Life and Casualty Co                       270,863
   100        AFLAC Corp                                         6,144
 3,500        AMBAC Inc                                        186,375
 1,800        American Bankers Insurance Group                 101,250
   500        American International Group Inc                  60,094
 1,600        American National Insurance Co                   155,200
   100        CNA Financial Corp *                              14,394
21,601        Conseco Inc                                    1,013,899
 9,400        Foundation Health Systems Inc, Class A *         260,263
 2,000        Fremont General Corp                             117,375
 2,400        Horace Mann Educators Corp                        85,200
 8,900        Loews Corp                                       892,781
 7,200        MBIA Inc                                         526,950
 3,400        Mercury General Corp                             192,950
 1,400        Ohio Casualty Corp                                65,450
 2,900        Orion Capital Corp                               141,556
 7,100        Progressive Corp                                 822,713
 9,900        Reliastar Financial Corp                         470,869
 3,000        Safeco Corp                                      157,313
11,400        Saint Paul Cos Inc                             1,010,325
11,000        Torchmark Corp                                   512,188
 3,400        Transatlantic Holding Inc                        257,125
                                                          ------------
                                                             7,321,277
                                                          ------------
Machinery -- 1.4%                         
64,800        Applied Materials Inc                          2,385,449
 5,400        Donaldson Co Inc                                 128,588
 5,100        Kaydon Corp                                      189,656
 1,600        Lam Research Corp *                               45,400
 1,000        Novellus System Inc                               47,938
 3,800        Oakley Inc *                                      45,838
                                                          ------------
                                                             2,842,869
                                                          ------------

              See accompanying notes to the financial statements.              5


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                    Value ($)   
--------------------------------------------------------------------------------
Manufacturing -- 2.4%                       
8,800        American Greetings Corp                           401,500
11,700        Clayton Homes Inc                                 232,538 
3,300        Crane Co                                          161,700
10,946        Gillette Co                                     1,180,800 
20,100        International Game Technology                     487,425 
7,100        Leggett & Platt Inc                               356,331
14,000        Owens Illinois Inc *                              537,250 
5,600        Trinity Industries Inc                            281,400
24,200        Tyco International Ltd                          1,228,150 
                                                       ---------------
                                                             4,867,094
                                                       ---------------

Metals and Mining -- 0.1%                   
8,300        Timken Co                                         267,675
                                                       ---------------

Oil and Gas -- 2.3%                         
18,600        Atlantic Richfield Co                           1,446,149 
4,200        BJ Services Co                                    144,375
  100        FINA Inc, Class A                                   6,325
3,400        Occidental Petroleum Corp                          86,913
2,300        Pennzoil Co                                       153,956
5,900        Santa Fe Energy Resources Inc                      66,006
14,600        Schlumberger Ltd                                1,100,475 
20,900        Union Pacific Resources Group                     467,638 
4,200        Union Texas Petroleum Holdings Inc                 84,788
32,600        USX - Marathon Group                            1,126,738 
  400        Williams Co Inc                                    13,075
                                                       ---------------
                                                             4,696,438
                                                       ---------------

Paper and Allied Products -- 0.1%           
4,500        Sonoco Products Co                                174,094
                                                       ---------------

Pharmaceuticals -- 6.9%                     
68,604        Abbott Laboratories                             5,132,436 
  200        Barr Laboratories Inc                               6,800
4,925        Bergen Brunswig Corp, Class A                     221,625
2,500        Bristol Myers Squibb Co                           250,469
7,700        ICN Pharmaceuticals Inc                           444,675
11,900        Immnunex Corp *                                   703,588 
3,630        Mark IV Industries Inc                             84,398

6             See accompanying notes to the financial statements.               


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                    Value ($)   
--------------------------------------------------------------------------------
Pharmaceuticals -- continued                
8,800        Merck & Co Inc                                  1,122,550
15,200        Mylan Laboratories Inc                            309,700 
25,612        Pfizer Inc                                      2,266,661 
4,900        Rexall Sundown Inc                                181,300
13,700        Schering Plough Corp                            1,042,056 
  500        Sigma-Aldrich Corp                                 19,750
9,400        Warner Lambert Co                               1,374,749
21,100        Watson Pharmaceutical Inc                         756,963 
                                                       ---------------
                                                            13,917,720
                                                       ---------------

Primary Materials -- 0.3%                   
6,600        Rubbermaid Inc                                    191,400
6,800        Tupperware Corp                                   182,750
2,000        Vulcan Materials Co                               201,250
                                                       ---------------
                                                               575,400
                                                       ---------------

Printing and Publishing -- 0.2%             
2,300        AH Belo Corp                                      125,925
1,100        Central Newspapers, Class A                        78,581
  600        Washington Post Co, Class B                       296,100
                                                       ---------------
                                                               500,606
                                                       ---------------

Real Estate -- 0.0%                         
1,500        Lennar Corp                                        41,906
1,400        Newhall Land & Farming Co                          45,238
                                                       ---------------
                                                                87,144
                                                       ---------------

Refining -- 0.3%                            
9,900        Sun Co Inc                                        395,381
6,000        Valero Energy Corp                                213,000
                                                       ---------------
                                                               608,381
                                                       ---------------

Retail Trade -- 9.5%                        
27,800        Albertsons Inc                                  1,301,387 
10,200        American Stores Co                                256,913 
18,300        Autozone Inc *                                    553,575 
9,300        Barnes & Noble Inc                                326,663
2,700        Best Buy Co Inc *                                 160,988
  500        Blair Corp                                         10,688
2,700        Burlington Coat Factory Warehouse                  41,006
5,600        CKE Restaurants Inc                               237,650
11,887        Consolidated Stores Corp                          488,853 

              See accompanying notes to the financial statements.              7


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                    Value ($)   
--------------------------------------------------------------------------------

Retail Trade -- continued                   
19,200        Costco Cos Inc *                                   938,400
   700        Dayton Hudson Corp                                  54,119
11,900        Dillards Department Stores Inc                     423,938
18,618        Dollar General Corp                                858,755
 2,500        Family Dollar Stores Inc                            89,063
18,400        Food Products Lion Inc                             181,700
 3,670        Fred Meyer Inc                                     163,086
40,400        Gap Inc                                          1,805,374
15,100        General Nutrition Cos Inc *                        600,225
 2,000        Hannaford Brothers Co                               84,375
 2,500        Kmart Corp *                                        33,438
 3,400        Kroger Co                                          143,650
   700        Lands End Inc *                                     27,563
28,500        Limited Inc                                        826,500
 1,300        Nordstrom Inc                                       74,547
14,700        Office Depot *                                     404,250
 8,600        Outback Steakhouse Inc *                           307,450
 2,600        Pier 1 Imports Inc                                  69,550
11,400        Rite Aid Corp                                      369,075
30,726        Safeway Inc                                      1,071,569
   800        Stanhome Inc                                        23,100
13,300        Tandy Corp                                         591,850
25,100        Toys R Us Inc *                                    658,875
 1,800        Value City Department Stores Inc *                  20,025
125,400        Wal Mart Stores Inc                              5,807,587 
 6,000        Whole Foods Market Inc *                           367,125
                                                          --------------
                                                              19,372,912
                                                          --------------

Services -- 4.4%                            
   600        BHC Communications Inc, Class A                     82,800
36,600        Cendant Corp *                                   1,372,499
 3,800        Cintas Corp                                        161,500
 1,000        Circus Circus Enterprises Inc *                     22,000
 6,300        Clear Channel Communications Inc *                 570,938
27,601        Disney Walt Co                                   3,089,490
 3,300        Fleming Cos Inc                                     58,781
13,100        Halliburton Company                                609,150
16,100        Harrahs Entertainment Inc *                        339,106
   600        Kingworld Productions Inc                           16,013
 6,500        Oakwood Homes Corp                                 257,563

8             See accompanying notes to the financial statements.               


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                    Value ($)   
--------------------------------------------------------------------------------

Services -- continued                       
4,400        Omnicom Group                                     201,300
3,000        Paychex Inc                                       154,875
7,750        Robert Half International Inc                     350,688
8,750        Servicemaster Company                             237,344
8,600        Supervalu Inc                                     409,575
7,800        United Video Satellite Group Inc *                288,600
30,400        Waste Management Inc                              760,000 
                                                        --------------
                                                             8,982,222
                                                        --------------

Technology -- 19.9%                         
19,700        Adobe Systems Inc                                 870,494 
16,500        Advanced Micro Devices Inc *                      386,719 
19,800        America Online Inc *                            2,398,274 
4,600        Autodesk Inc                                      217,925
17,900        Automatic Data Processing Inc                   1,093,019 
4,100        Avnet Inc                                         261,375
64,000        Bay Networks Inc *                              2,167,999 
9,100        BMC Software Inc *                                696,150
3,700        Ceridian Corp *                                   172,281
5,700        Cognex Corp *                                     137,156
179,400        Compaq Computer Corp                            5,752,012  
3,400        Computer Horizons Corp                            177,438
5,700        Computer Sciences Corp *                          596,719
26,600        Compuware Corp                                  1,120,525 
18,500        Dell Computer Corp                              2,587,687 
3,500        Fiserv Inc *                                      191,625
5,300        Grainger (WW) Inc                                 513,106
89,100        Intel Corp                                      7,991,155 
7,700        Intuit Inc *                                      358,050
4,800        Keane Inc                                         223,200
11,400        KLA Instruments Corp *                            526,181 
120,600        Microsoft Corp                                 10,220,849  
13,600        Platinum Technology Inc *                         345,100 
5,200        Policy Management System Corp *                   376,350
2,400        Seagate Technology Corp *                          58,350
5,000        Storage Technology Corp *                         341,250
9,700        Symantec *                                        244,319
9,600        Teradyne Inc *                                    453,000
                                                        --------------
                                                            40,478,308
                                                        --------------

              See accompanying notes to the financial statements.              9


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                    Value ($)   
--------------------------------------------------------------------------------

Telecommunications -- 5.0%                  
   19,000        Airtouch Communications Inc *                         853,813
   37,800        AT & T Corp                                         2,301,074
    2,200        Bell Atlantic Corp                                    197,450
    4,900        Century Telephone Enterprises Inc                     298,900
   27,400        MCI Communications Corp                             1,310,062
    9,400        Mobile Telecommunications Technologies Corp *         211,500
   29,700        Nextel Communications Inc, Class A *                  878,006
    5,200        Southern New England Telecommunications Corp          328,250
   16,400        Sprint Corp                                         1,082,400
      700        TCA Cable TV Inc                                       34,475
      900        Telephone Data System                                  39,206
    4,100        United States Cellular Corp *                         123,769
   12,800        US West Inc                                           666,400
    2,300        Viacom Inc, Class B *                                 110,400
   42,700        Worldcom Inc *                                      1,630,605
                                                                --------------
                                                                    10,066,310
                                                                --------------

Tobacco -- 2.1%                             
   97,584        Philip Morris Cos Inc                               4,238,804
                                                                --------------

Transportation -- 1.5%                      
    4,800        Airborne Freight Corp                                 173,700
   12,500        Burlington Northern Santa Fe Railroad Co            1,245,312
    6,600        Comair Holdings Inc                                   175,725
   13,000        CSX Corp                                              727,188
    4,400        FDX Corp *                                            280,225
    1,600        Gatx Corp                                             124,000
    6,700        Kansas City Southern Industries                       249,156
    2,900        Southwest Airlines Co                                  83,194
                                                                --------------
                                                                     3,058,500
                                                                 ---------------

Utilities -- 0.1%                           
    6,851        Citizens Utilities, Class B                            64,228
    1,100        Coastal Corp                                           69,988
    1,800        MCN Corp                                               66,263
      600        Natural Gas Clearinghouse                               9,300
                                                                --------------
                                                                       209,779
                                                                --------------

                 TOTAL COMMON STOCKS (COST $147,623,524)           194,284,115
                                                                --------------

10            See accompanying notes to the financial statements.               


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Par Value ($)/                                                                
  Shares     Description                                         Value ($)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 12.1%                 

Cash Equivalents -- 6.4%                        
$ 3,880,310    BankBoston Eurodollar Time Deposit, 5.7875%                    
              due 3/2/98/(a)/                                      3,880,310
$   615,162    First Union National Bank of North Carolina                    
              Eurodollar Time Deposit, 5.6250% due 3/2/98/(a)/       615,162
 3,475,665    Merrimac Cash Fund Premium Class/(a)/                3,475,665
$ 5,000,000    Prudential Securities Group Inc, Master Note,                  
              5.8875% due 3/2/98/(a)/                              5,000,000
                                                             ---------------
                                                                  12,971,137
                                                             ---------------

U.S. Government -- 0.2%                         
$   400,000    U.S. Treasury Bill 5.165% due 5/28/98/(b)/             394,992 
                                                             ---------------

Repurchase Agreements -- 5.5%                   
$10,295,052    Salomon Smith Barney Inc. Repurchase Agreement,                
dated 2/27/98, due 3/2/98, with a maturity      
value of $10,299,401 and an effective yield of  
5.07%, collateralized by a U.S. Treasury        
Obligation with a rate of 8.875%, with a        
maturity date of 8/15/17 and with a market      
              value of $10,500,953.                               10,295,052
$   931,831    Prudential Securities Inc. Repurchase Agreement,               
dated 2/27/98, due 3/2/98, with a maturity value
of $932,225 and an effective yield 5.07%,       
collateralized by a U.S. Government Agency      
Obligation with a rate of 8.50%, with a         
maturity date of 10/01/26 and with a market     
              value of $950,472.                                     931,831
                                                             ---------------
                                                                  11,226,882
                                                             ---------------

TOTAL SHORT-TERM INVESTMENTS  (COST             
              $24,592,912)                                        24,593,012
                                                             ---------------

TOTAL INVESTMENTS -- 107.9%                     
              (COST $172,216,436)                                218,877,127

               Other Assets and Liabilities (net)--(7.9)%         (15,953,633)
                                                             ---------------

              TOTAL NET ASSETS-- 100%                        $   202,923,494
                                                             ===============

Notes to the Schedule of Investments:           

ADR - American Depositary Receipt               
* Non-income producing security.                    
          /(a)/Represents investments of security lending collateral (Note 1).
       /(b)/Security has been segregated to cover margin requirements on
open financial futures contracts.               

              See accompanying notes to the financial statements.             11


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                       
Assets:                                                                                
  Investments, at value (cost $172,216,436) (Note 1)                      $ 218,877,127
  Receivable for investments sold                                             4,623,570
  Dividends and interest receivable                                             127,030
  Receivable for expenses waived or borne by Manager (Note 2)                    30,895
                                                                          -------------

      Total assets                                                          223,658,622
                                                                          -------------

Liabilities:                                                                           
  Payable for investments purchased                                           4,194,233
  Payable upon return of securities loaned (Note 1)                          12,971,137
  Payable for Fund shares repurchased                                         2,199,153
  Payable to affiliate for (Note 2):                                                   
     Management fee                                                              76,921
     Shareholder service fee                                                     22,662
  Payable for open swap contracts (Note 1 and 6)                              1,216,499
  Payable for variation margin on open futures contracts (Notes 1 and 6)         11,100
  Accrued expenses                                                               43,423
                                                                          -------------

      Total liabilities                                                      20,735,128
                                                                          -------------

Net assets                                                                $ 202,923,494
                                                                          =============

Net assets consist of:                                                                 
  Paid-in capital                                                         $ 144,425,100
  Accumulated undistributed net investment income                               122,883
  Accumulated undistributed net realized gain                                12,599,278
  Net unrealized appreciation                                                45,776,233
                                                                          -------------
                                                                          $ 202,923,494
                                                                          =============

Net assets attributable to:                                                            
  Class III shares                                                        $ 202,923,494
                                                                          =============

Shares outstanding:                                                                    
  Class III                                                                  46,341,959
                                                                          =============

Net asset value per share:                                                             
  Class III                                                               $        4.38
                                                                          =============

12            See accompanying notes to the financial statements.               


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
   Dividends                                                     $   1,791,632
   Interest (including securities lending income of $27,282)           777,966
                                                                 -------------

        Total income                                                 2,569,598
                                                                 -------------

Expenses:                                                                       
   Management fee (Note 2)                                           1,008,998
   Custodian and transfer agent fees                                    72,661
   Audit fees                                                           35,364
   Registration fees                                                     6,654
   Legal fees                                                            2,836
   Trustees fees (Note 2)                                                1,809
   Miscellaneous                                                         1,085
    Fees waived or borne by Manager (Note 2)                           (463,468)
                                                                 -------------
                                                                       665,939
Shareholder service fee (Note 2)                                        
        Class III                                                      302,285
                                                                 -------------
        Net expenses                                                   968,224
                                                                 -------------

             Net investment income                                   1,601,374
                                                                 -------------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                            
        Investments                                                 40,050,840
        Closed futures contracts                                     2,204,589
         Closed swap contracts                                       (1,894,000)
                                                                 -------------

             Net realized gain                                      40,361,429
                                                                 -------------

Change in net unrealized appreciation (depreciation) on:                
        Investments                                                 19,047,186
        Open futures contracts                                         639,886
        Open swap contracts                                            433,022
                                                                 -------------

             Net unrealized gain                                    20,120,094
                                                                 -------------

        Net realized and unrealized gain                            60,481,523
                                                                 -------------

Net increase in net assets resulting from operations              $  62,082,897 
                                                                 =============

              See accompanying notes to the financial statements.             13


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                        Year Ended          Year Ended   
                                                                     February 28, 1998  February 28, 1997
                                                                     -----------------  -----------------
                                                                                                         
Increase (decrease) in net assets:                                                                       
Operations:                                                                                              
    Net investment income                                             $     1,601,374   $      3,964,241 
    Net realized gain                                                      40,361,429        108,934,644 
    Change in net unrealized appreciation (depreciation)                   20,120,094        (50,479,915)
                                                                      ----------------  -----------------

    Net increase in net assets resulting from operations                   62,082,897         62,418,970 
                                                                      ----------------  -----------------

Distributions to shareholders from:                                                                      
    Net investment income                                                                                
         Class III                                                         (2,146,620)        (4,363,604)
                                                                      ----------------  -----------------
    Net realized gains                                                                                   
         Class III                                                        (80,215,172)       (77,849,380)
                                                                      ----------------  -----------------

                                                                          (82,361,792)       (82,212,984)
                                                                      ----------------  -----------------
    Net share transactions: (Note 5)                                                                     
         Class III                                                        (20,981,043)      (127,388,467)
                                                                      ----------------  -----------------
    Decrease in net assets resulting from net share transactions          (20,981,043)      (127,388,467)
                                                                      ----------------  -----------------

        Total decrease in net assets                                      (41,259,938)      (147,182,481)

Net assets:                                                                                              
    Beginning of period                                                   244,183,432        391,365,913 
                                                                      ----------------  -----------------

    End of period (including accumulated undistributed net investment                                    
        income of $122,883 and $668,129, respectively)                $   202,923,494   $    244,183,432 
                                                                      ================  =================

14            See accompanying notes to the financial statements.               


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                       Year Ended February 28/29,                     
                                      -------------------------------------------------------------   
                                        1998         1997         1996          1995         1994     
                                      --------     --------     --------      --------     --------   
                                                                                                      
Net asset value, beginning of period  $   5.18     $   5.65     $   4.45      $   4.14     $   4.55   
                                      --------     --------     --------      --------     --------   

Income from investment operations:                                                                    
    Net investment income                 0.04         0.07         0.08          0.06         0.06   
    Net realized and unrealized gain      1.41         1.03         1.54          0.38         0.11   
                                      --------     --------     --------      --------     --------   

        Total from investment                                                                         
        operations                        1.45         1.10         1.62          0.44         0.17   
                                      --------     --------     --------      --------     --------   

Less distributions to shareholders:                                                                   
    From net investment income           (0.06)       (0.08)       (0.07)        (0.06)       (0.06)  
    From net realized gains              (2.19)       (1.49)       (0.35)        (0.07)       (0.52)  
                                      --------     --------     --------      --------     --------   

        Total distributions              (2.25)       (1.57)       (0.42)        (0.13)       (0.58)  
                                      --------     --------     --------      --------     --------   
Net asset value, end of period        $   4.38     $   5.18     $   5.65      $   4.45     $   4.14   
                                      ========     ========     ========      ========     ========   

Total Return/(a)/                        36.37%       21.64%       37.77%        10.86%        4.13%  

Ratios/Supplemental Data:                                                                             
    Net assets, end of period                                                                         
        (000's)                       $202,923     $244,183     $391,366      $239,006     $230,698   
    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                  0.79%        1.21%        1.54%         1.50%        1.38%  
    Portfolio turnover rate                 60%         100%          76%          139%          57%  
    Average broker commission rate                                                                    
        per equity share/(c)/         $ 0.0263     $ 0.0281          N/A           N/A          N/A   
    Fees and expenses voluntarily                                                                     
        waived or borne by the                                                                        
        Manager consisted of the                                                                      
        following per share amounts:  $   0.01     $   0.01             (b)           (b)          (b)

(a) Calculation excludes purchase premiums. The total returns would have been   
lower had certain expenses not been waived during the periods shown.    
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per   
share.                                                                  
(c) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.                                          

              See accompanying notes to the financial statements.             15


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.    Significant accounting policies                                           

    GMO Growth Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
    Fund is registered under the Investment Company Act of 1940, as amended,
      as an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the  
      "Manager" or "GMO"). The Trust was established as a Massachusetts Business
 Trust under the laws of the Commonwealth of Massachusetts on June 24,
      1985. The Declaration of Trust permits the Trustees to create an unlimited
 number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series into classes.                     

The Fund seeks long-term growth of capital through investment of    
     substantially all of its assets in common stocks chosen from the Wilshire
      5000 Index and primarily in the equity securities of companies chosen from
  among the 1,200 companies with the largest equity capitalization whose
  securities are listed on a United States national securities exchange.

      On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the 
  classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus. Class
    III shares are the continuation of the Trust's shares that existed prior
  to June 1, 1996, and bear the same total operating expenses (after the
 voluntary expense waiver) as those shares. Effective January 9, 1998,
Class I and Class II shares ceased to offered.                      

      The following is a summary of significant accounting policies which are in
  conformity with generally accepted accounting principles and which are
 consistently followed by the Fund in the preparation of its financial
      statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
  business day, or if there is no such reported sale, 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 market value. Other assets and
  securities for which no quotations are readily available are valued at
fair value as determined in good faith by the Trustees.             

Futures contracts                                                   
  The Fund may purchase and sell futures contracts on the domestic stock
   indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
     securities at a specified price at a given date. The Fund may use futures
 contracts to manage its exposure to the stock 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.                                                                

16                                                                              


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

     government obligations in accordance with the initial margin requirements
   of the broker or exchange. Futures contracts are marked to market daily
and an appropriate payable or receivable for the change in value    
      ("variation margin") is recorded by the Fund. The payable or receivable is
    liquidated on the following business day. Gains or losses are recognized
 but not considered realized until the contracts expire or are closed.
    Futures contracts involve, to varying degrees, risk of loss in excess of
      the variation margin disclosed in the Statement of Assets and Liabilities.
    Losses may arise from changes in the value of the underlying instrument,
if there is an illiquid secondary market for the contracts, or if   
     counterparties do not perform under the contract terms. Futures contracts
   are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open 
futures contracts as of February 28, 1998.                          

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, realization of collateral by the Fund may be delayed or
limited.                                                            

Security lending                                                    
    The Fund may lend its securities to certain qualified brokers. The loans
 are collateralized at all times with cash or securities with a market
  value at least equal to the market value of the securities on loan. As
   with other extensions of credit, the Fund may bear the risk of delay in
    recovery or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund receives compensation for 
    lending its securities. At February 28, 1998, the Fund loaned securities
      having a market value of $12,535,438, collateralized by cash in the amount
of $12,971,137, which was invested in short-term instruments.       

Swap agreements                                                     
 The Fund may enter into swap agreements to manage its exposure to the
      equity markets. A swap is an agreement to exchange the return generated by
   one instrument for the return generated by another instrument. The Fund
      enters into equity swap agreements which involve a commitment by one party
   in the agreement to pay interest in exchange for a market linked return
  based on a notional amount. To the extent that 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. Equity swaps are
   marked to market daily based upon quotations from market makers and the
      change, if any, is recorded as unrealized gain or loss in the Statement of
      Operations. Payments received or made at the end of the measurement period
 are recorded as realized gain or loss in the Statement of Operations.
    Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the   
   Statement of Assets and Liabilities. Such risks involve the possibility
that there is no liquid market for these                            

                                                                              17


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

  agreements, that the counterparty to the agreements may default on its
  obligation to perform, or that there may be unfavorable changes in the
    price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of February 28, 1998.  

Taxes                                                               
   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
     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 federal income
     tax purposes. Therefore, no provision for 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.    

Distributions to shareholders                                       
     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 will be paid in shares of the
   Fund, at net asset value, unless the shareholder elects to receive cash
   distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                     

 Income distributions and capital gain distributions are determined in
  accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial  
statements as a return of capital. Differences in the recognition or
   classification of income for financial statement and tax purposes which
   result in temporary over-distributions for financial statement purposes
 are classified as distributions in excess of net investment income or
accumulated net realized gains.                                     

Security transactions and related investment income                 
     Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
 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                                                                              


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Purchases and redemptions of Fund shares                            
The premium on cash purchases of Fund shares is .14 % of the amount 
      invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
      the amount invested. All purchase premiums are paid to and recorded by the
      Fund as paid-in capital. This fee is allocated relative to each class' net
    assets on the share transaction date. Purchased premiums are included as
    part of each class' "shares sold", as summarized in Note 5. For the year
   ended February 28, 1998, the Fund received $1,573 in purchase premiums.
 There is no premium for cash redemptions, reinvested distributions or
in-kind transactions.                                               

2.    Fees and other transactions with affiliates                               

 GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.                                          

      GMO has agreed to waive a portion of its fee and bear other expenses until
   further notice to the extent that the Fund's annual expenses (including
 the management fee but excluding brokerage commissions, certain other
      transaction costs (including transfer taxes), shareholder service fees and
     extraordinary expenses) exceed .33% of average daily net assets. Prior to
      June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III 
shareholder is unchanged.                                           

The Fund's portion of the fee paid by the Trust to the unaffiliated 
Trustees during the year ended February 28, 1998 was $1,809. No     
     remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                            

3.    Purchases and sales of securities                                         

Cost of purchases and proceeds from sales of securities, excluding  
    short-term investments, for the year ended February 28, 1998, aggregated
$112,561,762 and $200,103,804, respectively.                        

    At February 28, 1998, the cost for Federal income tax purposes and gross
      unrealized appreciation and depreciation in value of investments held were
as follows:                                                         

                       Gross Unrealized   Gross Unrealized    Net Unrealized
    Aggregate Cost      Appreciation       Depreciation       Appreciation
      ---------------- ------------------ ------------------ -----------------
     $172,442,027       $50,083,865         $3,648,765         $46,435,100

                                                                              19


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

4.    Principal shareholders                                                    

  At February 28, 1998, 75.8% of the outstanding shares of the Fund were
   held by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.                                                 

5.    Share transactions                                                        

      The Declaration of Trust permits the Trustees to issue an unlimited number
      of shares of beneficial interest (without par value). Transactions in Fund
 shares, including the purchase premiums received by the Fund, were as
follows:                                                            

                                                        [Enlarge/Download Table]

                                        Year Ended                     Year Ended            
Class III:                           February 28, 1998              February 28, 1997        
                               -----------------------------  ------------------------------ 
                                  Shares          Amount          Shares           Amount    
                               ------------   --------------  --------------   ------------- 
                                                                                             
Shares sold                        273,096    $   1,305,596       2,041,337    $  11,235,177 
Shares issued to shareholders                                                                
   in reinvestment of                                                                        
   distributions                19,976,847       82,093,391      15,334,132       78,162,104 
Shares repurchased             (21,043,724)    (104,380,030)    (39,536,755)    (216,785,748)
                               ------------   --------------  --------------   ------------- 
Net decrease                      (793,781)   $ (20,981,043)    (22,161,286)   $(127,388,467)
                               ============   ==============  ==============   ============= 

6.    Financial instruments                                                     

     A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                            

Long futures contracts                                              

  Number of                                                 Net Unrealized
 Contracts     Type     Expiration Date   Contract Value    Appreciation
  ------------ --------- ----------------- ---------------- ----------------
  26        S&P 500     March 1998        $ 6,828,250      $ 332,041
                                                            ================

   At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.          

20                                                                              


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


 Swap agreements                                                                                                

   Notional Amount      Expiration                                                              Net Unrealized  
  Fund/Counterparty        Date                            Description                           Depreciation   
---------------------- ------------- --------------------------------------------------------- ---------------- 
                                                                                                                
$    10,828,600/         6/26/98     Agreement with Morgan Stanley Capital Services, Inc.           $(261,703)  
     10,940,039                      dated 6/23/97 to pay (receive) the notional amount                         
                                     multiplied by the return on the Standard & Poor's 500                      
                                     Index (including dividends) less the notional amount                       
                                     multiplied by 6 month LIBOR adjusted by a specified                        
                                     spread and to receive (pay) the counterparty's                             
                                     notional amount multiplied by the return on the                            
                                     Russell 2000 Index (including dividends) less the                          
                                     notional amount multiplied by 6 month LIBOR adjusted                       
                                     by a specific spread.                                                      

     12,199,513/         9/19/98     Agreement with Morgan Stanley Capital Services, Inc.            (954,796)  
     11,355,830                      dated 9/16/97 to pay (receive) the notional amount                         
                                     multiplied by the return on the Standard & Poor's                          
                                     500 Index (including dividends) less the notional                          
                                     amount multiplied by 6 month LIBOR adjusted by a                           
                                     specified spread and to receive (pay) the                                  
                                     counterparty's notional amount multiplied by the                           
                                     return on the Russell 2000 Index (including                                
                                     dividends) less the notional amount multiplied by 6                        
                                     month LIBOR adjusted by a specified spread.                                

                                                                                               -----------------
                                                Net unrealized depreciation                       $(1,216,499)  
                                                                                               =================


                                                                              21


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's      
     distributions are from investment company taxable income, except that the
      Fund has designated 72.93% of distributions as net capital gain dividends.

22                                                                              


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GMO Growth Fund                                                                 
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily    
      responsible for the day-to-day management of the Fund's portfolio. Each of
 these individuals has been a portfolio manager at Grantham, Mayo, Van
Otterloo & Co. LLC for more than fifteen years.                     

Management Discussion and Analysis of Fund Performance                          

     The Class III shares of the GMO Growth Fund returned 36.4% for the fiscal
  year ended February 28, 1998, as compared to 35.0% for the S&P 500 and
36.0% for the Russell 1000 Growth Index. Consistent with the Fund's 
      investment objectives and policies, the Fund was invested substantially in
common stocks throughout the period.                                

      Performance of the Fund was strong, both on an absolute basis and relative
    to the Russell 1000 Growth benchmark. Contributing to strong performance
    was the Fund's overweight of technology stocks. Technology stocks in the
    Index, buoyed by good earnings growth, rose nearly 40% during the fiscal
year. Our technology stock holdings, which included Dell and Compaq,
produced exceptionally good returns for the Fund.                   

A second sector in which the Fund was overweighted was consumer     
discretionary stocks, including retailers. Strong consumer spending,
     encouraged by low unemployment and a good economy, propelled these stocks
  to gains of more than 40%. Our stock selection within this sector also
contributed positively to Fund performance.                         

    The Fund also maintained a modest overweight in financial service stocks
      for most of the fiscal year. These stocks rose sharply (up 47%) due to the
     declining interest rate environment and takeover activity. Our holding of
Dean Witter Discover produced strong returns for the Fund during the
     fiscal year. On the other hand, our underweight of health care issues had
   a negative impact on performance. These stocks were among the strongest
     performing stocks in the Russell 1000 Growth Index, up 43% for the fiscal
year.                                                               

For the current fiscal year, we are maintaining positions in the    
  technology, consumer discretionary and services and financial sectors.
 Because health care stocks continue to look overvalued by most of our
   measures, the stocks are underweighted in the portfolio relative to the
benchmark. We are also emphasizing medium-sized companies within the
    portfolio, as the largest stocks look expensive to us. Last, the Fund is
   conservatively positioned relative to the benchmark, as demonstrated by
its lower price to book value (5.2 compared to 7.1) and lower       
    price/earnings ratio (22.8 compared to 24.9 for 1998 expected earnings).
    We believe that these characteristics will enable the Fund to do well in
the event of market turbulence in the current fiscal year.          

 The views expressed here are exclusively those of Grantham, Mayo, Van
   Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Growth Fund Class III Shares and the S&P 500 Index  
As of February 28, 1998 

----------------------------------                            
Average Annual Total Return                             
----------------------------------                            
Since       
Inception       
1 Year     5 Year     12/31/88                            
----------------------------------                            
Class                                                                   
III    36.2%      21.4%       20.1%                                   
----------------------------------                            

[LINE GRAPH APPEARS HERE] 

GMO Growth Fund               
        Class III Shares       S & P 500 Index
        ----------------       ---------------

12/31/88                      $9,986                 $10,000                    
2/28/89                     $10,476                 $10,465                   
2/28/90                     $13,130                 $12,443                   
2/28/91                     $16,314                 $14,268                   
2/29/92                     $19,652                 $16,548                   
2/28/93                     $20,380                 $18,312                   
2/28/94                     $21,221                 $19,837                   
2/28/95                     $23,528                 $21,297                   
2/29/96                     $32,415                 $28,688                   
2/28/97                     $39,429                 $36,192                   
2/28/98                     $53,770                 $48,860                   

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 14 bp on the purchase. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Past performance is
not indicative of future performance. Information is unaudited.                 


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of                            
GMO U.S. Sector Fund (A Series of GMO Trust)                                    

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 at February   
28, 1998, the results of its operations for the year then ended, the changes in 
its net assets and the financial highlights for the periods presented, in       
conformity with generally accepted accounting principles. These financial       
statements and financial highlights (hereafter referred to as "financial        
statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian, provide a reasonable    
basis for the opinion expressed above.                                          

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 13, 1998                                                                  


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Par Value ($)/                                                                
   Shares      Description                                           Value ($)
--------------------------------------------------------------------------------

MUTUAL FUNDS -- 99.9%                           
2,322,979      GMO Core Fund (Class III Shares)                     46,436,357
  759,240      GMO REIT Fund (Class III Shares)                      9,809,377
  592,495      GMO Small Cap Growth Fund (Class III Shares)          7,275,840
  393,381      GMO Small Cap Value Fund (Class III Shares)           7,191,012
                                                                   -----------

               TOTAL MUTUAL FUNDS (COST $69,777,889)                70,712,586
                                                                   -----------
COMMON STOCKS -- 0.2%                           

Oil and Gas -- 0.2%                             
    2,100      Pennzoil Co                                             140,945
                                                                   -----------

               TOTAL COMMON STOCKS (COST $160,125)                     140,945
                                                                   -----------
SHORT-TERM INVESTMENTS -- 0.0%                  

Repurchase Agreements -- 0.0%                   
$  14,677      Salomon Smith Barney Inc. Repurchase Agreement,                
dated 2/27/98, due 3/2/98, with a maturity value
of $14,683 and an effective yield of 5.07%,     
 collateralized by a U.S. Treasury Obligation with
 a rate of 8.875%, with a maturity date of 8/15/17
               and with an aggregate market value of $14,970.           14,677
                                                                   -----------

               TOTAL SHORT-TERM INVESTMENTS (COST $14,677)              14,677
                                                                   -----------

TOTAL INVESTMENTS -- 100.1%                     
               (COST $69,952,691)                                   70,868,208

                Other Assets and Liabilities (net) -- (0.1)%            (45,370)
                                                                   -----------

               TOTAL NET ASSETS -- 100%                            $70,822,838
                                                                   ===========

 See accompanying notes to the financial statements.


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

Assets:                                                                         
Investments, at value (cost $69,952,691) (Note 1)              $70,868,208
Dividends and interest receivable                                      543
Receivable for expenses waived or borne by Manager (Note 2)         24,193
                                                               -----------

    Total assets                                                70,892,944
                                                               -----------

Liabilities:                                                                    
Payable to affiliate for (Note 2):                                        
   Management fee                                                   34,095
   Shareholder service fee                                           1,223
Accrued expenses                                                    34,788
                                                               -----------

    Total liabilities                                               70,106
                                                               -----------

Net assets                                                        $70,822,838   
                                                               ===========

Net assets consist of:                                                          
Paid-in capital                                                $64,329,735
Accumulated undistributed net realized gain                      5,577,586
Net unrealized appreciation                                        915,517
                                                               -----------
                                                               $70,822,838
                                                               ===========

Net assets attributable to:                                                     
Class III shares                                               $70,822,838
                                                               ===========

Shares outstanding:                                                             
Class III                                                        8,299,546
                                                               ===========

Net asset value per share:                                                      
Class III                                                      $      8.53
                                                               ===========

2             See accompanying notes to the financial statements.               


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
Dividends from securities and investment company shares                   
   (net of withholding taxes of $178)                            $ 3,916,875
 Interest (including securities lending income of $2,957)            975,176
                                                                 -----------

     Total income                                                  4,892,051
                                                                 -----------

Expenses:                                                                       
 Management fee (Note 2)                                             853,670
 Custodian and transfer agent fees                                    70,577
 Audit fees                                                           28,064
 Legal fees                                                            3,310
 Trustees fees (Note 2)                                                1,635
 Registration fees                                                       617
 Miscellaneous                                                         1,240
  Fees waived or borne by Manager (Note 2)                           (635,351)
                                                                 -----------
                                                                     323,762
Shareholder service fee (Note 2)                                          
     Class I                                                           2,792
     Class III                                                       147,791
                                                                 -----------
     Net expenses                                                    474,345
                                                                 -----------

        Net investment income                                      4,417,706
                                                                 -----------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                              
     Investments                                                  37,412,933
     Closed futures contracts                                      2,520,325
      Closed swap contracts                                          (967,041)
Realized gain distributions from investment                       
        company shares                                            14,793,171
                                                                 -----------

        Net realized gain                                         53,759,388
                                                                 -----------

Change in net unrealized appreciation (depreciation) on:                  
      Investments                                                 (15,355,998)
      Futures contracts                                              (142,015)
     Swap contracts                                                  718,111
                                                                 -----------

         Net unrealized loss                                      (14,779,902)
                                                                 -----------

     Net realized and unrealized gain                             38,979,486
                                                                 -----------

Net increase in net assets resulting from operations               $43,397,192  
                                                                 ===========

              See accompanying notes to the financial statements.              3


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                               Year Ended       Year Ended   
                                                              February 28,       February    
                                                                  1998           28, 1997    
                                                             ---------------  ---------------
                                                                                             
Increase (decrease) in net assets:                                                           
Operations:                                                                                  
   Net investment income                                      $  4,417,706      $ 4,631,135  
   Net realized gain                                            53,759,388       65,670,531  
   Change in net unrealized appreciation (depreciation)        (14,779,902)     (21,085,079) 
                                                              -------------     ------------ 

   Net increase in net assets resulting from operations         43,397,192       49,216,587  
                                                              -------------     ------------ 

Distributions to shareholders from:                                                          
   Net investment income                                                                     
       Class I                                                     (46,918)          (8,397) 
       Class III                                                (5,767,909)      (3,967,362) 
                                                              -------------     ------------ 
       Total distributions from net investment income           (5,814,827)      (3,975,759) 
                                                              -------------     ------------ 
   In excess of net investment income                                                        
       Class I                                                      (1,635)              --  
       Class III                                                  (201,027)              --  
                                                              -------------     ------------ 
       Total distributions in excess of net investment                                       
         income                                                   (202,662)              --  
                                                              -------------     ------------ 
   Net realized gains                                                                        
       Class I                                                    (878,317)         (85,607) 
       Class III                                               (95,593,791)     (51,735,148) 
                                                              -------------     ------------ 
       Total distributions from net realized gains             (96,472,108)     (51,820,755) 
                                                              -------------     ------------ 

                                                              (102,489,597)     (55,796,514) 
                                                              -------------     ------------ 
   Net share transactions: (Note 5)                                                          
       Class I                                                    (661,857)       1,245,516  
       Class III                                               (97,490,425)      22,083,220  
                                                              -------------     ------------ 
   Increase (decrease) in net assets resulting from net                                      
      share transactions                                       (98,152,282)      23,328,736  
                                                              -------------     ------------ 

      Total increase (decrease) in net assets                 (157,244,687)      16,748,809  

Net assets:                                                                                  
   Beginning of period                                         228,067,525      211,318,716  
                                                              -------------     ------------ 

   End of period (including accumulated undistributed net                                    
      investment income of $0 and $1,418,165, respectively)   $  70,822,838     $228,067,525 
                                                              =============     ============ 

4                     See accompanying notes to the financial statements.       


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                     Period from     Period from September 3, 1996
                                                  March 1, 1997 to   (commencement of operations) 
                                                   January 9, 1998       to February 28, 1997     
                                                   ---------------   ---------------------------- 
                                                                                                  
Net asset value, beginning of period                   $ 13.03                  $ 11.78           
                                                       --------                 --------          

Income from investment operations:                                                                
   Net investment income                                  0.27+                    0.12           
   Net realized and unrealized gain                       1.78                     2.10           
                                                       --------                 --------          

      Total from investment operations                    2.05                     2.22           
                                                       --------                 --------          

Less distributions to shareholders:                                                               
   From net investment income                            (0.39)                   (0.09)          
   In excess of net investment income                    (0.01)                      --           
   From net realized gains                               (6.99)                   (0.88)          
                                                       --------                 --------          

      Total distributions                                (7.39)                   (0.97)          
                                                       --------                 --------          
Net asset value, end of period                         $  7.69/(a)/              $ 13.03          
                                                       ========                 ========          

Total Return/(b)/                                        16.80%                   19.25%          

Ratios/Supplemental Data:                                                                         
   Net assets, end of period (000's)                        --                  $ 1,357           
   Net expenses to average daily net assets               0.38%*                   0.61%*         
   Net investment income to average daily net                                                     
      assets                                              2.67%*                   1.97%*         
   Portfolio turnover rate                                 150%                     104%          
   Average broker commission rate per equity                                                      
      share                                            $0.0474                  $0.0270           
   Fees and expenses voluntarily waived or borne                                                  
      by the Manager consisted of the following                                                   
      per share amounts:                               $  0.04                  $  0.01           

+    Computed using average shares outstanding throughout the period.           
/(a)/All Class I shares of the Fund were exchanged for Class III shares on      
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                      
/(b)/Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  
*    Annualized.                                                                

               See accompanying notes to the financial statements.             5


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                             Year Ended February 28/29,                  
                                           ------------------------------------------------------------- 
                                            1998          1997         1996          1995         1994   
                                           -------      --------      -------      --------      ------- 
                                                                                                         
Net asset value, beginning of period       $ 13.03      $  13.63      $ 11.06      $  11.26      $ 10.38 
                                           -------      --------      -------      --------      ------- 
Income from investment operations:                                                                       
   Net investment income                      0.29+         0.26         0.29          0.28         0.29 
   Net realized and unrealized gain           2.61          2.20         3.90          0.49         1.21 
                                           -------      --------      -------      --------      ------- 
      Total from investment operations        2.90          2.46         4.19          0.77         1.50 
                                           -------      --------      -------      --------      ------- 

Less distributions to shareholders:                                                                      
   From net investment income                (0.40)        (0.22)       (0.29)        (0.27)       (0.30)
   In excess of net investment income        (0.01)           --           --            --           -- 
   From net realized gains                   (6.99)        (2.84)       (1.33)        (0.70)       (0.32)
                                           -------      --------      -------      --------      ------- 
      Total distributions                    (7.40)        (3.06)       (1.62)        (0.97)       (0.62)
                                           -------      --------      -------      --------      ------- 
Net asset value, end of period             $  8.53      $  13.03      $ 13.63      $  11.06      $ 11.26 
                                           =======      ========      =======      ========      ======= 
Total Return/(a)/                            29.61%        20.88%       38.90%         7.56%       14.64%
Ratios/Supplemental Data:                                                                                
   Net assets, end of period (000's)       $70,823      $226,711     $211,319      $207,291      $167,028
   Net expenses to average                                                                               
      daily net assets                        0.27%         0.48%        0.48%         0.48%        0.48%
   Net investment income to                                                                              
      average daily net assets                2.53%         1.99%        2.27%         2.61%        2.56%
   Portfolio turnover rate                     150%          104%          84%          101%          53%
   Average broker commission rate per                                                                    
      equity share/(b)/                    $0.0474      $ 0.0270          N/A           N/A          N/A 
   Fees and expenses voluntarily waived                                                                  
      or borne by the Manager consisted                                                                  
      of the following per share amounts:  $  0.04      $   0.02      $  0.01      $   0.01      $  0.01 

/(a)/ Calculation excludes purchase premiums. The total returns would have been 
lower had certain expenses not been waived during the periods shown.
/(b)/ For fiscal years beginning on or after September 1, 1995, a fund is       
   required to disclose its average commission rate per share for security
trades on which commissions are charged.                            
+   Computed using average shares outstanding throughout the period.        

6             See accompanying notes to the financial statements.               


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

   GMO U.S. Sector Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as   
     amended, as an open-end, non-diversified management investment company. The
    Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
    "Manager" or "GMO"). The Trust was established as a Massachusetts Business
     Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
     The Declaration of Trust permits the Trustees to create an unlimited number
    of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.                                   

  The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment in common stocks either directly or
  through investments in other Funds of the Trust. Subsequently all of its
    assets will be invested in or exposed to equity securities chosen from the
  Wilshire 5000 Index and primarily in common stocks chosen from among the
     1,800 companies with the largest equity capitalization whose securities are
  listed on a United States national securities exchange, and/or shares of
other domestic equity funds of the Trust. On August 20, 1997, the Fund
   began to invest a substantial portion of its assets in other Funds of the
Trust.                                                                

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bore the same total operating expenses (after the voluntary expense waiver)
    as those shares. On August 20, 1997 the Fund revised its voluntary expense
    waiver to include certain expenses incurred indirectly by the Fund through
investment in underlying funds (See Note 2).                          

    Effective January 9, 1998, Class I shares ceased operations and all shares
were exchanged for Class III shares, and Class II shares ceased to be 
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted
   sale price on each business day, or if there is no such reported sale, 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 market value. Other
 assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees.     

                                                                               7


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Futures contracts                                                     
The Fund may purchase and sell futures contracts on the domestic stock
 indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity  
   securities at a specified price at a given date. The Fund may use futures
     contracts to manage its exposure to the stock 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  
obligations in accordance with the initial margin requirements of the 
 broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation 
   margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not 
considered realized until the contracts expire or are closed. Futures 
contracts involve, to varying degrees, risk of loss in excess of the  
variation margin disclosed in the Statement of Assets and Liabilities.
     Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if        
   counterparties do not perform under the contract terms. Futures contracts
 are valued at the settlement price established each day by the board of
 trade or exchange on which they are traded. At February 28, 1998, there
were no outstanding 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 and the value
    of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund had no securities on loan. 

Swap agreements                                                       
The Fund may enter into swap agreements to manage its exposure to the 
    equity markets. A swap is an agreement to exchange the return generated by
 one instrument for the return generated by another instrument. The Fund
    enters into equity swap agreements which involve a commitment by one party
 in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that 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                                              

8                                                                               


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

   counterparty, respectively. Equity swaps are marked to market daily based
   upon quotations from market makers and the change, if any, is recorded as
   unrealized gain or loss in the Statement of Operations. Payments received
    or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
    involves, to varying degrees, elements of credit and market risk in excess
    of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions.         
At February 28, 1998, there were no open swap agreements outstanding. 

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for 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.           

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
 distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                       

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
 differing treatments for redemptions in-kind. Gains resulting from such
in-kind transactions amounted to $391,666.                            

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated                                               
Undistributed Net      Accumulated Undistributed                
     Investment Income          Net Realized Gain          Paid-in Capital
      -------------------    ---------------------------    ------------------
       $181,618                   $1,787,179              $(1,968,797)

                                                                               9


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the  
accrual basis and is adjusted for the accretion of discounts. In      
     determining the net gain or loss on securities sold, the cost of securities
     is determined on the identified cost basis. Dividends representing a return
of capital are reflected as a reduction of cost.                      

Allocation of operating activity                                      
The majority of expenses of the Trust are directly identifiable to an 
    individual fund. Expenses which are not readily identifiable to a specific
  fund are allocated in such a manner as deemed equitable by the Trustees,
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 prorata
     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. 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. (See Note 2).                                         

Purchases and redemptions of Fund shares                              
The premium on cash purchases of Fund shares is .27% of the amount    
     invested. Prior to June 30, 1997, the premium on cash purchases was .14% of
    the amount invested. All purchase premiums are paid to and recorded by the
    Fund as paid-in capital. This fee is allocated relative to each class' net
 assets on the share transaction date. Purchase premiums are included as
 part of each class' "shares sold" as summarized in Note 5. For the year
  ended February 28, 1998, the Fund received $20,558 in purchase premiums.
There is no premium for cash redemptions, reinvested distributions or 
in-kind transactions.                                                 

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .49% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, and
     .15% for Class III shares. The Fund will invest in Class III shares of each
underlying Fund being offered. Like the management fee (as described  
     below), the shareholder service fee of each class of the Fund's shares 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.                                                     

10                                                                              


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

    GMO has agreed to waive a portion of its fee (but not below zero) and bear
  other expenses until further notice to the extent that the Fund's annual
     expenses (including the management fee but excluding brokerage commissions,
 certain other transaction costs (including transfer taxes), shareholder
    service fees and extraordinary expenses ("fund expenses")) plus the amount
   of fees and expenses, excluding shareholder service fee and fund expenses
  (as defined above) incurred indirectly by the Fund through investment in
    underlying Funds exceed .33% of average daily net assets. Because GMO will
  not waive the management fees below zero, 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) incurred
  indirectly by the Fund through investment in underlying Funds may exceed
0.33% of the Fund's average daily net assets.                         

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the six months ended February 28, 1998 was $1,635. No 
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$224,242,899 and $352,556,219, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                       Gross Unrealized   Gross Unrealized    Net Unrealized
   Aggregate Cost       Appreciation       Depreciation       Appreciation
    ----------------   ------------------  -----------------  ----------------
  $70,439,317           $936,744           $507,853           $428,891

4.   Principal shareholders                                                     

     At February 28, 1998, 92.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's      
outstanding shares.                                                   

                                                                              11


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]

                                                                 Period from September 3,  
                                                                   1996 (commencement of   
Class I:                          Period from March 1, 1997             operations)        
                                      to January 9, 1998           to February 28, 1997    
                                 ----------------------------  ----------------------------
                                    Shares         Amount         Shares          Amount   
                                 -------------  -------------  --------------  ------------
                                                                                           
Shares sold                            9,272   $     102,631        97,467    $  1,163,513 
Shares issued to shareholders in                                                           
  reinvestment of distributions      104,677         926,870         7,610          94,003 
Shares repurchased                  (218,098)     (1,691,358)         (928)        (12,000)
                                 -------------  -------------  --------------  ------------
Net increase/(decrease)             (104,149)  $    (661,857)      104,149    $  1,245,516 
                                 =============  =============  ==============  ============

                                          Year Ended                     Year Ended        
Class III:                             February 28, 1998              February 28, 1997    
                                 ----------------------------  ----------------------------
                                    Shares         Amount          Shares         Amount   
                                 ------------- --------------  -------------- -------------
                                                                                           
Shares sold                        1,374,373  $   15,598,383     7,570,612   $  96,850,986 
Shares issued to shareholders in                                                           
  reinvestment of distributions   10,762,767      97,835,045     3,069,555      37,653,043 
Shares repurchased               (21,232,535)   (210,923,853)   (8,749,092)   (112,420,809)
                                 ============= ==============  =============  =============
Net increase/(decrease)           (9,095,395) $  (97,490,425)    1,891,075   $  22,083,220 
                                 ============= ==============  =============  =============

12                                                                              


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated     
40.63% of distributions as net capital gain dividends.                          

                                                                              13


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GMO U.S. Sector Fund                                                            
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily      
    responsible for the day-to-day management of the Fund's portfolio. Each of
these individuals has been a portfolio manager at Grantham, Mayo, Van 
Otterloo & Co. LLC for more than fifteen years.                       

Management Discussion and Analysis of Fund Performance                          

 The Class III shares of the GMO U.S. Sector Fund returned 29.6% for the
    fiscal year ended February 28, 1998, as compared to 35.0% for the S&P 500.
     Consistent with the Fund's investment objectives and policies, the Fund was
invested substantially in common stocks throughout the period.        

The Fund's performance shortfall was due to two sector strategies that
underperformed for the year. The first strategy involved overweighting
small capitalization stocks, in which the Fund maintained a 20% weight
   throughout the year. This strategy is based on our view that these stocks
 are more attractive relative to large capitalization stocks when valued
using Price/Sales, Price/Fair Value, Price/Book and Price/Cash Flow   
 measures. Although this strategy was not successful in the prior fiscal
     year, small stocks are currently at their least expensive level in the past
twenty years. We continue to believe that these stocks will outperform
large capitalization stocks in the near- to mid-term.                 

   The Fund's strategy of maintaining a 15% weight in Real Estate Investment
  Trusts ("REITs") also detracted from relative performance. As with small
capitalization stocks, this position is based upon the attractive     
  valuations of the sector relative to large capitalization U.S. equities.
While real estate is trading at or about its replacement cost, U.S.   
    equities continue to trade at high premiums which we believe in many cases
    to be unwarranted. REITs, as represented by the Morgan Stanley REIT Index,
underperformed the S&P 500 by 19.7%.                                  

Within large capitalization stocks, the Fund's fair value and momentum
  stock selection strategies worked successfully in identifying stocks for
  inclusion in the Fund's portfolio. The Fund's technology stock holdings,
  including Dell and Compaq, contributed positively to performance for the
portfolio. These strategies were also successful in selecting non-bank
    financial stocks. The Fund's value added within this sector came primarily
   from its overweight in large brokerage firms, which benefited from merger
activity and record market returns.                                   

In August, the U.S. Sector Fund converted into a fund-of-funds by     
exchanging its portfolio securities for GMO mutual funds shares of    
  equivalent value. The purpose of the conversion is to enable the Fund to
    implement more effectively its investment strategies. The U.S. Sector Fund
     currently invests in the GMO Core Fund, GMO REIT Fund, GMO Small Cap Growth
  Fund and GMO Small Cap Value Fund. The conversion does not represent any
change in the investment strategies of the Fund, but only in the      
implementation of these strategies.                                   

Outlook                                                                         

    The Fund is typically overweight in high quality stocks as defined using a
GMO measure that focuses on high, stable return on equity and low debt
ratios. However, we are now underweight in this group as these stocks 
   appear to be overvalued. In particular the market is paying a premium for
  high return on equity that we think is excessive. We continue to believe
  that smaller stocks and REITs have more attractive valuation levels than
the largest stocks, and expect them to outperform large capitalization
stocks in the near- to mid-term.                                      

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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--------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in  
GMO U.S. Sector Fund Class III Shares and the S&P 500 Index 
As of February 28, 1998 

---------------------------------                                     
Average Annual Total Return                                     
---------------------------------                                     
Since               
1 Year     5 Year     Inception                                     
---------------------------------                                     
Class                        12/31/92                                           
III   29.3%     21.7%        22.0%                                            
---------------------------------                                     

[LINE GRAPH APPEARS HERE] 

GMO U.S. Sector Fund                    
    Class III Shares         S & P 500 Index
  --------------------       ---------------

12/31/92                   $9,973                  $10,000                      
2/28/93                  $10,352                  $10,221                     
2/28/94                  $11,868                  $11,072                     
2/28/95                  $12,765                  $11,887                     
2/29/96                  $17,730                  $16,012                     
2/28/97                  $21,432                  $20,201                     
2/28/98                  $27,778                  $27,271                     

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 27 bp on the purchase. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Past performance   
is not indicative of future performance. Information is unaudited.              
--------------------------------------------------------------------------------


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GMO Short-Term Income Fund                                            
(A Series of GMO Trust)                                               
Annual Report                                                         
February 28, 1998                                                     


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of                            
GMO Short-Term Income Fund (A Series of GMO Trust)                              

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-Term Income Fund at      
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian, provide a reasonable    
basis for the opinion expressed above.                                          

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 20, 1998                                                                  


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Par Value      Description                                                      Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                  DEBT OBLIGATIONS -- 97.1%                                                       

                  Asset Backed Securities -- 50.3%                                                
$    412,049      Americredit Automobile Receivables Trust Series 96-B Class                      
                     A, 6.50%, due 1/12/02                                           413,981      
   3,195,719      Banc One Student Loan Trust 94-A Class A2,                                      
                     Variable Rate, 1 mo. LIBOR + .30%, 5.93%, due 10/25/16        3,208,502      
   2,180,000      Brazos Student Loan Finance Corp Series 96-A4,                                  
                     Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.78%,                       
                     due 12/01/02                                                  2,171,484      
     463,100      Dilmun Capital Corp,                                                            
                     Variable Rate, 6 mo. LIBOR + .88%, 6.79%, due 11/15/03          463,100      
   1,000,000      National Premier Finance 95-2, 144A, 6.21%, due 6/01/99          1,000,000      
   5,500,000      National Premier Finance IX 96-1A, 144A, 7.20%, due 7/01/00      5,615,500      
     500,000      Premier Auto Trust 94-4 Certificates, 6.85%, due 5/02/99           502,500      
   3,463,122      Signet Student Loan Trust Series 96-A Class A-1,                                
                     Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due 1/25/05         3,462,039      
   2,000,000      Starvest CBO-1 Class A,                                                         
                     Variable Rate, 6 mo. LIBOR + .19% 144A, 5.82%, due                           
                     7/30/11                                                       1,976,000      
                                                                               -------------      
                                                                                  18,813,106      
                                                                               -------------      

                  U.S. Government -- 9.7%                                                         
   3,500,000      U.S. Treasury Note, 7.75%, due 11/30/99                          3,624,688      
                                                                               -------------      

                  U.S. Government Agency -- 37.1%                                                 

                  U.S. Government Agency Bonds/Notes -- 27.1%                                     
     350,000      Agency for International Development Floater (Support of                        
                     Botswana), Variable Rate, 6 mo. U.S. Treasury Bill + .40%,                   
                     5.64%, due 10/01/12                                             347,430      
   2,250,000      Agency for International Development Floater (Support of                        
                     C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill                         
                     + .40%, 5.64%, due 10/01/12                                   2,241,914      
   2,333,663      Agency for International Development Floater (Support of                        
                     Honduras), Variable Rate, 3 mo. U.S. Treasury Bill                           
                     x 117%, 5.98%, due 10/01/11                                   2,331,111      
     101,836      Agency for International Development Floater (Support of                        
                     Peru), Variable Rate, 6 mo. U.S. Treasury Bill                               
                     + .35%, 5.59%, due 5/01/14                                      101,151      
   5,071,625      Small Business Administration Pool #502320,                                     
                     Variable Rate, Prime - 2.18%, 6.31%, due 8/25/18              5,096,983      
                                                                               -------------      
                                                                                  10,118,589      
                                                                               -------------      

                  Structured Notes -- 10.0%                                                       
     750,000      Federal Home Loan Bank,                                                         
                     Variable Rate, ((.50 * 10YR CMT) + 1.25%), 4.42%, due                        
                     3/16/98                                                         748,875      
   1,000,000      Federal National Mortgage Association,                                          
                     Variable Rate, ((.50 * 2YR CMT) + 1.80%), 4.79%, due                         
                     3/10/98                                                         997,500      

              See accompanying notes to the financial statements.              1


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

   Par Value      Description                                                      Value ($)     
-------------------------------------------------------------------------------------------------
                                                                                                 
                  Structured Notes -- continued                                                  
   $2,000,000     Student Loan Marketing Association,                                            
                     Variable Rate, (10.25% - 5YR DM SWAP), 5.23%, due 3/23/98     1,996,000     
                                                                                 -----------     
                                                                                   3,742,375     
                                                                                 -----------     
                                                                                  13,860,964     
                                                                                 -----------     
                  TOTAL DEBT OBLIGATIONS  (COST  $36,240,733)                     36,298,758     
                                                                                 -----------     

                  SHORT-TERM INVESTMENT -- 1.8%                                                  

                  Repurchase Agreement -- 1.8%                                                   
   $ 662,427      Salomon Smith Barney Inc. Repurchase Agreement, dated                          
                  2/27/98, due 3/2/98, with a maturity value of $662,707 and                     
                  an effective yield of 5.07%, collateralized by a U.S.                          
                  Treasury Obligation with a rate of 8.875%, with a maturity                     
                  date of 8/15/17 and with a market value of $675,676.               662,427     
                                                                                 -----------     

                  TOTAL SHORT-TERM INVESTMENT (COST $662,427)                        662,427     
                                                                                 -----------     

                  TOTAL INVESTMENTS -- 98.9%                                                     
                  (Cost $36,903,160)                                              36,961,185     

                  Other Assets and Liabilities (net) -- 1.1%                         415,567     
                                                                                 -----------     

                  TOTAL NET ASSETS -- 100%                                       $37,376,752     
                                                                                 ===========     

                  Notes to the Schedule of Investments:                                          

                  CMT - Constant Maturity Treasury Index                                         
                  DM SWAP - 5 year Deutsche Mark Constant Maturity Swap Rate                     

                  Variable rates - The rates shown on variable rate notes are                    
                  the current interest rates at February 28, 1998, which are                     
                  subject to change based on the terms of the security,                          
                  including varying reset dates.                                                 

                  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 buyers.                                                          

2              See accompanying notes to the financial statements.              


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

Assets:                                                                         
Investments, at value (cost $36,903,160) (Note 1)              $36,961,185
Interest receivable                                                440,238
Receivable for expenses waived or borne by Manager (Note 2)          5,579
                                                               -----------

    Total assets                                                37,407,002
                                                               -----------

Liabilities:                                                                    
Payable to affiliate for (Note 2):                                        
   Management fee                                                    7,180
   Shareholder service fee                                           4,326
Accrued expenses                                                    18,744
                                                               -----------

    Total liabilities                                               30,250
                                                               -----------

Net assets                                                        $37,376,752   
                                                               ===========

Net assets consist of:                                                          
Paid-in capital                                                $37,012,186
Accumulated undistributed net investment income                    310,608
 Accumulated undistributed net realized loss                         (4,067)
Net unrealized appreciation                                         58,025
                                                               ===========
                                                               $37,376,752
                                                               ===========

Shares outstanding                                                  3,810,783   
                                                               ===========

Net asset value per share                                         $      9.81   
                                                               ===========

               See accompanying notes to the financial statements.             3


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
 Interest                                                          2,779,582
                                                                  ----------

     Total income                                                  2,779,582
                                                                  ----------

Expenses:                                                                       
 Management fee (Note 2)                                             117,159
 Audit fees                                                           25,651
 Custodian and transfer agent fees                                     8,698
 Legal fees                                                            1,027
 Registration fees                                                       786
 Trustees fees (Note 2)                                                  451
 Miscellaneous                                                           547
  Fees waived or borne by Manager (Note 2)                           (130,911)
                                                                  ----------
                                                                      23,408
 Shareholder service fee (Note 2)                                     70,313
                                                                  ----------
     Net expenses                                                     93,721
                                                                  ----------

        Net investment income                                      2,685,861
                                                                  ----------

Realized and unrealized gain:                                                   
 Net realized gain on investments                                     13,827
                                                                  ----------

 Change in net unrealized appreciation on investments                110,882
                                                                  ----------

     Net realized and unrealized gain                                124,709
                                                                  ----------

Net increase in net assets resulting from operations                $2,810,570  
                                                                  ==========

4              See accompanying notes to the financial statements.              


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                              Year Ended         Year Ended    
                                                           February 28, 1998  February 28, 1997
                                                           -----------------  -----------------
                                                                                               
Increase (decrease) in net assets:                                                             
Operations:                                                                                    
   Net investment income                                     $ 2,685,861         $ 1,624,987   
   Net realized gain                                              13,827              76,160   
   Change in net unrealized appreciation (depreciation)          110,882             (75,627)  
                                                             -----------         -----------   

   Net increase in net assets resulting from operations        2,810,570           1,625,520   
                                                             -----------         -----------   

Distributions to shareholders from:                                                            
   Net investment income                                      (2,703,434)         (1,442,981)  
                                                             -----------         -----------   

Fund share transactions: (Note 5)                                                              
   Proceeds from sale of shares                               40,588,732          94,033,050   
   Net asset value of shares issued to shareholders in                                         
      payment of distributions declared                        1,868,584           1,044,258   
   Cost of shares repurchased                                (46,124,637)        (65,388,935)  
                                                             -----------         -----------   

   Net increase (decrease) in net assets resulting from                                        
      Fund share transactions                                 (3,667,321)         29,688,373   
                                                             -----------         -----------   

      Total increase (decrease) in net assets                                                  
                                                              (3,560,185)         29,870,912   

Net assets:                                                                                    
   Beginning of period                                        40,936,937          11,066,025   
                                                             -----------         -----------   

   End of period (including accumulated undistributed net                                      
      investment income of $310,608 and $328,181,                                              
      respectively)                                          $37,376,752         $40,936,937   
                                                             ===========         ===========   

              See accompanying notes to the financial statements.              5


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a share outstanding throughout each period)                                
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                    Year Ended February 28/29,                 
                                      -------------------------------------------------------- 
                                        1998        1997         1996        1995        1994  
                                      -------     --------     -------      ------     ------- 
                                                                                               
Net asset value, beginning of                                                                  
   period                             $  9.78     $   9.77     $  9.56      $ 9.79     $ 10.05 
                                      -------     --------     -------      ------     ------- 

Income from investment operations:                                                             
   Net investment income                 0.55         0.47        0.57        0.63        0.44 
   Net realized and unrealized                                                                 
      gain (loss)                        0.03         0.06        0.20       (0.28)      (0.09)
                                      -------     --------     -------      ------     ------- 

      Total from investment                                                                    
      operations                         0.58         0.53        0.77        0.35        0.35 
                                      -------     --------     -------      ------     ------- 

Less distributions to shareholders:                                                            
   From net investment income           (0.55)       (0.52)      (0.56)      (0.58)      (0.46)
   From net realized gains                 --           --          --          --       (0.15)
                                      -------     --------     -------      ------     ------- 

      Total distributions               (0.55)       (0.52)      (0.56)      (0.58)      (0.61)
                                      -------     --------     -------      ------     ------- 
Net asset value, end of period        $  9.81     $   9.78     $  9.77      $ 9.56     $  9.79 
                                      =======     ========     =======      ======     ======= 

Total Return/(a)/                        6.10%        5.62%       8.32%       3.78%       3.54%

Ratios/Supplemental Data:                                                                      
   Net assets, end of period (000's)  $37,377     $ 40,937     $11,066      $8,193     $ 8,095 
   Net expenses to average daily                                                               
      net assets                         0.20%        0.20%       0.25%       0.25%       0.25%
   Net investment income to                                                                    
      average daily net assets           5.73%        5.88%       6.49%       5.02%       4.35%
   Portfolio turnover rate                 50%         287%        139%        335%        243%
   Fees and expenses voluntarily                                                               
      waived or borne by the                                                                   
      Manager consisted of the                                                                 
      following per share                                                                      
      amounts:                        $  0.03     $   0.03     $  0.03      $ 0.02     $  0.02 

/(a)/ The total returns would have been lower had certain expenses not been     
waived during the periods shown.                                    

6             See accompanying notes to the financial statements.               


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

GMO Short Term Income Fund (the "Fund") is a series of GMO Trust (the 
    "Trust"). The Fund is registered under the Investment Company Act of 1940,
    as amended, as an open-end, non-diversified management investment company.
   The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
    Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an  
unlimited number of series ("Funds"), each of which issues a separate 
series of shares.                                                     

The Fund seeks current income to the extent consistent with the       
    preservation of capital and liquidity through investment in a portfolio of
high quality short-term instruments.                                  

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
   value as determined in good faith by the Trustees or other persons acting
at their direction.                                                   

    Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual   
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
 another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.                                   

   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 investments in securities held by the Fund were valued on the basis
  of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the 
   securities existed and the differences could be material to the financial
statements.                                                           

                                                                               7


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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, the value of
 the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.      

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.                                                           

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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund had no securities on loan. 

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
 distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                       

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis  
earnings and profits, if any, are reported in the Fund's financial    
statements as a return of capital. Differences in the recognition or  
classification of income for financial statement and tax              

8                                                                               


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

purposes which result in temporary over-distributions for financial   
statement purposes are classified as distributions in excess of net   
investment income or accumulated net realized gains.                  

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 accretion of    
     discounts and amortization of premiums. 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 in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of 
expense and the relative size of the Funds.                           

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .25% of 
average daily net assets. Effective June 1, 1996, the Fund 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 agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .05% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .20%;
thus, the net annual expense ratio after the waiver is unchanged.     

The Fund's portion of the fee paid by the Trust to the unaffiliated   
    Trustees during the year ended February 28, 1998 was $451. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

3.   Purchases and sales of securities                                          

   For the year ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                         Purchases            Proceeds
                                           -----------------   -----------------
 U.S. Government securities          $        -          $     7,735,156
Investments (non-U.S. Government                                      
  securities)                             22,011,715          14,455,257

                                                                               9


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                                                        [Enlarge/Download Table]

                          Gross Unrealized       Gross Unrealized      Net Unrealized   
    Aggregate Cost          Appreciation           Depreciation         Appreciation    
----------------------- ---------------------  --------------------- -------------------
                                                                                        
     $ 36,903,160             $ 100,692              $ 42,667             $ 58,025      

4.   Principal shareholders                                                     

     At February 28, 1998, 66.6% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's     
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:                                               

                                                                [Download Table]

                                        Year Ended          Year Ended    
                                    February 28, 1998   February 28, 1997 
                                    ------------------  ------------------
                                                                          
Shares sold                               4,145,609           9,668,234   
Shares issued to shareholders in                                          
    reinvestment of distributions           192,315             108,123   
Shares repurchased                       (4,714,947)         (6,721,285)  
                                    ------------------  ------------------
Net increase (decrease)                    (377,023)          3,055,072   

Fund shares:                                                              
  Beginning of period                     4,187,806           1,132,734   
                                    ------------------  ------------------
  End of period                           3,810,783           4,187,806   
                                    ==================  ==================

10                                                                              


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's        
distributions are from investment company taxable income.             

    At February 28, 1998 the Fund had a capital loss carryforward available to
offset future capital gains, if any, of the following amounts:        

Year of Expiration            Amount                            
------------------            ------                            
2006           $        4,067                     

                                                                              11


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GMO Short-Term Income Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

     Mr. Thomas F. Cooper and Mr. William L. Nemerever are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. LLC since 1993.                                                 

Management Discussion and Analysis of Fund Performance                          

     The Short-Term Income Fund returned 6.1% for the fiscal year ended February
 28, 1998, as compared to 5.3% for the Salomon Brothers 3 Month Treasury
    Bill Index. Consistent with the Fund's investment objectives and policies,
the Fund was substantially invested in high-quality, fixed income     
instruments throughout the period.                                    

    Short-term interest rates fell modestly in the U.S. during the fiscal year
helping the Fund outperform its benchmark by 0.8%. This was due to the
     Fund's longer-than-benchmark interest rate sensitivity, and to its holdings
of highly-rated asset-backed securities and higher-yielding government
agency issues.                                                        

At the fiscal year end approximately 50% of the Fund was invested in  
    highly-rated, floating rate, asset-backed securities, 12% in U.S. Treasury
   notes and cash, and 38% in U.S. Government-backed bonds. The asset-backed
   issues included issues backed by auto, truck, credit card and health care
receivables. The additional yield provided by these holdings plus the 
   capital gains due to its longer-than-benchmark maturity accounted for the
Fund's strong relative performance.                                   

     GMO believes that asset-backed securities will continue to offer attractive
opportunities to enhance the return of the Fund.                      

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Short-Term Income Fund Class III Shares and 
the Salomon Brothers 3 Month T-Bill Index 
As of February 28, 1998 

--------------------------------                          
Average Annual Total Return                         
--------------------------------                          
Since     
Inception     
1 Year    5 Year    6/30/91                         
--------------------------------                          
Class                                                                           
III            6.1%      5.5%      5.9%                                         
--------------------------------                          

[LINE GRAPH APPEARS HERE] 

      Salomon Brothers
GMO Short-Term          3 Month T-Bill                  
Date        Income Fund                 Index                                 
----       --------------         ----------------                            
6/30/91        $10,000                 $10,000                                  
2/29/92        $10,380                 $10,331                                  
2/28/93        $11,238                 $10,686                                  
2/28/94        $11,636                 $11,014                                  
2/28/95        $12,087                 $11,505                                  
2/29/96        $13,093                 $12,158                                  
2/28/97        $13,829                 $12,794                                  
2/28/98        $14,672                 $13,468                                  

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period. Class III shares are a
redesignation of the single class of shares that has been offered by the Fund   
since inception. The Fund operated as a money market fund from April 17, 1990 to
June 30, 1991. Subsequently, the Fund became a short-term income fund. Past     
performance is not indicative of future performance. Information is unaudited.  


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                   

To the Trustees of GMO Trust and the Shareholders of                
GMO Small Cap Value Fund (A Series of GMO Trust)                    

 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 at February 28, 1998, the results of its operations
    for the year then ended, the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally  
    accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
      responsibility of the Trust'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 generally
  accepted auditing standards 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 28, 1998 by correspondence
      with the custodian and brokers and the application of alternative auditing
    procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.                   

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 13, 1998                                                      


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value($) 
--------------------------------------------------------------------------------

COMMON STOCKS -- 97.0%                        

Advertising -- 0.1%                           
   1,800      Grey Advertising Inc                                 653,400
                                                               -----------

Aerospace -- 1.0%                             
  19,200      Curtiss Wright Corp                                  718,800
  28,600      Gencorp Inc                                          779,350
  95,300      Kaman Corp, Class A                                1,643,925
  18,100      Teleflex Inc                                         734,181
  38,200      Thiokol Corp                                       3,652,875
                                                               -----------
                                                                 7,529,131
                                                               -----------

Automotive -- 1.7%                            
  16,900      Bandag Inc                                           947,456
  33,000      Borg Warner Automotive Inc                         1,934,625
  26,500      Breed Technologies Inc                               576,375
  55,300      Cooper Tire & Rubber Co                            1,275,356
  21,900      Echlin Inc                                         1,107,319
  17,100      Mascotech Industries Inc                             354,825
  59,400      Modine Manufacturing Co                            2,079,000
   8,200      Paccar Inc                                           519,163
  43,600      Smith (AO) Corp, Class B                           1,896,600
   3,900      SPX Corp                                             291,281
  23,600      Superior Industries International Inc                733,075
  37,300      Wabash National Corp                               1,107,344
                                                               -----------
                                                                12,822,419
                                                               -----------

Banking and Financial Services -- 10.1%       
  31,900      Advanta Corp, Class A                                751,644
  11,900      Albank Financial Corp                                578,638
  23,200      Astoria Financial Corp                             1,296,300
  31,400      Baldwin and Lyons Inc, Class B                       753,600
  19,452      BOK Financial Corporation                            955,580
  11,100      CCB Financial Corp                                 1,205,738
  35,100      Citizens Banking Corp Michigan                     1,180,238
 114,350      Comdisco Inc                                       4,766,967
  30,435      Commerce Bancshares Inc                            2,176,103
  41,750      Compass Bancshares Inc                             1,920,500
  15,500      Corus Bancshares Inc                                 682,000
  20,600      Dain Rauscher Corp                                 1,207,675
  21,100      Deposit Guaranty Corp                              1,169,731
  27,371      Dime Bancorp Inc                                     834,816
  30,000      Donaldson Lufkin & Jenrette                        2,456,250

              See accompanying notes to the financial statements.              1


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Banking and Financial Services -- continued   
  25,635      Downey Financial Corp                                749,824
  28,300      Eaton Vance Corp                                   1,176,219
  29,950      Edwards (AG) Inc                                   1,259,772
  34,100      Financial Security Assurance Holdings Ltd          1,792,381
  14,100      First Citizens Bancshares, Class A                 1,635,600
   8,400      First Commerce Corp                                  663,600
   2,600      First Empire State Corp                            1,227,200
  24,500      First Federal Financial Corp*                        989,188
  35,300      First Hawaiian Inc                                 1,398,763
  42,050      First Virginia Banks Inc                           2,128,781
   9,050      Firstbank of Illinois Co                             410,078
  29,600      Firstbank Puerto Rico                              1,171,050
  37,109      Fleet Financial Group Inc                          2,924,679
  17,880      Fulton Financial Corp                                575,513
   4,400      Greenpoint Financial Corp                            326,700
  27,000      Jefferies Group Inc                                1,196,438
   6,300      JSB Financial                                        339,019
  28,600      Leucadia National Corp                             1,079,650
  59,200      Liberty Financial Cos                              2,146,000
   6,900      Long Island Bancorp Inc                              415,294
  44,100      Mercantile Bankshares                              1,544,876
  47,025      Morgan Keegan Inc                                  1,011,038
   8,600      National Bancorp of Alaska Inc                     1,040,600
  14,550      Old Kent Financial Corp                              561,084
  20,000      Onbancorp Inc                                      1,452,500
   8,175      One Valley Bancorp Inc                               301,453
  72,400      Pacific Century Financial Corp                     1,561,125
   8,750      Peoples Bank Bridgeport                              328,672
  79,900      Piper Jaffray Inc                                  2,936,325
  21,700      PMI Group Inc                                      1,578,675
  20,500      Popular Inc                                        1,071,765
  65,150      Raymond James Financial Corp                       2,597,856
  21,500      Riggs National Corp                                  569,750
   9,000      Rowe (T) Price & Associates Inc                      597,375
  58,200      Ryland Group Inc                                   1,625,963
  26,200      SEI Investments Co                                 1,545,800
  77,380      Sovereign Bancorp Inc                              1,499,238
  10,762      St. Paul Bancorp Inc                                 285,193
  17,300      Student Loan Group                                   834,725
  28,700      Trustmark Corp                                     1,259,213
  20,610      UMB Financial Corp                                 1,174,770
  13,500      Union Planters Corp                                  834,469

2             See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                        Value ($)
--------------------------------------------------------------------------------

Banking and Financial Services -- continued   
  13,900      United Asset Management Corp                         369,219
  61,700      United Cos Financial Corp                            967,919
  18,300      Value Line Inc                                       768,600
  46,932      Washington Federal Inc                             1,296,483
  42,600      Wilmington Trust Corp                              2,635,875
                                                               -----------
                                                                77,792,090
                                                               -----------

Chemicals -- 1.1%                             
  26,200      Albemarle Corp                                       638,625
  23,300      Cabot Corporation                                    821,325
  26,500      Crompton & Knowles Corp                              798,313
  15,200      Cytec Industries Inc*                                742,900
  14,750      Ferro Corp                                           397,328
   7,700      Fuller (HB) Co                                       437,938
  17,900      Geon Co                                              358,000
  20,500      Hanna (MA) Co                                        475,344
  36,800      Kaiser Aluminum Corp*                                361,100
  32,000      Mississippi Chemical Corp                            592,000
  18,600      Olin Corp                                            852,113
  34,900      Stepan Co                                            972,838
  60,400      Wellman Inc                                        1,298,600
                                                               -----------
                                                                 8,746,424
                                                               -----------

Communications -- 0.2%                        
  62,200      DSC Communications Corp*                           1,220,675
                                                               -----------

Computer and Office Equipment -- 2.0%         
  21,600      Banctec Inc                                          554,850
   9,900      Everex Systems Inc/(a)/                                   --
  56,500      Exabyte Corp                                         452,000
  32,800      Infocus Systems Inc*                               1,309,950
  49,000      Intergraph Corp*                                     477,750
  79,500      Lexmark International Group Inc*                   3,398,625
  60,600      Quantum Corp                                       1,522,575
  30,300      Sequent Computer Inc*                                641,981
  42,100      Sterling Software Inc*                             2,218,144
  36,800      Stratus Computer Inc*                              1,846,900
  92,100      Unisys Corp*                                       1,646,288
  49,500      Western Digital Corp                                 903,375
  20,200      Zebra Technologies Corp                              583,275
                                                               -----------
                                                                15,555,713
                                                               -----------

              See accompanying notes to the financial statements.              3


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                        Value ($)
--------------------------------------------------------------------------------

Construction -- 2.1%                          
  36,200      Bridge & Toll Road Brothers Inc                    1,086,000
  41,000      Centex Corp                                        2,995,563
  21,600      Foster Wheeler Corp                                  577,800
  33,100      Granite Construction Inc                             877,150
  46,200      Horton (DR) Inc                                    1,077,038
 107,900      Kaufman & Broad Home Corp                          2,791,913
  49,100      McDermott International Inc                        1,933,313
  44,300      MEMC Electronic Materials                            747,563
  34,200      Pulte Corp                                         1,556,100
  91,500      Standard Pacific Corp                              1,584,094
  20,300      Texas Industries Inc                               1,146,950
                                                               -----------
                                                                16,373,484
                                                               -----------
Consumer Goods -- 3.8%                        
  27,700      Alberto Culver Co, Class B                           843,119
  22,700      Bassett Furniture Industries Inc                     703,700
  16,919      Block Drug Co Inc, Class A                           712,713
  92,100      Burlington Industries Inc                          1,525,406
  28,100      Callaway Golf Co                                     906,225
  34,100      Coleman Co Inc                                       703,313
 112,100      Compucom Systems Inc                                 987,881
  45,800      Department 56 Inc*                                 1,508,538
  45,700      Fastenal Co                                        2,005,088
  28,700      First Brands Corp                                    739,025
  41,900      Furniture Brands International Inc*                1,147,013
   6,000      Jones Apparel Group Inc*                             330,000
  79,200      Justin Industries                                  1,029,600
  46,300      Kimball International, Class B                       966,513
  27,300      La-z-boy Chair Co                                  1,308,694
  48,515      Lancaster Colony Corp                              2,134,660
  94,800      Moore Corp Ltd                                     1,487,175
   8,400      National Service Industries                          465,675
  30,600      Nine West Group Inc*                                 841,500
  57,750      Oneida LTD                                         1,544,813
  51,700      Osh Kosh B Gosh, Class A                           2,029,225
  17,250      Patterson Dental Company                             521,813
  40,700      Russell Corp                                       1,103,988
  16,500      Technology Data Corp*                                767,250
 136,500      Terra Industries Inc                               1,620,938
   6,000      Timberland Co*                                       435,000
  10,100      Unifi Inc                                            371,175
  23,000      US Industries Inc                                    641,125
                                                               -----------
                                                                29,381,165
                                                               -----------

4             See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                        Value ($)
--------------------------------------------------------------------------------

Electronic Equipment -- 4.4%                  
  87,300      American Power Conversion Corp*                    2,531,700
  83,400      Antec Corp                                           985,163
  76,200      CTS Corp                                           2,452,688
  65,700      Cypress Semiconductor Corp*                          620,044
  41,700      Dallas Semiconductor Corp                          1,980,750
  30,200      Federal Signal Corp                                  709,700
   8,500      Franklin Electric Inc                                576,938
  22,700      Harman International Industries                    1,055,550
  38,400      Hutchinson Technology Inc*                           888,000
  82,900      Integrated Device Technology Inc*                  1,248,681
  21,800      Jabil Circuit Inc                                  1,147,225
  14,200      Kemet Corp                                           301,750
  53,500      Komag Inc                                            769,063
  14,800      Lattice Semiconductor Corp*                          792,725
  18,800      Litton Industries*                                 1,170,300
  16,400      Magnetek Inc*                                        291,100
  34,100      Marshall Industries                                  999,556
  31,400      Methode Electronics, Class A                         443,525
 250,500      Oak Technology Inc*                                1,753,500
  73,300      Pioneer Standard Electronics Inc                   1,209,450
  12,200      Pittway Corp, Class A                                866,200
  44,600      Read Rite Corp*                                      635,550
  65,000      SCI Systems Inc                                    2,925,000
  30,000      Sensormatic Electronics Corp                         558,750
  58,900      Silicon Valley Group Inc*                          1,605,025
  23,600      Stewart & Stevenson Services Corp                    576,725
  17,000      Tech Corp                                            448,375
  14,001      Thomas & Betts Corp                                  793,679
  54,405      Vishay Intertechnology Inc                         1,108,502
  24,400      VLSI Technology*                                     471,225
  30,300      Watkins Johnson                                      819,994
  49,000      Zilog Inc                                            976,938
                                                               -----------
                                                                33,713,371
                                                               -----------

Food and Beverage -- 3.5%                     
  41,200      Bob Evans Farms Inc                                  847,175
  65,300      Chiquita Brands International Inc                    877,469
  42,000      Coors (Adolph) Co                                  1,312,500

              See accompanying notes to the financial statements.              5


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                        Value ($)
--------------------------------------------------------------------------------

Food and Beverage -- continued                
 271,600      Darden Restaurants Inc                             3,666,600
  20,000      Dean Foods Co                                      1,100,000
   6,100      Farmer Brothers Co                                 1,055,300
  49,600      Great Atlantic & Pacific Tea Co                    1,509,700
  20,200      Hormel (Geo A) and Co                                749,925
  33,800      IBP Inc                                              754,163
  50,100      International Multifoods Corp                      1,399,669
  70,500      Interstate Bakeries Corp                           2,361,750
  27,000      Luby's Cafeteria Inc                                 469,125
  77,200      Michael Foods Inc                                  1,958,950
  33,800      Pilgrims Pride Corp                                  363,350
  14,100      Quality Food Centers Inc*                          1,179,113
 106,300      Ryans Family Steak House                             880,292
   1,600      Seaboard Corp                                        659,200
  47,900      Smithfield Foods Inc                               1,514,838
  13,200      Triarc Companies*                                    331,650
  55,025      Universal Foods Corp                               2,476,125
  68,200      Wendy's International Inc                          1,479,088
                                                               -----------
                                                                26,945,982
                                                               -----------

Health Care -- 6.2%                           
  68,000      Apria Healthcare Group                               926,500
  23,700      Arrow International Inc.                             927,263
  48,400      Ballard Medical Products                           1,216,050
  45,600      Bard (CR)                                          1,590,300
  28,000      Bausch & Lomb Inc.                                 1,254,750
  28,200      Beckman Instruments Inc                            1,364,175
 120,400      Beverly Enterprises Inc*                           1,828,575
  58,800      Bindley Western Industries Inc                     1,947,750
  81,900      BioMet Inc                                         2,441,644
  23,400      Dentsply International Inc                           725,400
  26,100      Express Scripts Inc, Class A                       2,035,800
  42,600      First Health Group Corp*                           2,122,013
  16,200      Forest Laboratories Inc*                           1,013,513
  17,600      Genesis Health Ventures Inc                          510,400
  68,100      Haemonetics Corp*                                  1,136,419
  26,400      Health Care & Retirement*                          1,158,300
  41,000      Integrated Health Services Inc                     1,391,438
 468,200      Laboratory Corporation of America Holdings           907,138
  52,200      Lincare Holdings Inc*                              3,388,104
  81,500      Marquette Medical Systems, Class A*                2,241,250
  92,600      Mid Atlantic Medical Services Inc                  1,088,050

6             See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Health Care -- continued                      
 159,600      Novacare Corp*                                     2,234,400
  84,300      Paragon Health Network Inc                         1,570,088
 168,400      Perrigo Co*                                        1,810,300
  29,100      Quorum Health Group Inc                              806,614
  47,200      Rightchoice Managed Care, Class A                    507,400
  22,600      Sierra Health Services Inc                           827,725
  36,400      Sofamor Denek Group Inc*                           2,739,100
  40,400      Spacelabs Medical Inc                                878,700
  57,300      Sunrise Medical Inc                                  855,919
  57,400      Sybron International Corp                          1,567,738
  28,500      United States Surgical Corp                          872,813
  19,500      Universal Health Services, Class B*                1,018,875
  19,700      Varian Associates Inc                              1,142,600
                                                               -----------
                                                                48,047,104
                                                               -----------

Insurance -- 9.4%                             
   6,457      Alleghany Corp                                     2,201,837
  55,500      Allied Group Inc                                   1,748,250
  52,600      American Bankers Insurance Group                   2,958,750
  21,300      American Financial Group Inc                         861,319
  29,749      American Heritage Life Investments                 1,206,694
  16,900      American National Insurance Co                     1,639,300
  25,900      Argonaut Group Inc                                   932,400
  45,500      Berkley (WR) Corp                                  2,075,938
  25,100      Capital Re Corp                                    1,554,631
  52,300      Citizens Corp                                      1,745,513
  12,700      CMAC Investment Corp                                 850,900
  50,700      Commerce Group Inc                                 1,774,500
  27,690      Delphi Financial Group Inc                         1,218,360
  23,000      Enhance Financial Services Group Inc               1,427,438
  46,400      Everest Re Holdings Inc                            1,711,000
  45,300      Fidelity National Financial Inc                    1,325,025
  33,250      First American Financial Corp                      1,982,531
 162,110      Foundation Health Systems Inc, Class A*            4,488,422
  51,915      Fremont General Corp                               3,046,762
  15,800      Gallagher (Arthur J) and Co                          652,738
  47,200      Harleysville Group Inc                             1,150,500
  47,500      Horace Mann Educators Corp                         1,686,250
  37,900      John Alden Financial Corp                            850,381
  18,400      Kansas City Life Insurance Co                      1,697,400
  27,000      Liberty Corp                                       1,392,188
  29,200      Life Re Corp                                       1,857,850

              See accompanying notes to the financial statements.              7


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Insurance -- continued                        
  57,500      Life USA Holdings                                    884,063
  56,800      Mercury General Corp                               3,223,400
  27,600      NAC Re Corp                                        1,419,675
  47,200      Ohio Casualty Corp                                 2,206,600
  10,850      Old Republic International Corp                      457,734
  43,000      Orion Capital Corp                                 2,098,938
  43,100      Penncorp Financial Group Inc                       1,497,725
  50,400      Presidential Life Corp                             1,096,200
  18,700      Protective Life Corp                               1,292,638
  83,434      Provident Cos Inc                                  3,003,624
   5,550      Reinsurance Group of America                         254,259
  71,100      Reliance Group Holdings Inc                        1,208,700
  31,078      Reliastar Financial Corp                           1,478,147
  20,175      RLI Corp                                           1,051,622
  54,300      Selective Insurance Group                          1,489,856
  49,600      TIG Holdings Inc                                   1,317,500
  30,400      Transatlantic Holding Inc                          2,299,000
  15,350      Trenwick Group Inc                                   560,275
  16,400      Twentieth Century Industries                         438,700
  13,200      UICI*                                                424,050
  22,400      USF & G Corp                                         547,400
                                                               -----------
                                                                72,286,983
                                                               -----------
Machinery -- 3.4%                             
  75,300      Agco Corporation                                   2,117,813
  36,500      Cincinnati Milacron Inc                            1,126,938
  24,600      Cummins Engine Inc                                 1,423,725
  63,500      Detroit Diesel Corp                                1,365,250
 105,200      Donaldson Co Inc                                   2,505,075
  19,400      Federal Mogul Corp                                   951,813
  28,100      Harnischfeger Industries Inc                         994,038
  14,100      Kennametal Inc                                       742,013
  25,200      Kulicke & Soffa Industries*                          699,300
  62,900      Lam Research Corp*                                 1,784,788
  55,100      Mohawk Industries Inc                              1,446,375
  26,700      Nordson Corp                                       1,298,288
  63,700      Novellus System Inc                                3,053,619
 100,200      Oakley Inc*                                        1,208,663
  21,400      Starrett (LS) Co, Class A                            858,675
  42,500      Tecumseh Products Co, Class B                      2,135,625
  15,500      Toro Co                                              621,938
  39,000      Ultratech Stepper Inc                                887,250
  29,400      York International Corp                            1,291,763
                                                               -----------
                                                                26,512,949
                                                               -----------

8             See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Manufacturing -- 4.1%                         
  71,000      ACX Technologies Inc*                              1,695,125
  20,900      Aeroquip-Vickers Inc                               1,213,506
   9,200      Alliant Techsystems Inc                              577,875
 160,400      Amcast Industrial Corp                             3,548,850
  52,400      Applied Power Inc, Class A                         1,886,400
  34,100      Ball Corp                                          1,112,513
  42,600      Barnes Group Inc                                   1,256,700
  36,800      Champion Enterprises Inc                             924,600
  82,050      Clayton Homes Inc                                  1,630,744
  45,300      Crane Co                                           2,219,700
  11,400      CSS Industries Inc*                                  401,850
  38,600      Gibson Greetings Inc                                 849,200
  32,000      Global Industrial Technologies Inc                   502,000
  11,400      Greif Brothers Corp                                  413,250
  95,700      Griffon Corp*                                      1,573,069
  19,700      Harsco Corp                                          824,938
  23,700      International Game Technology                        574,725
  56,300      Lafarge Corp                                       1,889,569
  17,400      Lydall Inc                                           305,588
  10,400      Mine Safety Appliances                               644,800
  19,900      Sequa Corp, Class A                                1,496,231
  32,200      Standex International Corp                         1,000,213
   7,050      Tredegar Industries                                  493,500
  73,900      Trinity Industries Inc                             3,713,476
  20,900      Watts Industries Inc, Class A                        628,306
  10,700      West Co Inc                                          339,056
                                                               -----------
                                                                31,715,784
                                                               -----------

Metals and Mining -- 1.4%                     
  72,200      Arch Coal Inc                                      1,895,250
 100,100      Asarco Inc                                         2,214,713
  18,100      Cleveland Cliffs Inc                                 929,888
  29,200      Commercial Metals Co                                 934,400
  69,600      Cyprus Amax Minerals Co                            1,139,700
  15,300      Nacco Inds Inc, Class A                            1,989,956
  59,000      Timken Co                                          1,902,750
                                                               -----------
                                                                11,006,657
                                                               -----------

              See accompanying notes to the financial statements.              9


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Oil and Gas -- 1.4%                           
   5,500      El Paso Natural Gas Co                               365,063
  53,400      Equitable Resources Inc                            1,682,100
  29,400      FINA Inc, Class A                                  1,859,550
  32,900      KCS Energy Inc                                       583,975
  21,800      Mitchell Energy, Class B                             598,138
  30,800      Oryx Energy Co                                       783,475
  24,400      Peoples Energy Corp                                  881,450
  46,700      Pogo Producing Co                                  1,310,519
  76,600      Santa Fe Energy Resources Inc                        856,963
  31,700      Seagull Energy Corp                                  534,938
  67,300      Union Texas Petroleum Holdings Inc                 1,358,619
                                                               -----------
                                                                10,814,790
                                                               -----------

Paper and Allied Products -- 2.7%             
  61,500      Boise Cascade Corp                                 2,048,719
  63,700      Bowater Inc                                        3,153,150
  54,900      Chesapeake Corp                                    1,863,169
  61,100      Jefferson Smurfit Corp*                              912,681
  16,400      Longview Fibre Co                                    253,175
  44,500      Media General Inc, Class A                         2,091,500
  21,900      Pentair Inc                                          902,006
  34,400      Potlatch Corp                                      1,489,950
  51,100      Rayonier Inc                                       2,165,363
  53,400      Rock-Tenn Co, Class A                              1,011,263
  55,300      Shorewood Packaging Corp                           1,354,850
 128,500      Stone Container Corp*                              1,445,625
  26,800      TJ International Inc                                 804,000
  26,300      Zurn Industries Inc                                1,153,913
                                                               -----------
                                                                20,649,364
                                                               -----------

Pharmaceuticals -- 1.5%                       
  22,100      Allergan Inc                                         773,500
  12,100      Amerisource Health Corp*                             707,850
  55,475      Bergen Brunswig Corp, Class A                      2,496,375
  72,900      ICN Pharmaceuticals Inc                            4,209,976
  65,475      Mark IV Industries Inc                             1,522,294
  50,800      Watson Pharmaceutical Inc                          1,822,450
                                                               -----------
                                                                11,532,445
                                                               -----------

Primary Materials -- 1.5%                     
  20,400      Ameron Inc                                         1,222,725
  21,200      Carpenter Technology Corp                          1,003,025
  58,700      Florida Rock Industries                            1,533,538

10            See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Primary Materials -- continued                
  34,100      Martin Marietta Materials Inc                      1,297,931
  14,600      Medusa Corp                                          690,763
  90,600      Premark International Inc                          2,819,925
  11,700      Southdown Inc                                        748,800
  33,400      USG Corp*                                          1,824,475
                                                               -----------
                                                                11,141,182
                                                               -----------

Primary Processing -- 2.2%                    
  65,700      AK Steel Holding Corp                              1,227,769
  71,400      Alumax Inc*                                        2,646,263
 183,600      Bethlehem Steel Corp*                              1,950,750
  43,500      Birmingham Steel Corp                                763,969
  60,100      Inland Steel Industries Inc                        1,239,563
 121,700      LTV Corp                                           1,468,006
  70,600      Lukens Inc                                         2,118,000
   6,700      Maxxam Inc                                           356,775
   6,900      Mueller Industries Inc                               380,363
  87,600      National Steel Corp, Class B                       1,357,800
  22,200      NCH Corp                                           1,352,813
  38,100      Oregon Steel Mills Inc                               766,763
  21,300      Quanex Corp                                          705,563
  39,400      Rouge Industries Inc, Class A                        581,150
                                                               -----------
                                                                16,915,547
                                                               -----------

Printing and Publishing -- 0.4%               
   9,500      AH Belo Corp                                         520,125
  22,600      American Business Products Inc                       514,150
  59,000      Hollinger International Inc                          947,688
  10,699      Pulitzer Publishing Co                               898,716
                                                               -----------
                                                                 2,880,679
                                                               -----------

Real Estate -- 0.5%                           
  50,000      Lennar Corp                                        1,396,875
  53,100      Price Enterprises Inc                              1,055,363
  33,600      Webb (D) Corp                                      1,075,200
                                                               -----------
                                                                 3,527,438
                                                               -----------

Refining -- 0.6%                              
  20,000      Holly Corp                                           541,250
  37,500      Lyondell Petro Chemical Co                         1,021,875
  30,792      Ultramar Diamond Shamrock Corp                     1,098,890
  62,200      Valero Energy Corp                                 2,208,100
                                                               -----------
                                                                 4,870,115
                                                               -----------

              See accompanying notes to the financial statements.             11


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Retail Trade -- 8.6%                          
  41,100      AnnTaylor Stores Corp*                               583,106
  26,600      Barnes & Noble Inc                                   934,325
  65,400      Bed, Bath & Beyond Inc*                            2,824,463
  49,400      Best Buy Co Inc*                                   2,945,475
  26,300      Borders Group Inc                                    876,119
  51,200      Brinker International Inc                          1,068,800
  23,300      Brown Group Inc                                      346,588
  13,000      Brunos Inc                                            24,375
  98,340      Burlington Coat Factory Warehouse                  1,493,539
  34,000      Casey's General Stores Inc                           512,125
  60,600      Cash American Investments Inc                        727,200
 122,800      Charming Shoppes Inc                                 548,756
  29,900      Claire's Stores Inc                                  538,200
  30,900      CompUSA Inc*                                       1,081,500
  79,800      Cone Mills Corp*                                     653,363
  18,236      Consolidated Stores Corp                             749,956
  32,900      CPI Corp                                             793,713
  87,700      Dress Barn Inc*                                    2,559,744
  12,000      Eagle Hardware & Garden Inc                          227,250
  54,350      Family Dollar Stores Inc                           1,936,219
 117,200      Fingerhut Cos Inc                                  2,908,025
  26,700      Foodmaker Inc*                                       485,606
  77,586      Fred Meyer Inc                                     3,447,728
  49,300      Goodys Family Clothing Inc*                        1,848,750
  29,700      Hannaford Brothers Co                              1,252,969
  62,400      Heilig Meyers Co                                     967,200
 156,200      Homebase Inc                                       1,093,400
  61,100      Ingles Markets Inc                                   763,750
  30,000      Lands End Inc*                                     1,181,250
  58,300      Lone Star Steakhouse and Saloon                    1,227,944
  44,500      Longs Drug Stores Corp                             1,410,094
  36,100      Mercantile Stores                                  2,375,831
  75,500      Michaels Stores Inc*                               2,567,000
  90,500      Micro Warehouse Inc*                               1,244,375
  10,000      Microage Inc*                                        128,750
  35,800      Neiman Marcus Group Inc                            1,331,313
  77,400      NPC International Inc                                890,100
  93,100      Officemax Inc*                                     1,553,606
  35,900      Outback Steakhouse Inc*                            1,283,425
  54,700      Phillips Van Heusen                                  711,100
  29,450      Pier 1 Imports Inc                                   787,788

12            See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Retail Trade -- continued                     
  51,225      Proffitts Inc                                      1,735,247
  32,600      Richfood Holdings Inc                                927,063
  55,400      Ross Stores Inc                                    2,181,375
  53,400      Ruby Tuesday Inc                                   1,395,075
  47,400      Ruddick Corp                                         859,125
 317,100      Service Merchandise Co                               733,294
  65,200      Shopko Stores Inc*                                 1,715,575
 340,000      Southland Corp                                       658,750
  91,900      Spiegel Inc, Class A                                 413,550
  31,600      Stanhome Inc                                         912,450
 121,600      Value City Department Stores Inc*                  1,352,800
  39,700      Viking Office Products Inc                           873,400
  23,700      Weismarkets Inc                                      833,944
  28,400      Zale Corp                                            789,875
                                                               -----------
                                                                66,266,343
                                                               -----------

Services -- 6.3%                              
  13,900      Amerco                                               389,200
  44,600      Anixter International Inc                            769,350
 103,425      Arctic Cat Inc                                     1,034,250
 158,600      Aztar Corp                                         1,348,100
  58,350      Banta Corp                                         1,735,913
  31,200      Berlitz International Inc                            809,250
  29,300      Bowne and Co Inc                                   1,241,588
 128,400      Buffetts Inc                                       1,356,225
  12,200      Carmike Cinemas Inc, Class A                         372,863
  22,200      Catalina Marketing Corp                            1,072,538
  11,800      Chemed Corp                                          466,100
  12,438      Chris Craft Industries Inc                           694,189
  41,200      Circus Circus Enterprises Inc*                       906,400
 191,500      Dames and Moore Inc                                2,465,563
  24,800      Devon Group Inc                                    1,587,200
  31,400      Electro Rental Corp                                1,271,700
  73,200      Fleming Cos Inc                                    1,303,875
  48,500      Franklin Covey Co                                  1,182,188
 108,500      Grand Casinos Inc                                  1,654,625
  71,000      Handleman Co*                                        479,250
  74,100      Harrahs Entertainment Inc*                         1,560,731
  17,900      Interim Services Inc                                 519,100
  62,200      Interpool Inc                                        886,350
  32,000      Jacobs Engineering Group                             958,000
  41,900      Kellwood Co                                        1,359,131

              See accompanying notes to the financial statements.             13


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Services -- continued                         
  40,600      Kelly Services                                     1,446,375
  77,200      Kingworld Productions Inc                          2,060,275
  20,050      Marcus Corp                                          342,103
 154,600      Nash Finch Co                                      2,995,375
  11,200      Norrell Corp                                         261,800
  29,500      Oakwood Homes Corp                                 1,168,938
  41,200      Ogden Corp                                         1,133,000
  92,200      Olsten Corp                                        1,486,725
  16,500      Primark Corp                                         708,469
  36,700      Rollins Truck Leasing Corp                           731,706
  38,000      Sbarro Inc                                         1,121,000
  62,900      Spelling Entertainment Group Inc                     566,100
  67,900      Station Casinos Inc                                  959,088
   9,900      Stone & Webster Inc                                  408,994
  85,700      Sun Healthcare Group Inc                           1,687,219
  45,300      Supervalu Inc                                      2,157,413
  29,900      United Video Satellite Group Inc*                  1,106,300
  25,648      United Water Resources Inc                           503,342
                                                               -----------
                                                                48,267,901
                                                               -----------

Technology -- 2.6%                            
  25,400      Advanced Micro Devices Inc*                          595,313
  23,100      Autodesk Inc                                       1,094,363
  85,400      Broderbund Software Inc                            2,113,650
  23,300      Cirrus Logic Corp                                    257,756
  38,300      Cognex Corp*                                         921,594
  31,900      Cohu Inc                                           1,475,375
  37,800      Data General Corp*                                   779,625
   9,800      Dionex Corp                                          572,075
  36,000      EG & G Inc                                           969,750
 121,000      Electroglas Inc                                    2,238,500
  28,200      Esterline Corp                                     1,110,375
  14,700      Fluke Corp                                           357,394
  23,000      G TECH Holdings Corp*                                812,188
  13,600      KLA Instruments Corp*                                627,724
  57,600      MTS Systems Inc                                      939,600
  14,500      National Computer System Inc                         578,188
  11,200      Storage Technology Corp*                             764,400
  21,700      Synopsys Inc                                         758,144
  27,750      Tektronix Inc                                      1,238,344
  46,000      Teradyne Inc*                                      2,170,625
                                                               -----------
                                                                20,374,983
                                                               -----------

14            See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Telecommunications -- 0.4%                    
  27,800      Century Telephone Enterprises Inc                  1,695,800
  49,500      Comsat Corp                                        1,655,156
                                                               -----------
                                                                 3,350,956
                                                               -----------

Textiles -- 1.0%                              
   4,200      Crystal Brands Inc/(a)/                                   --
  50,850      Guilford Mills                                     1,442,869
  45,600      Interface Flooring Systems Inc                     1,744,200
  81,600      Shaw Industries                                      969,000
  36,700      Springs Industries Inc, Class A                    2,052,906
  23,700      Westpoint Stevens Inc*                             1,264,988
                                                               -----------
                                                                 7,473,963
                                                               -----------

Transportation -- 3.7%                        
  83,800      Airborne Freight Corp                              3,032,513
  34,650      Airline Express International Corp                   970,200
  17,400      Alaska Airline Group Inc                             958,088
  40,700      American West Holdings Corp, Class B*              1,009,869
  25,400      ASA Holdings Inc                                   1,022,350
  54,400      CNF Transportation Inc                             2,128,400
  64,000      Comair Holdings Inc                                1,704,000
  29,200      FDX Corp*                                          1,859,675
  38,100      Fleetwood Enterprises Inc                          1,785,938
  43,300      Gatx Corp                                          3,355,750
  24,300      Heartland Express Inc                                613,575
  44,500      Hunt (JB) Transportation Services Inc              1,190,375
  22,100      Illinois Central Corp                                857,756
  56,200      Navistar International Corp*                       1,707,075
  15,200      US Freightways Corp                                  531,050
  57,500      USAir Group Inc*                                   3,640,469
  52,000      Viad Corp                                          1,257,750
  25,200      Yellow Corp*                                         530,775
                                                               -----------
                                                                28,155,608
                                                               -----------

Utilities -- 9.1%                             
  42,500      American Water Works Co                            1,275,000
 115,400      Atlantic Energy Inc                                2,351,207
  91,900      Boston Edison Co                                   3,566,869
  23,400      Central Hudson Gas & Electric                        950,625
  18,900      Central Louisiana Electric Inc                       614,250
 111,400      Central Maine Power Co                             1,858,988
   8,800      Cilcorp Inc                                          408,100

              See accompanying notes to the financial statements.             15


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

Utilities -- continued                        
  85,033      Citizens Utilities, Class B                          797,184
  87,900      Commonwealth Energy Systems                        3,169,894
  84,300      Delmarva Power and Light Co                        1,817,719
  15,400      Eastern Enterprises                                  682,413
  54,300      Eastern Utilities Associates                       1,299,806
 136,100      El Paso Electric Company                             927,181
  17,600      Energen Corp                                         683,100
  29,200      Hawaiian Electric Industry Inc                     1,182,600
  80,500      Illinova Corp                                      2,233,875
  29,700      Keyspan Energy Corp                                1,056,206
  16,600      LES Industries Inc                                   600,713
  42,900      Mapco Inc                                          2,308,556
 107,482      Midamerican Energy Holding Co                      2,230,252
  14,200      Minnesota Power & Light Co                           574,213
  96,500      Montana Power Co                                   3,088,000
  36,900      Natural Gas Clearinghouse                            571,950
  89,600      Nevada Power Co                                    2,223,200
 112,200      New York State Electric and Gas Corp               4,214,514
 237,600      Niagara Mohawk Power Corp*                         3,044,250
 204,900      Northeast Utilities                                2,561,250
  38,700      Nui Corporation                                    1,023,131
  47,600      Oneok Inc                                          1,666,000
  28,600      Orange and Rockland Utilities                      1,256,613
 103,200      Public Services Co of New Mexico                   2,405,850
  55,800      Puget Sound Power and Light Co                     1,513,575
  72,400      Rochester Gas and Electric Corp                    2,257,975
  29,300      Sierra Pacific Resources                           1,051,138
  30,500      Southwest Natural Gas Corp                           617,625
  48,700      TNP Enterprises Inc                                1,564,488
  41,940      UniSource Energy Corp Holding Co                     715,601
  44,500      United Illuminating Co                             2,049,781
  69,600      Utilicorp United Inc                               2,505,600
  30,600      Washington Gas Light Co                              824,288
  25,600      Washington Water Power                               585,600
  74,500      Western Gas Resources Inc                          1,275,813
  45,400      Western Resources Inc                              1,861,400
  26,500      Wisconsin Power & Light Holding Co                   844,688
                                                              ------------
                                                                70,311,081
                                                              ------------

              TOTAL COMMON STOCKS  (COST  $629,772,452)        746,835,726
                                                              ------------

16            See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Par Value ($)/                                                              
 Shares      Description                                        Value($)
--------------------------------------------------------------------------------

RIGHTS AND WARRANTS -- 0.0%                   

Printing and Publishing -- 0.0%               
550    American Satellite Network Warrants expires          
              06/30/99 (Cost $0)/(a)/*                                  --
                                                              ------------

              TOTAL RIGHTS AND WARRANTS (COST $0)                       --
                                                              ------------

SHORT-TERM INVESTMENTS -- 12.9%               

Cash Equivalents -- 9.7%                      
$16,242,322    BankBoston Eurodollar Time Deposit, 5.7875%                  
              due 3/2/98/(b)/                                   16,242,322
$3,549,685    First Union National Bank of North Carolina                 
              Eurodollar Time Deposit, 5.6250% due 3/2/98/(b)/   3,549,685
20,055,728    Merrimac Cash Fund Premium Class/(b)/             20,055,728
$35,000,000    Prudential Securities Group Inc, Master Note,                
              5.8875% due 3/2/98/(b)/                           35,000,000
                                                              ------------
                                                                74,847,735
                                                              ------------

U.S. Government -- 0.1%                       
  $500,000    U.S. Treasury Bill, 5.165%, due 5/28/98/(c)/         493,741
                                                              ------------

Repurchase Agreements -- 3.1%                 
$23,700,028    Salomon Smith Barney Inc. Repurchase                         
Agreement, dated 2/27/98, due 3/2/98,         
with a maturity value of $23,710,041,         
and an effective yield of 5.07%,              
collateralized by U.S. Treasury Obligation    
with a rate of 8.875%, with a  maturity date  
of 8/15/17 and with a market value of         
              $24,174,028.                                      23,700,028
                                                              ------------

TOTAL SHORT-TERM INVESTMENTS                  
              (COST $99,041,379)                                99,041,504
                                                              ------------

TOTAL INVESTMENTS -- 109.9%                   
              (COST $728,813,831)                              845,877,230

               Other Assets and Liabilities (net) -- (9.9)%     (76,264,944)
                                                              ------------

              TOTAL NET ASSETS-- 100%                         $769,612,286
                                                              ============

Notes to the Schedule of Investments:         

*   Non-income producing security.                    
(a) Bankrupt issuer.                                  
             (b) Represents investments of security lending collateral (Note 1).
          (c) Security has been segregated to cover margin requirements on
open financial futures contracts.             

              See accompanying notes to the financial statements.             17


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

Assets:                                                                         
 Investments, at value (cost $728,813,831) (Note 1)             $845,877,230
 Receivable for investments sold                                  14,305,491
 Dividends and interest receivable                                   770,240
 Receivable for expenses waived or borne by Manager (Note 2)         135,788
                                                                ------------

    Total assets                                                 861,088,749
                                                                ------------

Liabilities:                                                                    
 Payable for investments purchased                                12,270,511
 Payable upon return of securities loaned (Note 1)                74,847,735
 Payable for Fund shares repurchased                               3,838,220
Payable to affiliate for (Note 2):                                        
   Management fee                                                    288,722
   Shareholder service fee                                            83,038
 Payable for variation margin on open futures contracts (Notes 1      52,431
and 6)                                                                
 Accrued expenses                                                     95,806
                                                                ------------

    Total liabilities                                             91,476,463
                                                                ------------

Net assets                                                        $769,612,286  
                                                                ============

Net assets consist of:                                                          
 Paid-in capital                                                $604,912,461
 Accumulated undistributed net investment income                   1,408,321
 Accumulated undistributed net realized gain                      46,112,677
 Net unrealized appreciation                                     117,178,827
                                                                ============
                                                                $769,612,286
                                                                ============

Net assets attributable to:                                                     
 Class III shares                                               $769,612,286
                                                                ============

Shares outstanding:                                                             
 Class III                                                        42,096,585
                                                                ============

Net asset value per share:                                                      
 Class III                                                      $      18.28
                                                                ============

18            See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
 Dividends (net of withholding taxes of $4,377)                 $  8,962,415
 Interest (including securities lending income of $172,450)        5,584,484
                                                                ------------

    Total income                                                  14,546,899
                                                                ------------

Expenses:                                                                       
 Management fee (Note 2)                                           3,650,580
 Custodian and transfer agent fees                                   222,570
 Registration fees                                                    70,289
 Audit fees                                                           39,750
 Legal fees                                                           18,111
 Trustees fees (Note 2)                                                6,695
 Miscellaneous                                                         4,828
  Fees waived or borne by Manager (Note 2)                         (1,603,440)
                                                                ------------
                                                                   2,409,383
Shareholder service fee (Note 2)                                          
    Class I                                                            4,260
    Class III                                                      1,089,290
                                                                ------------
    Net expenses                                                   3,502,933
                                                                ------------

      Net investment income                                       11,043,966
                                                                ------------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                              
    Investments                                                   90,146,041
    Closed futures contracts                                      27,478,494
                                                                ------------

      Net realized gain                                          117,624,535
                                                                ------------

Change in net unrealized appreciation (depreciation) on:                  
    Investments                                                   87,364,127
    Open futures contracts                                         2,114,958
                                                                ------------

      Net unrealized gain                                         89,479,085
                                                                ------------

    Net realized and unrealized gain                             207,103,620
                                                                ------------

Net increase in net assets resulting from operations              $218,147,586  
                                                                ============

              See accompanying notes to the financial statements.             19


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                            Year Ended         Year Ended    
                                                         February 28, 1998  February 28, 1997
                                                         -----------------  -----------------
                                                                                             
Increase (decrease) in net assets:                                                           
Operations:                                                                                  
   Net investment income                                    $ 11,043,966       $  8,393,192  
   Net realized gain                                         117,624,535         48,217,450  
   Change in net unrealized appreciation (depreciation)       89,479,085          7,279,028  
                                                            ------------       ------------  
   Net increase in net assets resulting from operations      218,147,586         63,889,670  
                                                            ------------       ------------  
Distributions to shareholders from:                                                          
   Net investment income                                                                     
      Class I                                                    (26,599)                --  
      Class III                                              (11,940,475)        (6,723,900) 
                                                            ------------       ------------  
      Total distributions from net investment income         (11,967,074)        (6,723,900) 
                                                            ------------       ------------  
   Net realized gains                                                                        
      Class I                                                   (323,423)                --  
      Class III                                              (97,888,562)        (9,617,877) 
                                                            ------------       ------------  
      Total distributions from net realized gains            (98,211,985)        (9,617,877) 
                                                            ------------       ------------  

                                                            (110,179,059)       (16,341,777) 
                                                            ------------       ------------  
   Net share transactions: (Note 5)                                                          
      Class I                                                 (1,301,006)         1,343,250  
      Class III                                                6,180,752        376,339,439  
                                                            ------------       ------------  
   Increase in net assets resulting from net                                                 
     share transactions                                        4,879,746        377,682,689  
                                                            ------------       ------------  

     Total increase in net assets                            112,848,273        425,230,582  

Net assets:                                                                                  
   Beginning of period                                       656,764,013        231,533,431  
                                                            ------------       ------------  

   End of period (including accumulated                                                      
     undistributed net investment income of                                                  
     $1,408,321 and $2,331,429, respectively)               $769,612,286       $656,764,013  
                                                            ============       ============  

20            See accompanying notes to t he financial statements.              


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                             Period from      Period from January 2, 1997 
                                            March 1, 1997     (commencement of operations)
                                          to January 9, 1998      to February 28, 1997    
                                          ------------------  ----------------------------
                                                                                          
Net asset value, beginning of period            $15.89                   $15.34           
                                                ------                   ------           

Income from investment operations:                                                        
   Net investment income                          0.22+                    0.05           
   Net realized and unrealized gain               3.00                     0.50           
                                                ------                   ------           

     Total from investment operations             3.22                     0.55           
                                                ------                   ------           

Less distributions to shareholders:                                                       
   From net investment income                    (0.27)                      --           
   From net realized gains                       (2.44)                      --           
                                                ------                   ------           

     Total distributions                         (2.71)                      --           
                                                ------                   ------           
Net asset value, end of period                 $ 16.40(c)                $15.89           
                                                ======                   ======           

Total Return (a)                                 20.55%                    3.52%          

Ratios/Supplemental Data:                                                                 
   Net assets, end of period (000's)                --                   $1,391           
   Net expenses to average daily net                                                      
     assets                                       0.61%*                   0.61%*         
   Net investment income to average                                                       
     daily net assets                             1.45%*                   1.87%*         
   Portfolio turnover rate                          56%                      58%          
   Average broker commission rate per                                                     
     equity share                              $0.0305                  $0.0271           
   Fees and expenses voluntarily waived                                                   
     or borne by the Manager consisted                                                    
     of the following per share amounts:       $  0.03                  (b)               

(a) Calculation excludes purchase premiums and redemption fees. The total       
 returns would have been lower had certain expenses not been waived during
the periods shown.                                                      
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per   
share.                                                                  
(c) All Class I shares of the Fund were exchanged for Class III shares on       
January 9, 1998. Amount represents ending net asset value per share on  
January 9, 1998.                                                        
+   Computed using average shares outstanding throughout the period.            
*   Annualized.                                                                 

              See accompanying notes to the financial statements.             21


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                    Year Ended February 28/29,              
                                       ---------------------------------------------------- 
                                         1998       1997       1996       1995       1994   
                                       --------   --------   --------   --------   -------- 
                                                                                            
Net asset value, beginning                                                                  
   of period                           $  15.89   $  13.89   $  13.61   $  14.31   $  12.68 
                                       --------   --------   --------   --------   -------- 

Income from investment operations:                                                          
   Net investment income                   0.27       0.28       0.23       0.20       0.21 
   Net realized and unrealized gain        4.85       2.32       3.20       0.34       2.14 
                                       --------   --------   --------   --------   -------- 

     Total from investment operations      5.12       2.60       3.43       0.54       2.35 
                                       --------   --------   --------   --------   -------- 

Less distributions to shareholders:                                                         
   From net investment income             (0.29)     (0.27)     (0.23)     (0.20)     (0.22)
   From net realized gains                (2.44)     (0.33)     (2.92)     (1.04)     (0.50)
                                       --------   --------   --------   --------   -------- 
     Total distributions                  (2.73)     (0.60)     (3.15)     (1.24)     (0.72)
                                       --------   --------   --------   --------   -------- 
Net asset value, end of period         $  18.28   $  15.89   $  13.89   $  13.61   $  14.31 
                                       ========   ========   ========   ========   ======== 

Total Return/(a)/                         34.43%     19.12%     27.18%      4.48%     18.97%

Ratios/Supplemental Data:                                                                   
   Net assets, end of period (000's)   $769,612   $655,373   $231,533   $235,781   $151,286 
   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              1.51%      2.15%      1.67%      1.55%      1.66%
   Portfolio turnover rate                   56%        58%       135%        54%        30%
   Average broker commission rate                                                           
     per equity share/(b)/             $ 0.0305   $ 0.0271        N/A        N/A        N/A 
   Fees and expenses voluntarily                                                            
     waived or borne by the Manager                                                         
     consisted of the following per                                                         
     share amounts:                    $   0.04   $   0.03     $ 0.02   $   0.01   $   0.02 

/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  
/(b)/ For fiscal years beginning on or after September 1, 1995, a fund is       
   required to disclose its average commission rate per share for security
trades on which commissions are charged.                            

22            See accompanying notes to the financial statements.               


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.  Significant accounting policies                                             

GMO Small Cap Value Fund (the "Fund"), formerly named the GMO Core II   
Secondaries 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 into classes.                                        

  The Fund seeks long-term growth of capital through investment primarily in
  companies whose equity capitalization ranks in the lower two-thirds of the
   1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.                 

  On June 1, 1996, the Fund began to offer three classes of shares: Class I,
   Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee 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 with GMO,
  as more fully outlined in the Trust's prospectus. Class III shares are the
  continuation of the Trust's shares that existed prior to June 1, 1996, and
   bear the same total operating expenses (after the voluntary expense waiver)
as those shares.                                                        

  Effective January 9, 1998, Class I shares ceased operations and all shares
were exchanged for Class III shares, and Class II shares ceased to be   
offered.                                                                

  The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are  
consistently followed by the Fund in the preparation of its financial   
  statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities
 for which no quotations are readily available are valued at fair value as
determined in good faith by the Trustees.                               

Futures contracts                                                       

The Fund may purchase and sell futures contracts on the domestic stock  
indices. Stock index futures contracts represent commitments for future 
delivery of cash based upon the level of a specified index of equity    
 securities at a specified price at a given date. The Fund may use futures
   contracts to manage its exposure to the stock 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                                    

                                                                              23


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

custodian, in a segregated account in the name of the futures broker, an
    amount of cash or U.S. government obligations in accordance with the initial
   margin requirements of the broker or exchange. Futures contracts are marked
  to market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or      
   receivable is liquidated on the following business day. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in  
excess of the variation margin disclosed in the Statement of Assets and 
 Liabilities. Losses may arise from changes in the value of the underlying
  instrument, if there is an illiquid secondary market for the contracts, or
    if counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of 
   trade or exchange on which they are traded. See Note 6 for all open futures
contracts as of February 28, 1998.                                      

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,
realization of collateral by the Fund may be delayed or limited.        

Security lending                                                        

The Fund may lend its securities to certain member firms of the New York
Stock Exchange. 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 delay in recovery or even loss of rights in the collateral  
 should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1998, the Fund 
 loaned securities having a market value of $71,864,971, collateralized by
cash in the amount of $74,847,735, which was invested in short-term     
instruments.                                                            

Swap agreements                                                         

    The Fund may enter into swap agreements to manage its exposure to the equity
markets. A swap is an agreement to exchange the return generated by one 
  instrument for the return generated by another instrument. The Fund enters
  into equity swap agreements which involve a commitment by one party in the
   agreement to pay interest in exchange for a market linked return based on a
notional amount. To the extent that 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. Equity swaps are marked to market
 daily based upon quotations from market makers and the change, if any, is
    recorded as unrealized gain or loss in the Statement of Operations. Payments
received or made at the end of the measurement period are recorded as   
 realized gain or loss in the Statement of Operations. Entering into these
   agreements involves, to varying degrees, elements of credit and market risk
in excess of the amounts recognized on the Statement of Assets and      
Liabilities.                                                            

24                                                                              


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

   Such risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its  
    obligation to perform, or that there may be unfavorable changes in the price
  of the security or index underlying these transactions. There were no open
swap agreements as of February 28, 1998.                                

Taxes                                                                   

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
 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 federal income
 tax purposes. Therefore, no provision for federal income or excise tax is
    necessary. Taxes on foreign dividend income have been withheld in accordance
with the applicable country's tax treaty with the United States.        

Distributions to shareholders                                           

 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 will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash 
distributions. The Fund declares separate dividends from net investment 
income on each class of shares.                                         

Income distributions and capital gain distributions are determined in   
accordance with income tax regulations which may differ from generally  
accepted accounting principles. Distributions in excess of tax basis    
earnings and profits, if any, are reported in the Fund's financial      
statements as a return of capital. Differences in the recognition or    
classification of income for financial statement and tax purposes which 
   result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or       
accumulated net realized gains.                                         

Security transactions and related investment income                     

 Security transactions are accounted for on trade date. Dividend income is
    recorded on the ex-dividend date. Interest income is recorded on the accrual
    basis and is adjusted for the accretion of discounts. 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 in such manner as deemed equitable by the Trustees,  
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.                 

                                                                              25


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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. Prior to June 1, 1996, the premium on
cash purchases and fee on redemptions was .75% of the amount invested or
    redeemed. 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. Purchase premiums are  
included as part of each class' "shares sold" and redemption fees are   
included as part of each class' "shares repurchased", respectively, as  
summarized in Note 5. For the year ended February 28, 1998, the Fund    
received $679,933 in purchase premiums and $902,897 in redemption fees. 
 There is no premium for reinvested distributions or in-kind transactions.

2.  Fees and other transactions with affiliates                                 

GMO earns a management fee paid monthly at the annual rate of .50% of   
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, and .15% for 
Class III shares.                                                       

  GMO has agreed to waive a portion of its fee and bear other expenses until
   further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other       
  transaction costs (including transfer taxes), shareholder service fees and
 extraordinary expenses) exceed .33% of average daily net assets. Prior to
  June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III     
shareholder is unchanged.                                               

    The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
   during the year ended February 28, 1998 was $6,695. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.           

3.  Purchases and sales of securities                                           

Cost of purchases and proceeds from sales of securities, excluding      
short-term investments, for the year ended February 28, 1998, aggregated
$471,338,413 and $344,355,517, respectively.                            

At February 28, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:                                                                

                        Gross Unrealized    Gross Unrealized    Net Unrealized
    Aggregate Cost       Appreciation        Depreciation       Appreciation
    ------------------- ------------------- ------------------- ----------------
     $ 729,905,587       $ 138,569,497        $ 22,597,854       $ 115,971,643

26                                                                              


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

4.  Principal shareholders                                                      

   At February 28, 1998, 22.4% of the outstanding shares of the Fund were held
  by two shareholders each holding in excess of 10% of the Fund's oustanding
shares.                                                                 

5.  Share transactions                                                          

  The Declaration of Trust permits the Trustees to issue an unlimited number
  of shares of beneficial interest (without par value). Transactions in Fund
  shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:                             

                                                        [Enlarge/Download Table]


                                                                 Period from January 2, 1997 
                                                Period from          (commencement of        
                                               March 1, 1997            operations)          
Class I:                                    to January 9, 1998     to February 28, 1997      
                                          ----------------------  ------------------------   
                                            Shares       Amount      Shares      Amount      
                                          ----------  -----------   --------  ------------   
                                                                                             
Shares sold                                  55,930   $ 1,050,044     87,565    $1,343,250   
Shares issued to shareholders                                                                
     in reinvestment of distributions        20,915       350,022          -             -   
Shares repurchased                         (164,410)   (2,701,072)         -             -   
                                          ---------   -----------   --------    ----------   
Net increase (decrease)                     (87,565)  $(1,301,006)    87,565    $1,343,250   
                                          =========   ===========   ========    ==========   



                                              Year Ended                  Year Ended         
Class III:                                 February 28, 1998           February 28, 1997     
                                       -------------------------    ------------------------ 
                                         Shares        Amount         Shares       Amount    
                                       -----------  ------------    ----------  ------------ 
                                                                                             
Shares sold                              8,025,013  $137,024,478    36,443,463  $557,963,243 
Shares issued to shareholders                                                                
     in reinvestment of distributions    6,187,157   103,690,318       846,111    12,460,382 
Shares repurchased                     (13,350,357) (234,534,044)  (12,721,369) (194,084,186)
                                       -----------  ------------    ----------  ------------ 
Net increase                               861,813  $  6,180,752    24,568,205  $376,339,439 
                                       ===========  ============    ==========  ============ 

6.  Financial instruments                                                       

 A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                                

Long futures contracts                                                  

                                                                [Download Table]


                                                                     Net      
  Number of                                                       Unrealized  
  Contracts        Type      Expiration Date    Contract Value   Appreciation 
-------------  ------------  -----------------  ---------------  -------------
                                                                              
     42        Russell 2000     March 1998         $9,717,750      $115,428   
                                                                  ==========  

At February 28, 1998, the Fund has sufficient cash and/or securities to 
cover any commitments or margin on open futures contracts.              

                                                                              27


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

    For the fiscal year ended February 28, 1998, all of the Fund's distributions
are from investment company taxable income, except that the Fund has    
designated 52.40% of distributions as net capital gain dividends.       

28                                                                              


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GMO Small Cap Value Fund                                                        
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

    Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible
for the day-to-day management of the Fund's portfolio.  Each has been a 
 portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
fifteen years.                                                          

Management Discussion and Analysis of Fund Performance                          

   The Class III shares of the GMO Small Cap Value Fund returned 34.4% for the
  fiscal year ended February 28, 1998, as compared to 35.0% for the S&P 500.
   The Russell 2000 Value Index returned 33.9% for the same period. Consistent
  with the Fund's investment objectives and policies, the Fund was primarily
invested in common stocks throughout the period.                        

In the fiscal year that just ended, small stocks rose significantly.    
 However, in a continuation of a market trend that has persisted for three
years, large capitalization stocks recorded even better gains. In this  
   environment, the performance of the GMO Small Cap Value Fund was excellent:
    it outperformed the Russell 2000 Value Index and only marginally trailed the
S&P 500.                                                                

   Strong performing sectors in the Russell 2000 Value Index included consumer
stocks, which benefited from the strong economy and low unemployment.   
Utility and financial stocks also performed well in an environment of   
declining interest rates. On the other hand, technology and health care 
   stocks posted smaller gains. These more speculative issues declined sharply
   during the fall of 1997 in the wake of events in the Far East. In a "flight
   to quality," investors adjusted their portfolios to increase their holdings
of the stocks of larger companies with more stable earnings.            

  The primary reason for good performance in the Fund during the fiscal year
   was good stock selection. The GMO Small Cap Value Fund selects stocks based
  on four strategies: price to fair value, price to book, price to sales and
    price to cash flow. Using these strategies, we favor the stocks of companies
   with relatively low prices. These strategies allowed us to realize superior
returns from our holdings in utilities, health care and insurance.      

    Our sector emphasis marginally offset strong stock selection. Overweights in
  health care and technology issues detracted from returns, as these sectors
underperformed the rest of the index. Our underweight in the            
    strong-performing Financial Services sector also lowered returns relative to
the benchmark.                                                          

Outlook                                                                         

Since 1983, small capitalization stocks have lagged their larger        
counterparts. At the current time, they look increasingly attractive    
relative to large capitalization stocks on a number of measures --      
  price-to-book, price-to-cash flow, price-to-sales and price-to-fair value.
Although not as cheap as they were in the mid-1970's (prior to their    
  legendary rise through 1983), today small-cap stocks are at their cheapest
relative price since the late 1970's when institutions began to treat   
   small-cap stocks as a separate asset class. We believe that this bodes well
for the relative returns of small cap stocks over the next few years.   

The views expressed here are exclusively those of Grantham, Mayo, Van   
Otterloo & Co. LLC Management. They are not meant as investment advice. 


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Comparison of Change in Value of a $10,000 Investment in  

GMO Small Cap Value Fund Class III Shares and the S&P 500 Index 

As of February 28, 1998 

------------------------------------------  
Average Annual Total Return 
------------------------------------------  
                             Since
1 Year           5 Year       Inception 
------------------------------------------  
Class                                 12/31/91        
III                                                 
33.1%            20.2%          21.2% 
------------------------------------------  

[LINE GRAPH APPEARS HERE] 

GMO Small Cap Value Fund              
                 Class III Shares                S & P 500 Index
             ------------------------            ---------------

12/31/91                      $9,950                         $10,000            
2/29/92                     $11,065                          $9,941           
2/28/93                     $12,888                         $11,000           
2/28/94                     $15,333                         $11,916           
2/28/95                     $16,021                         $12,794           
2/29/96                     $20,376                         $17,233           
2/28/97                     $24,272                         $21,741           
2/28/98                     $32,465                         $29,350           

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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 paid to the Fund to cover trading costs. Class III shares  
are a redesignation of the single class of shares that has been offered by the  
Fund since inception. Past performance is not indicative of future performance. 
Information is unaudited.                                                       


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                   

To the Trustees of GMO Trust and the Shareholders of                
GMO Core Fund (A Series of GMO Trust)                               

 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 Fund at February 28, 1998, the results of its operations for the year
      then ended, the changes in its net assets and the financial highlights for
   the periods presented, in conformity with generally accepted accounting
      principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
    Trust'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 generally accepted auditing 
standards 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 28, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing   
    procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.                   

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 13, 1998                                                      


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                     Value ($)  
--------------------------------------------------------------------------------

COMMON STOCKS -- 91.3%                      

Advertising -- 0.4%                         
   289,800      Interpublic Group Inc                             15,794,100
                                                              --------------
Aerospace -- 0.4%                           
    21,200      Northrop Grumman Corp                              2,946,800
   134,900      Textron Inc                                       10,109,069
                                                              --------------
                                                                  13,055,869
                                                              --------------
Automotive -- 3.0%                          
     8,600      Bandag Inc                                           482,138
 1,558,800      Ford Motor Co                                     88,169,624
   278,400      General Motors Corp                               19,192,200
   102,200      Genuine Parts Co                                   3,781,400
                                                              --------------
                                                                 111,625,362
                                                              --------------
Banking and Financial Services -- 11.3%     
   381,100      Ahmanson (HF) & Co                                23,794,931
   124,100      Amsouth Bancorp                                    6,972,869
   434,170      Banc One Corp                                     24,530,605
    36,600      Bank of New York Inc                               2,143,388
   255,400      BankBoston Corp                                   25,460,188
   172,600      Bankers Trust New York Corp                       20,409,950
   217,799      Bear Stearns Inc                                  10,154,878
    75,200      Beneficial Corp                                    8,873,600
   302,750      Charles Schwab & Co Inc                           11,428,813
   322,008      Chase Manhattan Corp                              39,949,117
    43,600      Citicorp                                           5,777,000
   168,800      Countrywide Credit Industry Inc                    7,501,050
   386,000      Dime Bancorp Inc                                  11,773,000
    52,700      Donaldson Lufkin & Jenrette                        4,314,813
   235,200      Edwards (AG) Inc                                   9,893,100
    72,600      First Bank of America Corp                         5,640,113
   269,100      Franklin Resources Inc                            13,724,100
    83,700      Golden West Financial Corp                         7,470,225
   118,800      Greenpoint Financial Corp                          8,820,900
   133,400      Hibernia Corporation, Class A                      2,668,000
    90,100      Lehman Brothers Holding Inc                        5,681,931
   512,400      Merrill Lynch                                     36,668,624
    19,500      MGIC Investment Corp                               1,436,906
   403,812      Morgan Stanley Dean Witter Discover & Co          28,140,648
   348,144      Nationsbank Corp                                  23,847,864

              See accompanying notes to the financial statements.              1


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                      Value ($) 
--------------------------------------------------------------------------------

Banking and Financial Services -- continued 
   282,400      Paine Webber Group Inc                            11,860,800
   315,800      PNC Bank Corp                                     17,526,900
    15,200      Providian Financial Corp                             862,600
     4,800      Republic New York Corp                               580,800
   119,900      Summit Bancorp                                     5,957,531
   324,107      Travelers Group Inc                               18,068,965
    43,600      U.S. Bancorp                                       5,016,725
   146,470      Washington Mutual Inc                              9,831,799
                                                               -------------
                                                                 416,782,733
                                                               -------------
Chemicals -- 0.6%                           
    99,700      Eastman Chemical Co                                6,530,350
   131,500      Great Lakes Chemical Corp                          6,394,188
    59,200      Lubrizol Corp                                      2,282,900
   183,400      Union Carbide Corp                                 8,516,638
                                                               -------------
                                                                  23,724,076
                                                               -------------
Computer and Office Equipment -- 1.5%       
    18,100      Computer Associates International Inc                852,963
   455,800      EMC Corp                                          17,434,350
    43,300      Gateway 2000 Inc                                   1,905,200
   172,100      Lexmark International Group Inc *                  7,357,275
   583,100      Micron Technology Inc *                           19,351,631
    56,900      Pitney Bowes Inc                                   2,667,188
   300,700      Unisys Corp *                                      5,375,013
    73,300      Western Digital Corp                               1,337,725
                                                               -------------
                                                                  56,281,345
                                                               -------------
Construction -- 1.5%                        
   220,900      Georgia-Pacific Corp                              12,964,069
   675,800      Home Depot Inc                                    43,124,487
                                                               -------------
                                                                  56,088,556
                                                               -------------
Consumer Goods -- 4.4%                      
    95,600      Callaway Golf Co                                   3,083,100
    34,100      Colgate-Palmolive Co                               2,768,494
   310,500      Eastman Kodak Co                                  20,376,563
   397,200      Fortune Brands Inc                                15,763,875
   136,300      Hasbro Inc                                         4,949,394
    95,000      Jones Apparel Group Inc *                          5,225,000
     2,800      Liz Claiborne Inc                                    140,000

2             See accompanying notes to the financial statements.               


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares         Description                                   Value ($)
--------------------------------------------------------------------------------

Consumer Goods -- continued           
     545,000      Mattel Co                                     23,060,313
     387,900      Maytag Corp                                   17,455,500
      53,300      Moore Corp Ltd                                   836,144
     156,800      Newell Co                                      7,193,200
     495,600      Procter and Gamble Co                         42,095,024
     124,200      Reebok International Ltd *                     3,873,488
     163,900      Sunbeam Corp                                   6,781,363
     216,500      VF Corp                                       10,324,344
                                                            --------------
                                                               163,925,802
                                                            --------------
Electronic Equipment -- 1.7%          
      23,700      Arrow Electronics Inc                            789,506
      37,900      Cooper Industries Inc                          2,127,138
      31,500      Harris Corp                                    1,596,656
      88,400      Litton Industries *                            5,502,900
     309,900      Motorola Inc                                  17,276,925
      51,800      National Semiconductor Corp *                  1,236,725
     334,400      Raytheon Co, Class B                          19,666,900
     238,900      Texas Instruments                             13,826,338
                                                            --------------
                                                                62,023,088
                                                            --------------
Environmental Control -- 0.1%         
     180,800      Wheelabrator Technology Inc                    2,949,300
                                                            --------------
Food and Beverage -- 4.7%             
     470,700      Anheuser Busch Cos Inc                        22,064,063
     404,167      Archer Daniels Midland Co                      9,068,497
     338,400      Bestfoods                                     35,658,899
     470,700      Coca Cola Enterprises Inc                     15,562,519
      36,150      Dean Foods Co                                  1,988,250
         200      Hormel (Geo A) and Co                              7,425
     170,900      IBP Inc                                        3,813,206
     255,100      Kellogg Co                                    10,873,638
     588,600      Sara Lee Corp                                 33,255,899
     262,400      Seagrams Co Ltd                                9,971,200
       1,400      Sysco Corp                                        65,888
     406,300      Unilever NV ADR                               26,130,168
      12,000      Universal Foods Corp                             540,000
     157,300      Whitman Corp                                   2,801,906
      17,900      Wrigley (William Jr) Co                        1,367,113
                                                            --------------
                                                               173,168,671
                                                            --------------

             See accompanying notes to the financial statements.             3


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

    Shares         Description                                     Value ($)
--------------------------------------------------------------------------------

Health Care -- 2.8%                   
       17,600      Becton Dickinson & Co                           1,119,800
      107,100      Columbia HCA Healthcare Corp                    2,905,088
       46,100      Hillenbrand Industries Inc                      2,590,244
      657,400      Johnson & Johnson                              49,633,699
      151,500      Mallinckrodt Inc                                5,880,094
      212,800      McKesson Corp                                  11,092,200
      156,600      Medtronic Inc                                   8,319,375
      205,000      Pharmacia & Upjohn Inc                          8,110,313
       97,700      United States Surgical Corp                     2,992,063
      154,600      Wellpoint Health Network *                      9,034,438
                                                              --------------
                                                                 101,677,314
                                                              --------------
Insurance -- 3.7%                     
       65,300      AMBAC Inc                                       3,477,225
       15,200      Cincinnati Financial Corp                       2,052,000
       18,000      CNA Financial Corp *                            2,590,875
      494,100      Conseco Inc                                    23,191,819
      133,600      Foundation Health Systems Inc, Class A *        3,699,050
      176,000      Loews Corp                                     17,655,000
       33,500      MBIA Inc                                        2,451,781
       41,900      Mercury General Corp                            2,377,825
       74,700      Old Republic International Corp                 3,151,406
       96,400      Progressive Corp                               11,170,350
      113,800      Reliastar Financial Corp                        5,412,613
      188,600      Safeco Corp                                     9,889,713
      175,900      Saint Paul Cos Inc                             15,589,138
      433,500      Torchmark Corp                                 20,184,844
       96,509      Transamerica Corp                              11,237,267
       37,400      Transatlantic Holding Inc                       2,828,375
                                                              --------------
                                                                 136,959,281
                                                              --------------
Machinery -- 1.5%                     
    1,212,200      Applied Materials Inc                          44,624,112
       63,900      Cummins Engine Inc                              3,698,213
       43,000      FMC Corp *                                      3,112,125
       45,900      Parker-Hannifin Corp                            2,140,088
       43,100      Smith International Inc *                       2,295,075
                                                              --------------
                                                                  55,869,613
                                                              --------------

4             See accompanying notes to the financial statements.               


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares         Description                                    Value ($)
--------------------------------------------------------------------------------
Manufacturing -- 2.8%                 
      338,700      General Electric Co                            26,333,924
      483,300      IBM Corp                                       50,474,643
      271,200      International Game Technology                   6,576,600
       80,000      Leggett & Platt Inc                             4,015,000
      413,400      Owens Illinois Inc *                           15,864,225
       19,800      Temple Inland Inc                               1,180,575
                                                               ---------------
                                                                 104,444,967
                                                               ---------------
Oil and Gas -- 6.4%                   
       40,300      Apache Corp                                     1,370,200
      621,900      Atlantic Richfield Co                          48,352,724
       85,400      BJ Services Co                                  2,935,625
       65,900      Chevron Corp                                    5,346,138
       46,300      Columbia Energy Group                           3,533,269
          100      Ensco International Inc                             2,913
      871,200      Exxon Corp                                     55,647,899
        1,600      FINA Inc, Class A                                 101,200
       47,700      Mobil Corp                                      3,455,269
       75,100      Nabors Industries Inc *                         1,717,913
      254,300      Occidental Petroleum Corp                       6,500,544
       59,900      Pennzoil Co                                     4,009,556
      210,500      Phillips Petroleum Co                          10,314,500
      514,800      Schlumberger Ltd                               38,803,049
      334,200      Texaco Inc                                     18,652,538
      436,800      Union Pacific Resources Group                   9,773,400
      189,200      Unocal Corp                                     7,130,475
      607,000      USX - Marathon Group                           20,979,438
                                                               ---------------
                                                                 238,626,650
                                                               ---------------
Paper and Allied Products -- 1.0%     
      151,900      Champion International Corp                     7,756,394
       75,400      Fort James Corp                                 3,421,275
      226,300      Mead Corp                                       7,736,631
      191,600      Sonoco Products Co                              7,412,525
      166,200      Westvaco Corp                                   5,401,500
      116,500      Willamette Industries Inc                       4,303,219
                                                               ---------------
                                                                  36,031,544
                                                               ---------------
Pharmaceuticals -- 5.9%               
    1,075,100      Abbott Laboratories                            80,430,918
       52,400      Allergan Inc                                    1,834,000
      720,300      Bristol Myers Squibb Co                        72,165,055
      154,500      Merck & Co Inc                                 19,708,406

            See accompanying notes to the financial statements.            5


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

    Shares         Description                                     Value ($)
------------------------------------------------------------------------------- 
Pharmaceuticals -- continued          
      150,600      Schering Plough Corp                           11,455,013
      186,700      Warner Lambert Co                              27,304,874
      201,300      Watson Pharmaceutical Inc                       7,221,638
                                                              --------------
                                                                 220,119,904
                                                              --------------
Primary Materials -- 0.2%             
       65,300      EVI Inc                                         3,203,781
       41,800      Rubbermaid Inc                                  1,212,200
       33,300      Vulcan Materials Co                             3,350,813
                                                              --------------
                                                                   7,766,794
                                                              --------------
Primary Processing -- 0.1%            
      117,200      USX-US Steel Group Inc                          4,116,650
                                                              --------------
Printing and Publishing -- 0.1%       
       20,800      A.H. Belo Corp                                  1,138,800
        6,200      Washington Post Co, Class B                     3,059,700
                                                              --------------
                                                                   4,198,500
                                                              --------------
Refining -- 0.7%                      
       10,000      Murphy Oil Corp                                   499,375
      377,000      Royal Dutch Petroleum                          20,475,813
      112,700      Sun Co Inc                                      4,500,956
                                                              --------------
                                                                  25,476,144
                                                              --------------
Retail Trade -- 6.5%                  
      429,000      Albertsons Inc                                 20,082,563
      221,300      American Stores Co                              5,573,994
      298,300      Autozone Inc *                                  9,023,575
      440,100      Costco Cos Inc *                               21,509,888
      250,000      Dayton Hudson Corp                             19,328,125
      227,000      Dillards Department Stores Inc                  8,086,875
      140,025      Dollar General Corp                             6,458,653
       36,800      Family Dollar Stores Inc                        1,311,000
      222,500      Fred Meyer Inc                                  9,887,344
       10,500      Fruit of the Loom Inc *                           337,313
      571,450      Gap Inc                                        25,536,672
    1,432,800      Kmart Corp *                                   19,163,700
      443,700      Limited Inc                                    12,867,300
      252,400      Rite Aid Corp                                   8,171,450
      304,400      Tandy Corp                                     13,545,800
       26,700      Toys R Us Inc *                                   700,875

6               See accompanying notes to the financial statements.           


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares         Description                                         Value ($)
--------------------------------------------------------------------------------
Retail Trade -- continued                     
 1,186,900      Wal Mart Stores Inc                                 54,968,305
   103,900      Winn-Dixie Stores Inc                                5,604,106
                                                                --------------
                                                                   242,157,538
                                                                --------------
Services -- 0.5%                              
    13,300      BHC Communications Inc, Class A                      1,835,400
    47,900      Cendant Corp *                                       1,796,250
     4,200      Fleming Cos Inc                                         74,813
   157,500      Halliburton Company                                  7,323,750
   113,200      Supervalu Inc                                        5,391,150
                                                                --------------
                                                                    16,421,363
                                                                --------------
Technology -- 11.7%                           
   295,200      Advanced Micro Devices Inc *                         6,918,750
   163,200      America Online Inc *                                19,767,600
    87,700      Avnet Inc                                            5,590,875
   690,500      Bay Networks Inc *                                  23,390,688
 2,151,400      Compaq Computer Corp                                68,979,262
    15,400      Computer Sciences Corp *                             1,612,188
   335,900      Dell Computer Corp                                  46,984,012
    50,000      Grainger (WW) Inc                                    4,840,625
 1,177,900      Intel Corp                                         105,642,905
 1,393,600      Microsoft Corp                                     118,107,599
   142,600      Teradyne Inc *                                       6,728,938
   291,700      Xerox Corp                                          25,870,143
                                                                --------------
                                                                   434,433,585
                                                                --------------
Telecommunications -- 7.7%                    
   329,500      Ameritech Corp                                      13,736,031
 1,161,600      AT & T Corp                                         70,712,399
   493,357      Bell Atlantic Corp                                  44,278,790
    15,700      Bellsouth Corp                                         957,700
   130,400      CBS Corp                                             4,034,250
   134,400      Century Telephone Enterprises Inc                    8,198,400
   293,900      GTE Corp                                            15,907,338
   376,500      MCI Communications Corp                             18,001,406
   337,600      Nextel Communications Inc, Class A *                 9,980,300
   361,501      SBC Communications                                  27,338,499
    82,100      Southern New England Telecommunications Corp         5,182,563
   494,800      Sprint Corp                                         32,656,799
   583,800      US West Inc                                         30,394,087
    85,700      Worldcom Inc *                                       3,272,669
                                                                --------------
                                                                   284,651,231
                                                                --------------

              See accompanying notes to the financial statements.              7


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

      Shares         Description                                         Value ($)            
----------------------------------------------------------------------------------------------
                                                                                              
                     Tobacco -- 1.3%                                                          
      1,102,400      Philip Morris Cos Inc                                47,885,499          
                                                                     ---------------          

                     Transportation -- 2.0%                                                   
        371,100      Burlington Northern Santa Fe Railroad Co             36,970,837          
        134,900      CSX Corp                                              7,545,969          
        163,100      FDX Corp *                                           10,387,431          
        208,600      Kansas City Southern Industries                       7,757,313          
         95,700      UAL Corp *                                            8,146,463          
         49,400      USAir Group Inc *                                     3,127,638          
                                                                     ---------------          
                                                                          73,935,651          
                                                                     ---------------          

                     Utilities -- 6.8%                                                        
        389,300      AES Corp                                             17,129,200          
        187,200      Allegheny Energy Inc                                  5,721,300          
         20,800      Ameren Corp *                                           799,500          
        277,400      American Electric Power Inc                          13,315,200          
        270,400      Baltimore Gas and Electric Co                         8,534,500          
        275,200      Carolina Power and Light Co                          11,489,600          
        354,900      Cinergy Corp                                         12,354,956          
        123,510      Citizens Utilities, Class B                           1,157,904          
        160,100      CMS Energy Corp                                       7,084,425          
        119,200      Coastal Corp                                          7,584,100          
        207,400      Dominion Resources Inc                                8,270,075          
        281,050      DPL Inc                                               5,111,597          
        139,800      DQE Inc                                               4,639,613          
        249,700      Duke Power Co                                        13,873,956          
        661,900      Edison International                                 18,284,988          
        654,300      Entergy Corp                                         18,933,806          
        196,100      Florida Progress Corp                                 7,586,619          
        314,900      FPL Group Inc                                        18,283,881          
        250,700      General Public Utilities Inc                         10,075,006          
         83,900      LG&E Energy Corp                                      2,008,356          
        192,100      Long Island Lighting Co                               5,955,100          
         69,500      New Century Energies Inc                              3,240,438          
         54,600      New England Electric System                           2,300,025          
        169,000      Nipsco Industries Inc                                 4,341,188          
         69,900      Northern States Power Co                              3,840,131          

8               See accompanying notes to the financial statements.           


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

     Par Value ($)/                                                                             
       Shares        Description                                                    Value ($)   
------------------------------------------------------------------------------------------------
                                                                                                
                     Utilities -- continued                                                     
        388,600      Pacificorp                                                      9,399,263  
        219,600      Pinnacle West Capital Corp                                      8,962,425  
        113,300      Southern Co                                                     2,797,094  
        128,400      Teco Energy Inc                                                 3,378,525  
          1,900      Texas Utilities Co                                                 76,831  
         92,500      Western Resources Inc                                           3,792,500  
        420,700      Wisconsin Energy Corp                                          11,464,075  
                                                                                --------------  
                                                                                   251,786,177  
                                                                                --------------  
                     TOTAL COMMON STOCKS  (COST  $2,600,089,696)                 3,381,977,307  
                                                                                --------------  
                     SHORT-TERM INVESTMENTS -- 16.0%                                            

                     Cash Equivalents -- 5.5%                                                   
    $60,252,826      BankBoston Eurodollar Time Deposit, 5.7875% due                60,252,826  
                     3/2/98/(a)/                                                                
    $11,874,192      First Union National Bank of North Carolina Eurodollar                     
                     Time Deposit, 5.6250% due 3/2/98/(a)/                          11,874,192  
     65,539,336      Merrimac Cash Fund Premium Class/(a)/                          65,539,336  
    $66,000,000      Prudential Securities Group Inc, Master Note, 5.8875%                      
                     due 3/2/98/(a)/                                                66,000,000  
                                                                                --------------  
                                                                                   203,666,354  
                                                                                --------------  
                     U.S. Government -- 0.4%                                                    
    $14,500,000      U.S. Treasury Bill 5.165% due 5/28/98/(b)/                     14,318,475  
                                                                                --------------  
                     Repurchase Agreements -- 10.1%                                             
    $186,621,376     Salomon Smith Barney Inc. Repurchase Agreement, dated                      
                     2/27/98, due 3/2/98, with a maturity value of                              
                     $186,700,224 and an effective yield of 5.07%,                              
                     collateralized by a U.S. Treasury Obligation with a                        
                     rate of 8.875%, with a maturity date of 8/15/17 and                        
                     with a market value of $190,353,803.                          186,621,376  
    $186,621,376     Prudential Securities, Inc. Repurchase Agreement,                          
                     dated 2/27/98, due 3/2/98, with a maturity value of                        
                     $186,700,224 and an effective yield of 5.07%,                              
                     collateralized by U.S. Government Agency Obligations                       
                     with rates ranging from 3.75% to 16.00%, with                              
                     maturity dates ranging from 4/01/99 to 5/01/36 and                         
                     with an aggregate market value of $190,354,593.               186,621,376  
                                                                                --------------  
                                                                                   373,242,752  
                                                                                --------------  
                     TOTAL SHORT-TERM INVESTMENTS                                               
                      (COST  $591,223,955)                                         591,227,581  
                                                                                --------------  

              See accompanying notes to the financial statements.              9


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                         Value ($)
                                                      --------------

TOTAL INVESTMENTS -- 107.3%                               
     (COST $3,191,313,651)                             3,973,204,888

      Other Assets and Liabilities (net) -- (7.3)%       (268,608,747)
                                                      --------------
     TOTAL NET ASSETS -- 100%                         $3,704,596,141
                                                      ==============

Notes to the Schedule of Investments:                     

ADR - American Depositary Receipt                         
*   Non-income producing security.                                
/(a)/ Represents investments of security lending collateral (Note 1). 
 /(b)/ Security has been segregated to cover margin requirements on open
financial futures contracts.                              

10        See accompanying notes to the financial statements.                 


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                         

Assets:                                                                                  
   Investments, at value (cost $3,191,313,651) (Note 1)                    $3,973,204,888
   Cash                                                                           145,986
   Receivable for investments sold                                             61,842,948
   Dividends and interest receivable                                            5,738,625
   Receivable for expenses waived or borne by Manager (Note 2)                    553,745
   Receivable for Fund shares sold                                                198,483
                                                                           --------------
       Total assets                                                         4,041,684,675
                                                                           --------------
Liabilities:                                                                             
   Payable for investments purchased                                           91,605,848
   Payable upon return of securities loaned (Note 1)                          203,666,354
   Payable for Fund shares repurchased                                         23,116,917
   Payable to affiliate for (Note 2):                                                    
      Management fee                                                            1,449,570
      Shareholder service fee                                                     355,180
   Payable for open swap contracts (Notes 1 and 6)                             16,243,628
   Payable for variation margin on open futures contracts (Notes 1 and 6)         436,188
   Accrued expenses                                                               214,849
                                                                           --------------
       Total liabilities                                                      337,088,534
                                                                           --------------
Net assets                                                                 $3,704,596,141
                                                                           ==============
Net assets consist of:                                                                   
   Paid-in capital                                                         $2,664,608,403
   Accumulated undistributed net investment income                             10,889,309
   Accumulated undistributed net realized gain                                247,086,657
   Net unrealized appreciation                                                782,011,772
                                                                           --------------
                                                                           $3,704,596,141
                                                                           ==============
Net assets attributable to:                                                              
   Class II shares                                                         $   16,958,086
                                                                           ==============
   Class III shares                                                        $2,317,103,212
                                                                           ==============
   Class IV shares                                                         $1,370,534,843
                                                                           ==============
Shares outstanding:                                                                      
   Class II                                                                       848,657
                                                                           ==============
   Class III                                                                  115,934,929
                                                                           ==============
   Class IV                                                                    68,573,281
                                                                           ==============
Net asset value per share:                                                               
   Class II                                                                $        19.98
                                                                           ==============
   Class III                                                               $        19.99
                                                                           ==============
   Class IV                                                                $        19.99
                                                                           ==============

              See accompanying notes to the financial statements.             11


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                              
Investment Income:                                                            
   Dividends (net of withholding taxes of $60,437)             $   58,225,704 
   Interest (including securities lending income of $225,885)      14,364,147 
                                                               -------------- 
       Total income                                                72,589,851 
                                                               -------------- 
Expenses:                                                                     
   Management fee (Note 2)                                         17,753,329 
   Custodian and transfer agent fees                                  463,406 
   Legal fees                                                          63,335 
   Audit fees                                                          47,505 
   Trustees fees (Note 2)                                              30,032 
   Miscellaneous                                                       22,407 
   Fees waived or borne by Manager (Note 2)                        (7,220,779)
                                                               -------------- 
                                                                   11,159,235 
   Shareholder service fee (Note 2)                                           
       Class I                                                         27,562 
       Class II                                                        94,994 
       Class III                                                    4,736,058 
       Class IV                                                       169,387 
                                                               -------------- 
       Net expenses                                                16,187,236 
                                                               -------------- 
          Net investment income                                    56,402,615 
                                                               -------------- 
Realized and unrealized gain (loss):                                          
   Net realized gain (loss) on:                                               
       Investments                                                570,569,034 
       Closed futures contracts                                    39,040,817 
       Closed swap contracts                                        2,482,273 
                                                               -------------- 
          Net realized gain                                       612,092,124 
                                                               -------------- 
   Change in net unrealized appreciation (depreciation) on:                   
       Investments                                                372,658,308 
       Open futures contracts                                      17,735,137 
       Open swap contracts                                        (10,316,192)
                                                               -------------- 
          Net unrealized gain                                     380,077,253 
                                                               -------------- 
       Net realized and unrealized gain                           992,169,377 
                                                               -------------- 
Net increase in net assets resulting from operations           $1,048,571,992 
                                                               ============== 

12            See accompanying notes to the financial statements.               


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                            Year Ended         Year Ended    
                                                         February 28, 1998  February 28, 1997
                                                         -----------------  -----------------
                                                                                             
Increase (decrease) in net assets:                                                           
Operations:                                                                                  
   Net investment income                                    $ 56,402,615      $  56,560,600  
   Net realized gain                                         612,092,124        857,162,171  
   Change in net unrealized appreciation (depreciation)      380,077,253       (272,499,847) 
                                                            -------------     -------------- 

   Net increase in net assets resulting from operations     1,048,571,992       641,222,924  
                                                            -------------     -------------- 

Distributions to shareholders from:                                                          
   Net investment income                                                                     
       Class I                                                  (154,654)           (60,981) 
       Class II                                                 (635,110)          (622,038) 
       Class III                                             (50,102,134)       (60,383,941) 
                                                            -------------     -------------- 
       Total distributions from net investment income        (50,891,898)       (61,066,960) 
                                                            -------------     -------------- 
   In excess of net investment income                                                        
                                                            -------------     -------------- 
       Total distributions in excess of net investment                                       
       income                                                          --                 -- 
                                                            -------------     -------------- 
   Net realized gains                                                                        
       Class I                                                (3,363,020)          (574,148) 
       Class II                                              (12,616,955)        (6,542,685) 
       Class III                                            (918,932,927)      (430,596,024) 
                                                            -------------     -------------- 
       Total distributions from net realized gains          (934,912,902)      (437,712,857) 
                                                            -------------     -------------- 

                                                            (985,804,800)      (498,779,817) 
                                                            -------------     -------------- 
   Net share transactions: (Note 5)                                                          
       Class I                                                (7,566,242)         8,598,090  
       Class II                                              (50,419,336)        65,659,589  
       Class III                                            (643,189,534)      (270,803,491) 
       Class IV                                             1,217,792,446                --  
                                                            -------------     -------------- 
   Increase (decrease) in net assets resulting from net                                      
      share transactions                                     516,617,334       (196,545,812) 
                                                            -------------     -------------- 

      Total increase (decrease) in net assets                579,384,526        (54,102,705) 

Net assets:                                                                                  
   Beginning of period                                      3,125,211,615     3,179,314,320  
                                                            -------------     -------------- 

   End of period (including accumulated undistributed                                        
      net investment income of $10,889,309 and                                               
      $5,378,592, respectively)                             $3,704,596,141    $3,125,211,615 
                                                            ==============    ============== 

              See accompanying notes to the financial statements.             13


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                      Period from     Period from July 2, 1996    
                                                     March 1, 1997    (commencement of operations)
                                                  to January 9, 1998     to February 28, 1997     
                                                  ------------------  --------------------------  
                                                                                                  
Net asset value, beginning of period                   $ 20.12                 $ 18.97            
                                                       --------                --------           

Income from investment operations:                                                                
   Net investment income                                  0.27+                   0.20            
   Net realized and unrealized gain                       3.60                    2.88            
                                                       --------                --------           

      Total from investment operations                    3.87                    3.08            
                                                       --------                --------           

Less distributions to shareholders:                                                               
   From net investment income                            (0.28)                  (0.19)           
   From net realized gains                               (6.05)                  (1.74)           
                                                       --------                --------           

      Total distributions                                (6.33)                  (1.93)           
                                                       --------                --------           
Net asset value, end of period                         $ 17.66/(a)/            $ 20.12            
                                                       ========                ========           

Total Return/(b)/                                        20.54%                  16.84%           

Ratios/Supplemental Data:                                                                         
   Net assets, end of period (000's)                        --                 $ 9,104            
   Net expenses to average daily net assets               0.61%*                  0.61%*          
   Net investment income to average daily net                                                     
      assets                                              1.56%*                  1.55%*          
   Portfolio turnover rate                                  60%                    107%           
   Average broker commission rate per equity                                                      
      share                                            $0.0299                 $0.0297            
   Fees and expenses voluntarily waived or borne                                                  
      by the Manager consisted of the following                                                   
      per share amounts:                               $  0.04                 $  0.02            

+   Computed using average shares outstanding throughout the period.        
/(a)/ All Class I shares of the Fund were exchanged for Class II shares on      
  January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                    
/(b)/ Calculation excludes purchase premiums. The total returns would have been 
lower had certain expenses not been waived during the periods shown.
*   Annualized.                                                             

14            See accompanying notes to the financial statements.               


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                                      Period from June 7, 1996
                                             Period from           Period from            (commencement of    
                                           January 9, 1998        March 1, 1997           operations)         
                                        to February 28, 1998   to November 17, 1997      to February 28, 1997 
                                       ---------------------  ----------------------  ------------------------
                                                                                                              
Net asset value, beginning of period            $ 17.65               $20.10                    $20.12        
                                                --------             --------                  --------       

Income from investment operations:                                                                            
   Net investment income                           0.04+                0.24+                     0.25        
   Net realized and unrealized gain                2.29                 3.99                      2.92        
                                                --------             --------                  --------       

      Total from investment operations             2.33                 4.23                      3.17        
                                                --------             --------                  --------       

Less distributions to shareholders:                                                                           
   From net investment income                      0.00                (0.22)                    (0.30)       
   From net realized gains                         0.00                (3.90)                    (2.89)       
                                                --------             --------                  --------       

      Total distributions                          0.00                (4.12)                    (3.19)       
                                                --------             --------                  ------         
Net asset value, end of period                  $ 19.98              $ 20.21                   $ 20.10        
                                                ========             ========                  ========       

Total Return /(a)/                                13.20%               23.00%                    17.46%       

Ratios/Supplemental Data:                                                                                     
   Net assets, end of period (000's)            $16,958              $ 2,037                   $64,763        
   Net expenses to average daily net assets        0.55%*               0.55%*                    0.55%*      
   Net investment income to average daily net      1.53%*               1.66%*                    1.63%*      
      assets                                                                                                  
   Portfolio turnover rate                           60%                  60%                      107%       
   Average broker commission rate per equity    $0.0299              $0.0299                   $0.0297        
      share                                                                                                   
   Fees and expenses voluntarily waived or                                                                    
      borne by the Manager consisted of the     $  0.01              $  0.03                   $  0.03        
      following per share amounts:                                                                            

+   Computed using average shares outstanding throughout the period.            
(a) Calculation excludes purchase premiums. The total returns would have been   
lower had certain expenses not been waived during the periods shown.    
*   Annualized.                                                                 

              See accompanying notes to the financial statements.             15


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                              Year Ended February 28/29,                       
                         ----------------------------------------------------------------------
                            1998           1997           1996           1995           1994   
                         ----------     ----------     ----------     ----------      ---------
                                                                                               
Net asset value,                                                                               
   beginning of                                                                                
   period                $   20.12      $   19.46      $   15.45      $   15.78       $  15.73 
                         ----------     ----------     ----------     ----------      ---------

Income from investment                                                                         
 operations:                                                                                   
   Net investment                                                                              
      income                  0.35           0.36           0.41           0.41           0.42 
   Net realized and                                                                            
      unrealized gain         5.89           3.58           5.49           0.66           1.59 
                         ----------     ----------     ----------     ----------      ---------

      Total from                                                                               
      investment                                                                               
      operations              6.24           3.94           5.90           1.07           2.01 
                         ----------     ----------     ----------     ----------      ---------

Less distributions to                                                                          
 shareholders:                                                                                 
   From net                                                                                    
      investment                                                                               
      income                 (0.32)         (0.39)         (0.42)         (0.39)         (0.43)
   From net realized                                                                           
      gains                  (6.05)         (2.89)         (1.47)         (1.01)         (1.53)
                         ----------     ----------     ----------     ----------      ---------
      Total                                                                                    
      distributions          (6.37)         (3.28)         (1.89)         (1.40)         (1.96)
                         ----------     ----------     ----------     ----------      ---------
Net asset value, end                                                                           
   of period             $   19.99      $   20.12      $   19.46      $   15.45       $  15.78 
                         ==========     ==========     ==========     ==========      =========

Total Return /(a)/           36.69%         22.05%         39.08%          7.45%         13.36%

Ratios/Supplemental Data:                                                                      
   Net assets, end of                                                                          
      period (000's)    $2,317,103     $3,051,344     $3,179,314     $2,309,248     $1,942,005 
   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              1.67%          1.78%          2.25%          2.63%          2.56%
   Portfolio turnover                                                                          
      rate                      60%           107%            77%            99%            40%
   Average broker                                                                              
      commission rate                                                                          
      per equity                                                                               
      share /(b)/        $  0.0299      $  0.0297             N/A            N/A            N/A
   Fees and expenses                                                                           
      voluntarily                                                                              
      waived or borne                                                                          
      by the Manager                                                                           
      consisted of                                                                             
      the following                                                                            
      per share                                                                                
      amounts:           $    0.05      $    0.04      $    0.01      $    0.01       $   0.01 

/(a)/ Calculation excludes purchase premiums. The total returns would have been 
lower had certain expenses not been waived during the periods shown.
/(b)/ For fiscal years beginning on or after September 1, 1995, a fund is       
   required to disclose its average commission rate per share for security
trades on which commissions are charged.                            

16            See accompanying notes to the financial statements.               


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class IV share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                            Period from January 9, 1998 
                                                            (commencement of operations)
                                                                to February 28, 1998    
                                                            ----------------------------
                                                                                        
Net asset value, beginning of period                              $    17.65            
                                                                  ----------            

Income from investment operations:                                                      
   Net investment income                                                0.04+           
   Net realized and unrealized gain                                     2.30            
                                                                  ----------            

      Total from investment operations                                  2.34            
                                                                  ----------            

Net asset value, end of period                                    $    19.99            
                                                                  ==========            

Total Return/(a)/                                                      13.26%           

Ratios/Supplemental Data:                                                               
   Net assets, end of period (000's)                              $1,370,535            
   Net expenses to average daily net assets                            0.435%*          
   Net investment income to average daily net assets                    1.67%*          
   Portfolio turnover rate                                                60%           
   Average broker commission rate per equity share                $   0.0299            
   Fees and expenses voluntarily waived or borne by the                                 
      Manager consisted of the following per share amount:        $     0.01            


*    Annualized.                                                              
+    Computed using average shares outstanding throughout the period.         
/(a)/ Calculation excludes purchase premiums. The total return would have been  
lower had certain expenses not been waived during the period shown. 

                  See accompanying notes to the financial statements.       17


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

     GMO 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 a total return greater than that of the Standard & Poor's
  500 Stock Index through investment of substantially all of its assets in
   common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity  
capitalization whose securities are listed on a United States national
securities exchange.                                                  

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II, and Class III. The principal economic difference among the  
classes of shares is the level of shareholder service fee 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
with GMO, as more fully outlined in the Trust's prospectus. Class III 
 shares are the continuation of the Trust's shares that existed prior to
June 1, 1996, and bear the same total operating expenses (after the   
voluntary expense waiver) as those shares.                            

    Effective January 9, 1998, Class I shares ceased operations and all shares
were exchanged for Class II shares. Additionally, Class IV commenced  
operations on January 9, 1998.                                        

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.                    

Futures contracts                                                     
The Fund may purchase and sell futures contracts on the domestic stock
 indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity  
   securities at a specified price at a given date. The Fund may use futures
     contracts to manage its exposure to the stock 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                                                              

18                                                                              


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

    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 obligations in
    accordance with the initial margin requirements of the broker or exchange.
    Futures contracts are marked to market daily and an appropriate payable or
    receivable for the change in value ("variation margin") is recorded by the
 Fund. The payable or receivable is liquidated on the following business
   day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying 
  degrees, risk of loss in excess of the variation margin disclosed in the
   Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary 
 market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price  
  established each day by the board of trade or exchange on which they are
    traded. See Note 6 for all open futures contracts as of February 28, 1998.

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
The Fund may lend its securities to 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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $197,497,578, collateralized by cash in the amount of 
$203,666,354, which was invested in short-term instruments.           

Swap agreements                                                       
The Fund may enter into swap agreements to manage its exposure to the 
    equity markets. A swap is an agreement to exchange the return generated by
 one instrument for the return generated by another instrument. The Fund
    enters into equity swap agreements which involve a commitment by one party
 in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that 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. Equity swaps are 
 marked to market daily based upon quotations from market makers and the
    change, if any, is recorded as unrealized gain or loss in the Statement of
    Operations. Payments received or made at the end of the measurement period
are recorded as realized                                              

                                                                              19


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

     gain or loss in the Statement of Operations. Entering into these agreements
    involves, to varying degrees, elements of credit and market risk in excess
    of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
  price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of February 28, 1998.    

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for 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.           

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
 distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                       

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
 differing treatments for redemptions in-kind. Gains resulting from such
in-kind transactions amounted to $4,775,920.                          

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated         Accumulated Undistributed               
Undistributed Net             Net Realized                        
   Investment Income                 Gain                Paid-in Capital
     -----------------------  ---------------------------  ---------------------
        --                     $(4,645,123)               $4,645,123

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

20                                                                              


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the  
accrual basis and is adjusted for the accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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 .14% of the amount    
    invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
    the amount invested. All purchase premiums are paid to and recorded by the
    Fund as paid-in capital. This fee is allocated relative to each class' net
 assets on the share transaction date. Purchase premiums are included as
  part of each class' "shares sold", as summarized in Note 5. For the year
   ended February 28, 1998, the Fund received $432,617 in purchase premiums.
There is no premium for cash redemptions, reinvested distributions or 
in-kind transactions.                                                 

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .525% of
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, .15%
for Class III shares, and .105% for Class IV shares.                  

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .33% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III   
shareholder is unchanged.                                             

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998 was $30,032. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

                                                                              21


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$1,871,066,435 and $2,426,519,336, respectively.                      

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and deprecation in value of investments held were
as follows:                                                           

                                                        [Enlarge/Download Table]

                      Gross Unrealized      Gross Unrealized        Net Unrealized   
   Aggregate Cost       Appreciation          Depreciation           Appreciation    
-------------------  -------------------  --------------------  ---------------------
                                                                                     
   $3,194,311,426       $809,808,505           $30,915,043           $778,893,462    

4.   Principal shareholder                                                      

    At February 28, 1998, 11.2% of the outstanding shares of the Fund was held
by one shareholder.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]

                                                                     Period from July 2, 1996     
                                  Period from March 1, 1997        (commencement of operations)   
 Class I:                            to January 9, 1998                to February 28, 1997       
                               --------------------------------  ---------------------------------
                                  Shares            Amount           Shares             Amount    
                               ------------     ---------------  ---------------    --------------
                                                                                                  
Shares sold                       99,736      $    2,066,431        422,178       $    8,023,942  
Shares issued to shareholders                                                                     
    in reinvestment of                                                                            
    distributions                185,582           3,406,784         30,330              574,148  
Shares repurchased              (737,826)        (13,039,457)            --                   --  
                               ------------     ---------------  ---------------    --------------
Net increase (decrease)         (452,508)     $   (7,566,242)       452,508       $    8,598,090  
                               ============     ===============  ===============    ==============

22                                                                              


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Share transactions -- (continued)                                     

                                                        [Enlarge/Download Table]

                                  Period from March 1,1997 to                                      
                                  November 17, 1997 and from          Period from June 7, 1996     
                                      January 9, 1998 to            (commencement of operations)   
Class II:                              February 28, 1998                to February 28, 1997       
                               ---------------------------------- ---------------------------------
                                    Shares             Amount         Shares            Amount     
                               ---------------    --------------- ---------------    --------------
                                                                                                   
Shares sold                         848,657      $   15,209,664      2,843,284      $  58,494,866  
Shares issued to shareholders                                                                      
    in reinvestment of                                                                             
    distributions                   715,803          13,252,065        378,119          7,164,723  
Shares repurchased               (3,937,206)        (78,881,065)            --                 --  
                               ===============    =============== ===============    ==============
Net increase (decrease)          (2,372,746)     $  (50,419,336)     3,221,403      $  65,659,589  
                               ===============    =============== ===============    ==============


                                          Year Ended                         Year Ended            
Class III:                            February 28, 1998                  February 28, 1997         
                               ---------------------------------  ---------------------------------
                                    Shares            Amount          Shares           Amount      
                               ---------------   ---------------  ---------------  ----------------
                                                                                                   
Shares sold                       24,696,860    $   486,032,574      15,209,862   $   294,136,127  
Shares issued to shareholders                                                                      
    in reinvestment of                                                                             
    distributions                 51,611,877        948,323,899      24,657,273       468,161,533  
Shares repurchased              (112,049,490)    (2,077,546,007)    (51,595,821)   (1,033,101,151) 
                               ===============   ===============  ===============  ================
Net decrease                     (35,740,753)   $  (643,189,534)    (11,728,686)  $  (270,803,491) 
                               ===============   ===============  ===============  ================

                                 Period from January 9, 1998                                       
                                 (commencement of operations)                                      
Class IV:                            to February 28, 1998                                          
                               ---------------------------------                                   
                                    Shares            Amount                                       
                               ---------------   ---------------                                   
                                                                                                   
Shares sold                        68,811,049   $ 1,222,405,143                                    
Shares issued to shareholders                                                                      
    in reinvestment of                                                                             
    distributions                           -                 -                                    
Shares repurchased                   (237,768)       (4,612,697)                                   
                               ===============   ===============                                   
Net increase                       68,573,281   $ 1,217,792,446                                    
                               ===============   ===============                                   

                                                                              23


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                                        

Long futures contracts                                                

                                                        [Enlarge/Download Table]

  Number of                                                                  Net Unrealized  
  Contracts           Type         Expiration Date       Contract Value       Appreciation   
---------------  ---------------  -------------------  --------------------  ----------------
                                                                                             
       1059         S&P 500           March 1998             $278,119,875       $16,364,163  
                                                                             ================

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.            

24                                                                              


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements                                                       

                                                        [Enlarge/Download Table]


   Notional Amount     Expiration                                                Net Unrealized  
  Fund/Counterparty       Date                     Description                   (Depreciation)  
  -------------------  ------------  -----------------------------------------  -----------------
                                                                                                 
$    141,596,739/        5/11/98     Agreement with NatWest Securities         $   (1,193,267)   
     136,397,686                     Limited dated 5/6/97 to pay (receive)                       
                                     the notional amount multiplied by the                       
                                     change in market value of a basket of                       
                                     selected securities (including                              
                                     dividends) less the counterparty's                          
                                     notional amount multiplied by 6 month                       
                                     LIBOR adjusted by a specified spread                        
                                     and to receive (pay) the notional                           
                                     amount multiplied by the return on the                      
                                     Standard & Poor's 500 Index (including                      
                                     dividends) less the notional amount                         
                                     multiplied by 6 month LIBOR adjusted by                     
                                     a specified spread.                                         

      9,120,856/         5/11/98     Agreement with NatWest Securities                 (76,863)  
      8,785,963                      Limited dated 8/19/97 to pay (receive)                      
                                     the notional amount multiplied by the                       
                                     change in market value of a basket of                       
                                     selected securities (including                              
                                     dividends) less the counterparty's                          
                                     notional amount multiplied by 3 month                       
                                     LIBOR adjusted by a specified spread                        
                                     and to receive (pay) the notional                           
                                     amount multiplied by the return on the                      
                                     Standard & Poor's 500 Index (including                      
                                     dividends) less the notional amount                         
                                     multiplied by 3 month LIBOR adjusted by                     
                                     a specified spread.                                         

     118,932,934/        5/16/98     Agreement with Morgan Stanley Capital         (5,196,205)   
     128,298,774                     Services, Inc. dated 5/13/97 to pay                         
                                     (receive) the notional amount                               
                                     multiplied by the return on the                             
                                     Standard & Poor's 500 Index (including                      
                                     dividends) less the notional amount                         
                                     multiplied by 6 month LIBOR adjusted by                     
                                     a specified spread and to receive (pay)                     
                                     the change in market value of a basket                      
                                     of selected securities (including                           
                                     dividends) less the counterparty's                          
                                     notional amount multiplied by 6 month                       
                                     LIBOR adjusted by a specified spread.                       

                                                                              25


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------
Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]

   Notional Amount     Expiration                                                Net Unrealized  
  Fund/Counterparty       Date                     Description                   (Depreciation)  
  -------------------  ------------  -----------------------------------------  -----------------
                                                                                                 
$    17,079,448/         8/24/98     Agreement with Morgan Stanley Capital     $     (89,522)    
      15,754,742                     Services, Inc. dated 2/19/98 to pay                         
                                     (receive) the notional amount                               
                                     multiplied by the return on the                             
                                     Standard & Poor's 500 Index (including                      
                                     dividends) less the notional amount                         
                                     multiplied by 6 month LIBOR adjusted by                     
                                     a specified spread and to receive (pay)                     
                                     the counterparty's notional amount                          
                                     multiplied by the return on the Russell                     
                                     2000 Index (including dividends) less                       
                                     the notional amount multiplied by 6                         
                                     month LIBOR adjusted by a specified                         
                                     spread                                                      

     124,994,797/        9/11/98     Agreement with Morgan Stanley Capital        (5,672,041)    
     132,407,286                     Services, Inc. dated 9/08/97 to receive                     
                                     (pay) the notional amount multiplied by                     
                                     the return on the Standard & Poor's 500                     
                                     Index (including dividends) less the                        
                                     notional amount multiplied by 6 month                       
                                     LIBOR adjusted by a specified spread                        
                                     and to receive (pay) the change in                          
                                     market value of a basket of selected                        
                                     securities (including dividends) less                       
                                     the counterparty's notional amount                          
                                     multiplied by 6 month LIBOR adjusted by                     
                                     a specified spread.                                         

     12,200,000/         9/23/98     Agreement with NatWest Securities              (953,252)    
     12,200,000                      Limited dated 9/16/97 to pay (receive)                      
                                     the notional amount multiplied by the                       
                                     return on the Standard & Poor's 500                         
                                     Index (including dividends) less the                        
                                     notional amount multiplied by 6 month                       
                                     LIBOR adjusted by a specified spread                        
                                     and to receive (pay) the counterparty's                     
                                     notional amount multiplied by the                           
                                     return on the Russell 2000 Index                            
                                     (including dividends) less the notional                     
                                     amount multiplied by 6 month LIBOR                          
                                     adjusted by a specified spread.                             

26                                                                              


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]

   Notional Amount      Expiration                                               Net Unrealized  
  Fund/Counterparty        Date                    Description                   (Depreciation)  
  -------------------  ------------  -----------------------------------------  -----------------
                                                                                                 
$    35,664,100/        10/07/98     Agreement with Morgan Stanley Capital    $   (3,062,478)    
     33,043,847                      Services, Inc. dated 10/02/97 to pay                        
                                     (receive) the notional amount                               
                                     multiplied by the return on the                             
                                     Standard & Poor's 500 Index (including                      
                                     dividends) less the notional amount                         
                                     multiplied by 6 month LIBOR adjusted by                     
                                     a specified spread and to receive (pay)                     
                                     the counterparty's notional amount                          
                                     multiplied by the return on the Russell                     
                                     2000 Index (including dividends) less                       
                                     the notional amount multiplied by 6                         
                                     month LIBOR adjusted by a specified                         
                                     spread.                                                     

                                                                                ---------------  
                                          Net unrealized depreciation         $  (16,243,628)    
                                                                                ===============  

                                                                              27


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         

Federal Tax Information-- (Unaudited)                                           
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated     
72.87% of distributions as net capital gain dividends.                          

28                                                                              


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
--------------------------------------------------------------------------------

Portfolio Managers                                                              

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily      
    responsible for the day-to-day management of the Fund's portfolio. Each of
these individuals has been a portfolio manager at Grantham, Mayo, Van 
Otterloo & Co. LLC for more than fifteen years.                       

Management Discussion and Analysis of Fund Performance                          

 The Class III shares of the GMO Core Fund returned 36.7% for the fiscal
year ended February 28, 1997, as compared to 35.0% for the S&P 500.   
    Consistent with the Fund's investment objective and policies, the Fund was
invested substantially in common stocks throughout the period.        

  The Fund's outperformance of the benchmark is attributed to strong stock
     selection, especially within the technology and non-bank financial sectors.
 Sector selection strategies posted neutral results for the year, as the
losses from the Fund's overweights in electric utilities and small    
   capitalization stocks were offset by the gains from the Fund's overweight
 in long distance telephone companies and underweight in defensive, high
growth stocks.                                                        

During the year, the Fund's fair value and momentum stock selection   
   strategies worked successfully in identifying stocks for inclusion in the
    Fund's portfolio. The Fund's technology stock holdings, including Dell and
Compaq, contributed to strong performance for the portfolio. Dell was 
   selected for inclusion in the portfolio based on its attractive valuation
   by the momentum strategy, while Compaq earned inclusion based on positive
     valuations on both the fair value and momentum strategies. These strategies
 were also successful in selecting non-bank financial stocks. The Fund's
    value added within this sector came primarily from its overweight in large
 brokerage firms, which benefited from merger activity and record market
returns.                                                              

With respect to sector selection, the Fund employed a strategy of     
overweighting electric utilities. These stocks appeared significantly 
     undervalued relative to their historic levels. This strategy worked against
the Fund during the year's record setting returns, as utilities       
significantly underperformed for the majority of the year. Some early 
 losses were partially offset in the fourth quarter of 1997, as electric
 utilities strongly outperformed the market during the flight to quality
     following October's market turbulence. The Fund's strategy of overweighting
small capitalization stocks also detracted from performance. Small    
capitalization stocks, as represented by the Russell 2000 index,      
underperformed the S&P 500 by 5.1% during the year.                   

 These losses were partially offset by gains from the Fund's strategy of
  overweighting long distance telephone companies, including AT&T and MCI,
     which significantly outperformed during the period. The Fund also benefited
   from its strategy of underweighting defensive, high growth companies such
  as Coca-Cola and Gillette. Since the beginning of the fiscal year, these
   stocks have looked overvalued, and we continue to underweight them in the
portfolio.                                                            


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GMO Core Fund                                                                   
(A Series of GMO Trust)                                                         
--------------------------------------------------------------------------------

The risk control enhancements that we implemented in 1996 contributed 
positively to performance in 1997, by limiting our sector under- or   
  overweights. These control features limited our overweight in technology
    stocks in a volatile year for the sector. We expect to continue to benefit
from the enhanced controls going into another volatile year.          

Outlook                                                                         

    The Fund is typically overweight in high quality stocks as defined using a
GMO measure that focuses on high, stable return on equity and low debt
 ratios. However, we are now about 1% underweight in this group as these
stocks appear to be overvalued. In particular the market is paying a  
premium for high return on equity that we feel is excessive.          

  The Fund's overweight in utility stocks, which is in companies with good
   fundamental prospects in the continuing deregulatory environment, remains
    unchanged. We continue to believe that smaller stocks have more attractive
valuation levels than the largest stocks. We have moved from a 5%     
     underweight to an 8% underweight in the largest 100 stocks, and continue to
maintain a weighting of 7% to 8% in small, value stocks.              

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Core Fund Class III Shares and the S&P 500 Index  
As of February 28, 1998 

--------------------------------------------            
Average Annual Total Return             
--------------------------------------------            

                   Since
1 Year   5 Year     10 Year  Inception          
--------------------------------------------            
Class                                                                   
III         36.5%    23.1%       19.0%      n/a                       
--------------------------------------------            
Class                                       6/7/96                      
II*         36.4%     n/a         n/a      31.4%                      
--------------------------------------------            
Class                                       1/9/98                      
IV           n/a      n/a         n/a      13.1%                      
--------------------------------------------            

[LINE GRAPH APPEARS HERE] 

GMO CORE FUND      S&P 500 INDEX        
-------------      -------------        

2/29/88                 $9,986            $10,000                               
2/28/89                $11,134            $11,189                               
2/28/90                $13,492            $13,304                               
2/28/91                $15,722            $15,255                               
2/29/92                $17,856            $17,693                               
2/28/93                $19,749            $19,579                               
2/28/94                $22,387            $21,210                               
2/28/95                $24,057            $22,771                               
2/29/96                $33,459            $30,672                               
2/28/97                $40,837            $38,696                               
2/28/98                $55,820            $50,840                               

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 14 bp on the purchase. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Performance for    
Class IV and Class II shares may vary due to different shareholder service fees.
Past performance is not indicative of future performance. Information is        
unaudited.                                                                      

*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.    

                                                                              33


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GMO Value Fund                                                        
(A Series of GMO Trust)                                               
Annual Report                                                         
February 28, 1998                                                     


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Report of Independent Accountants                                   

To the Trustees of GMO Trust and the Shareholders of                
GMO Value Fund (A Series of GMO Trust)                              

 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 at February 28, 1998, the results of its operations for the
year then ended, the changes in its net assets and the financial    
highlights for the periods presented, in conformity with generally  
    accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
      responsibility of the Trust'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 generally
  accepted auditing standards 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 28, 1998 by correspondence
      with the custodian and brokers and the application of alternative auditing
    procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.                   

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 13, 1998                                                      


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                                [Download Table]

      Shares        Description                                      Value($)       
------------------------------------------------------------------------------------
                                                                                    
                    COMMON STOCKS -- 93.2%                                          

                    Aerospace -- 0.3%                                               
         2,100      Allied Signal Inc                                     89,381    
         1,400      Lockheed Martin Corp                                 163,363    
           500      Northrop Grumman Corp                                 69,500    
         5,000      Sundstrand Corp                                      302,500    
         2,200      Textron Inc                                          164,863    
         1,100      TRW Inc                                               60,294    
                                                                   -------------    
                                                                         849,901    
                                                                   -------------    
                    Automotive -- 3.5%                                              
           700      Bandag Inc                                            39,244    
        26,100      Chrysler Corp                                      1,016,269    
           700      Eaton Corp                                            67,244    
        20,600      Electronic Data Systems Corp                         902,538    
        40,800      Ford Motor Co                                      2,307,750    
        76,601      General Motors Corp                                5,280,629    
         2,400      Genuine Parts Co                                      88,800    
         1,400      Goodyear Tire & Rubber Co                             96,775    
         1,800      Harley Davidson Inc                                   52,200    
           700      Lear Corp *                                           37,013    
        75,000      Mascotech Industries Inc                           1,556,250    
           800      Paccar Inc                                            50,650    
                                                                   -------------    
                                                                      11,495,362    
                                                                   -------------    
                    Banking and Financial Services -- 11.6%                         
         2,900      Advanta Corp, Class A                                 68,331    
         1,000      Ahmanson (HF) & Co                                    62,438    
        21,600      American Express Co                                1,945,350    
         6,284      American General Corp                                365,258    
         2,650      Amsouth Bancorp                                      148,897    
        13,060      Banc One Corp                                        737,890    
           400      Bank of New York Inc                                  23,425    
        23,200      BankAmerica Corp                                   1,798,000    
           500      BankBoston Corp                                       49,844    
         2,800      Bankers Trust New York Corp                          331,100    
           900      BB&T Corporation                                      55,856    
         6,255      Bear Stearns Inc                                     291,656    
         1,800      Beneficial Corp                                      212,400    
        87,500      Block (HR) Inc                                     4,117,969    
         1,000      Capital One Financial Corp                            67,188    
        45,600      Chase Manhattan Corp                               5,657,250    

             See accompanying notes to the financial statements.             1


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

   Banking and Financial Services -- continued
        41,499      Citicorp                                           5,498,618
         1,500      Comdisco Inc                                          62,531
         1,100      Comerica Inc                                         110,894
         2,355      Commerce Bancshares Inc                              168,383
         1,850      Compass Bancshares Inc                                85,100
         1,600      Corestates Financial Corp                            135,100
         3,500      Countrywide Credit Industry Inc                      155,531
         2,400      Donaldson Lufkin & Jenrette                          196,500
         6,800      Edwards (AG) Inc                                     286,025
         3,500      Federal Home Loan Mortgage Corp                      165,375
        19,900      Federal National Mortgage Associates               1,269,869
         1,100      First Bank of America Corp                            85,456
        10,000      First Chicago NBD Corp                               821,875
           100      First Empire State Corp                               47,200
         2,100      First Hawaiian Inc                                    83,213
         1,800      First Security Corp                                   41,738
        30,760      First Union Corp (NE)                              1,620,668
         1,650      First Virginia Banks Inc                              83,531
         1,600      Firstar Corp                                          66,900
         1,300      Fleet Financial Group Inc                            102,456
         4,300      Franklin Resources Inc                               219,300
         3,300      Green Tree Financial Corp                             75,694
         2,900      Greenpoint Financial Corp                            215,325
           800      Household International Inc                          103,900
         2,000      Key Corp                                             140,125
         5,100      Lehman Brothers Holding Inc                          321,619
         4,250      Liberty Financial Cos                                154,063
         5,375      MBNA Corp                                            192,492
         1,050      Mercantile Bank Corp                                  58,406
         3,500      Mercantile Bankshares                                122,609
         4,100      Merrill Lynch                                        293,406
         2,500      MGIC Investment Corp                                 184,219
         1,900      Morgan Jersey Co Inc                                 227,050
        18,985      Morgan Stanley Dean Witter Discover & Co           1,323,017
         2,400      National City Corp                                   156,600
        16,462      Nationsbank Corp                                   1,127,647
         5,200      Norwest Corp                                         212,875
         1,460      Old Kent Financial Corp                               56,301
         8,800      Pacific Century Financial Corp                       189,750
         4,650      Paine Webber Group Inc                               195,300
         1,000      PMI Group Inc                                         72,750

2             See accompanying notes to the financial statements.               


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares        Description                                     Value($)
------------------------------------------------------------------------------- 

   Banking and Financial Services -- continued
       27,100      PNC Bank Corp                                     1,504,050
        2,100      Popular Inc                                         109,791
        7,700      Providian Financial Corp                            436,975
        1,900      Regions Financial Corp                               75,525
        1,500      Republic New York Corp                              181,500
        1,100      Rowe (T) Price & Associates Inc                      73,013
        2,150      SLM Holding Corp                                     88,822
        2,850      Southtrust Corp                                     116,494
       36,964      Travelers Group Inc                               2,060,743
          900      Union Planters Corp                                  55,631
        1,700      Unionbancal Corp                                    158,313
        1,919      Wachovia Corp                                       152,561
        3,993      Washington Federal Inc                              110,307
        2,170      Washington Mutual Inc                               145,661
        1,200      Wells Fargo & Co                                    386,400
        1,000      Wilmington Trust Corp                                61,875
                                                                 -------------
                                                                    38,379,924
                                                                 -------------
Chemicals -- 0.4%                       
        1,700      Eastman Chemical Co                                 111,350
       17,500      Engelhard Corp                                      317,188
        3,200      Great Lakes Chemical Corp                           155,600
       20,000      Millenium Chemicals Inc                             516,250
        2,100      Morton International Inc                             69,431
        1,900      Sherwin Williams Co                                  63,531
        2,500      Union Carbide Corp                                  116,094
        5,000      Wellman Inc                                         107,500
                                                                 -------------
                                                                     1,456,944
                                                                 -------------
Computer and Office Equipment -- 0.9%   
        3,900      Apple Computer Inc *                                 92,138
        5,200      Concord EFS Inc *                                   161,850
        5,200      Gateway 2000 Inc                                    228,800
        5,700      Hewlett Packard Co                                  381,900
      125,000      Intergraph Corp *                                 1,218,750
        2,000      Lexmark International Group Inc *                    85,500
        6,000      Micron Technology Inc *                             199,125
        2,300      Pitney Bowes Inc                                    107,813
        2,300      Quantum Corp                                         57,788
       20,000      Silicon Graphics Inc *                              301,250
        2,800      Sterling Software Inc *                             147,525
                                                                 -------------
                                                                     2,982,439
                                                                 -------------

              See accompanying notes to the financial statements.            3


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares        Description                                    Value($)
------------------------------------------------------------------------------- 

Construction -- 0.2%                    
          900      Centex Corp                                          65,756
        1,600      Georgia-Pacific Corp                                 93,900
       25,000      Hanson PLC ADR                                      632,812
                                                                  ------------
                                                                       792,468
                                                                  ------------
Consumer Goods -- 3.1%                  
        1,800      Black and Decker Corp                                90,675
        2,600      Callaway Golf Co                                     83,850
        2,600      CVS Corp                                            192,563
       71,100      Eastman Kodak Co                                  4,665,938
        1,200      Fastenal Co                                          52,650
            1      Footstar Inc *                                           30
        4,400      Fortune Brands Inc                                  174,625
        2,350      Hasbro Inc                                           85,334
        1,000      Jones Apparel Group Inc *                            55,000
       50,000      Jostens Inc                                       1,175,000
        2,000      Lancaster Colony Corp                                88,000
          800      Liz Claiborne Inc                                    40,000
        5,800      Mattel Co                                           245,413
       50,000      Maytag Corp                                       2,250,000
       13,900      Moore Corp Ltd                                      218,056
        1,500      Newell Co                                            68,813
        3,100      Nike Inc, Class B                                   136,013
        3,300      Procter and Gamble Co                               280,294
        1,300      Reebok International Ltd *                           40,544
        1,800      Russell Corp                                         48,825
        2,100      Terra Industries Inc                                 24,938
        2,300      Unifi Inc                                            84,525
        3,000      VF Corp                                             143,063
        1,400      Whirlpool Corp                                       93,538
                                                                  ------------
                                                                    10,337,687
                                                                  ------------
Electronic Equipment -- 1.4%            
        3,200      American Power Conversion Corp *                     92,800
        1,500      Amp Inc                                              66,281
        2,900      Arrow Electronics Inc                                96,606
        1,200      Cooper Industries Inc                                67,350
        2,500      Emerson Electric                                    159,531

4             See accompanying notes to the financial statements.               


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Electronic Equipment -- continued       
         4,100      General Instrument Corp *                             68,419
         1,700      Harris Corp                                           86,169
        35,000      International Rectifier Corp *                       509,688
         1,300      Linear Technology Corp                                98,475
         1,300      Litton Industries *                                   80,925
         1,300      LSI Logic *                                           30,794
         1,900      Maxim Integrated Products Inc                         76,713
         4,500      Motorola Inc                                         250,875
        83,100      National Semiconductor Corp *                      1,984,013
        16,200      Raytheon Co, Class B                                 952,769
         1,600      Texas Instruments                                     92,600
         3,395      Vishay Intertechnology Inc                            69,173
           900      Xilinx Inc *                                          39,488
                                                                   -------------
                                                                       4,822,669
                                                                   -------------
Environmental Control -- 0.9%           
       180,000      Wheelabrator Technology Inc                        2,936,250
                                                                   -------------
Food and Beverage -- 4.1%               
       122,700      Anheuser Busch Cos Inc                             5,751,563
        20,191      Archer Daniels Midland Co                            453,036
         1,900      Bestfoods                                            200,213
         3,200      Coca Cola Enterprises Inc                            105,800
         1,800      ConAgra Inc                                           54,000
        29,200      Darden Restaurants Inc                               394,200
           700      Dean Foods Co                                         38,500
         1,900      Heinz (HJ) Co                                        106,994
         3,700      IBP Inc                                               82,556
         1,700      McDonald's Corp                                       93,075
        19,500      Pepsico Inc                                          712,969
         1,000      Quaker Oats Company                                   53,875
        82,200      RJR Nabisco Holdings Corp                          2,841,038
         5,500      Sara Lee Corp                                        310,750
         6,900      Seagrams Co Ltd                                      262,200
         3,400      Tyson Food Inc, Class A                               66,300
        23,600      Unilever NV ADR                                    1,517,775
        25,000      Wendy's International Inc                            542,188
         2,500      Whitman Corp                                          44,531
           800      Wrigley (William Jr) Co                               61,100
                                                                   -------------
                                                                      13,692,663
                                                                   -------------

               See accompanying notes to the financial statements.             5


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Health Care -- 1.7%                     
         2,100      Bard (CR)                                             73,238
         1,100      Bausch & Lomb Inc.                                    49,294
         1,300      Becton Dickinson & Co                                 82,713
        71,600      Beverly Enterprises Inc *                          1,087,425
         3,400      BioMet Inc                                           101,363
        14,100      Columbia HCA Healthcare Corp                         382,463
         2,000      DENTSPLY International Inc                            62,000
           900      First Health Group Corp *                             44,831
         1,300      Hillenbrand Industries Inc                            73,044
        28,900      Johnson & Johnson                                  2,181,950
           800      Lincare Holdings Inc *                                51,925
         1,400      Mallinckrodt Inc                                      54,338
         1,600      McKesson Corp                                         83,400
         5,600      Medtronic Inc                                        297,500
        10,600      Pharmacia & Upjohn Inc                               419,363
         6,875      Quest Diagnostics Inc *                              106,563
         5,000      Tenet Healthcare Corp *                              186,563
         4,200      United Healthcare Corp                               254,888
         1,100      Varian Associates Inc                                 63,800
         1,500      Wellpoint Health Network *                            87,656
                                                                    ------------
                                                                       5,744,317
                                                                    ------------
Insurance -- 4.7%                       
         2,400      Aetna Life and Casualty Co                           209,700
         1,300      AFLAC Corp                                            79,869
        21,283      Allstate Corp                                      1,984,640
         4,900      AMBAC Inc                                            260,925
           900      American Bankers Insurance Group                      50,625
         2,200      American Financial Group Inc                          88,963
         3,900      American National Insurance Co                       378,300
         1,800      Chubb Corp                                           143,663
         1,800      Cigna Corp                                           343,800
           600      Cincinnati Financial Corp                             81,000
         2,600      CNA Financial Corp *                                 374,238
         6,764      Conseco Inc                                          317,485
         2,800      Equitable Companies Inc                              146,475
         1,500      Everest Re Holdings Inc                               55,313
         4,130      Foundation Health Systems Inc, Class A *             114,349
           700      General Re Corp                                      149,100
         3,000      Hartford Financial Services Group                    294,750
         3,000      Lincoln National Corp                                251,250

6              See accompanying notes to the financial statements.              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Insurance -- continued                  
         5,500      Loews Corp                                           551,719
         1,100      Marsh & McLennan Cos Inc                              95,356
         2,300      MBIA Inc                                             168,331
         1,300      Mercury General Corp                                  73,775
        10,000      Nationwide Financial Service, Class A                440,000
         4,800      Ohio Casualty Corp                                   224,400
         5,000      Old Republic International Corp                      210,938
        17,600      Oxford Health Plans Inc *                            302,500
         1,404      Pacificare Health Systems, Class B *                  87,750
           800      Progressive Corp                                      92,700
         2,034      Provident Cos Inc                                     73,224
       125,000      Reliance Group Holdings Inc                        2,125,000
         7,600      Reliastar Financial Corp                             361,475
         4,900      Safeco Corp                                          256,944
         3,800      Saint Paul Cos Inc                                   336,775
       151,600      TIG Holdings Inc                                   4,026,875
         6,800      Torchmark Corp                                       316,625
         1,900      Transamerica Corp                                    221,231
         1,600      Transatlantic Holding Inc                            121,000
         1,600      USF & G Corp                                          39,100
                                                                    ------------
                                                                      15,450,163
                                                                    ------------
Machinery -- 1.3%                       
         2,500      Agco Corporation                                      70,313
         6,400      Applied Materials Inc                                235,600
        10,000      Baker Hughes Inc                                     409,375
         1,400      Brunswick Corp                                        44,450
         2,500      Case Corp                                            162,656
         2,600      Caterpillar Inc                                      142,025
        75,000      Cincinnati Milacron Inc                            2,315,625
         3,400      Cummins Engine Inc                                   196,775
         6,300      FMC Corp *                                           455,963
        10,000      Pall Corp                                            209,375
         2,700      Tecumseh Products Co, Class B                        135,675
         1,300      York International Corp                               57,119
                                                                    ------------
                                                                       4,434,951
                                                                    ------------
Manufacturing -- 6.6%                   
        20,200      American Greetings Corp                              921,625
        39,400      Clayton Homes Inc                                    783,075
       110,000      Corning Inc                                        4,468,750

               See accompanying notes to the financial statements.             7


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Manufacturing -- continued              
         1,500      Crane Co                                              73,500
        28,500      General Electric Co                                2,215,875
         1,900      Harsco Corp                                           79,563
        42,300      IBM Corp                                           4,417,706
         2,300      International Game Technology                         55,775
        16,900      Lafarge Corp                                         567,206
         2,500      Minnesota Mining And Manufacturing Co                213,281
        75,000      Owens Corning                                      2,315,625
         6,899      Rockwell International Corp                          417,410
           300      Temple Inland Inc                                     17,888
        62,500      Tenneco Inc                                        2,570,313
         2,900      Trinity Industries Inc                               145,725
        30,900      United Technologies Corp                           2,759,756
                                                                   -------------
                                                                      22,023,073
                                                                   -------------
Metals and Mining -- 1.7%               
        46,200      Alcan Aluminum Ltd                                 1,435,088
        12,200      Asarco Inc                                           269,925
        28,500      Cyprus Amax Minerals Co                              466,688
        47,500      Inco Ltd                                             840,156
         5,000      Newmont Mining Corp                                  144,688
         5,000      Pegasus Gold*                                            500
         6,200      Phelps Dodge Corp                                    393,700
        20,000      Pittston Minerals Group                              175,000
        24,300      Reynolds Metals Co                                 1,514,194
         4,500      Timken Co                                            145,125
           300      Wesco Financial Corp                                 109,200
                                                                   -------------
                                                                       5,494,264
                                                                   -------------
Oil and Gas -- 6.4%                     
        18,400      Amerada Hess Corp                                  1,091,350
         3,000      Amoco Corp                                           255,000
         7,100      Atlantic Richfield Co                                552,025
        20,000      Cabot Oil & Gas Corp, Class A                        420,000
           800      Chevron Corp                                          64,900
         1,500      Columbia Energy Group                                114,469
           800      Consolidated Natural Gas Co                           46,000
        74,975      EEX Corp*                                            641,973
           900      El Paso Natural Gas Co                                59,738
        50,000      Enron Oil & Gas                                    1,068,750
        12,500      Exxon Corp                                           798,438

8              See accompanying notes to the financial statements.              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Oil and Gas -- continued                
           700      FINA Inc, Class A                                     44,275
        25,000      Mitchell Energy, Class B                             685,938
        21,000      Mobil Corp                                         1,521,188
       149,700      Occidental Petroleum Corp                          3,826,706
         1,700      Phillips Petroleum Co                                 83,300
         8,800      Questar Corp                                         374,000
        23,100      Texaco Inc                                         1,289,269
         5,100      Union Pacific Resources Group                        114,113
        92,500      Union Texas Petroleum Holdings Inc                 1,867,344
        66,800      Unocal Corp                                        2,517,525
        77,000      USX - Marathon Group                               2,661,313
        50,000      Westcoast Energy Inc                               1,262,500
                                                                   -------------
                                                                      21,360,114
                                                                   -------------
Paper and Allied Products -- 2.5%       
        25,000      Abitibi-Consolidated Inc                             357,813
         1,600      Bemis Company Inc                                     72,100
        17,800      Boise Cascade Corp                                   592,963
         1,000      Bowater Inc                                           49,500
        13,900      Champion International Corp                          709,769
        57,200      Fort James Corp                                    2,595,450
           400      Georgia-Pacific Timber Group                           9,125
        42,800      International Paper Co                             1,995,550
         2,800      Kimberly Clark Corp                                  155,925
         2,100      Louisiana Pacific Corp                                46,069
         2,100      Mead Corp                                             71,794
         1,400      Pentair Inc                                           57,663
         1,800      Plum Creek Timber Co Limited Partnership              60,525
           900      Potlatch Corp                                         38,981
         1,600      Rayonier Inc                                          67,800
         1,700      Sonoco Products Co                                    65,769
         4,000      Stone Container Corp *                                45,000
         1,300      Union Camp Corp                                       77,675
         2,100      Westvaco Corp                                         68,250
        23,000      Weyerhaeuser Co                                    1,148,563
         1,900      Willamette Industries Inc                             70,181
                                                                   -------------
                                                                       8,356,465
                                                                   -------------
Pharmaceuticals -- 2.3%                 
        25,600      Abbott Laboratories                                1,915,200
         9,100      Allergan Inc                                         318,500
         3,300      American Home Products Corp                          309,375

               See accompanying notes to the financial statements.             9


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Pharmaceuticals -- continued            
         7,600      Amgen Inc                                            403,750
         1,300      Bergen Brunswig Corp, Class A                         58,500
         4,300      Bristol Myers Squibb Co                              430,806
        20,000      Lilly (Eli) & Co                                   1,316,250
        25,000      Medpartners Inc *                                    300,000
         1,500      Merck & Co Inc                                       191,344
        87,500      Mylan Laboratories Inc                             1,782,813
        30,720      PharMerica Inc *                                     399,360
         1,500      Schering Plough Corp                                 114,094
                                                                   -------------
                                                                       7,539,992
                                                                   -------------
Primary Materials -- 0.1%               
         5,500      Premark International Inc                            171,188
         1,800      USG Corp *                                            98,325
           900      Vulcan Materials Co                                   90,563
                                                                   -------------
                                                                         360,076
                                                                   -------------
Primary Processing -- 0.7%              
         2,000      Alumax Inc *                                          74,125
         6,800      Dow Chemical Co                                      622,200
         4,000      Du Pont (EI) De Nemours & Co                         245,250
        50,400      LTV Corp                                             607,950
        19,300      USX-US Steel Group Inc                               677,913
         4,100      Worthington Industries                                70,213
                                                                   -------------
                                                                       2,297,651
                                                                   -------------
Printing and Publishing -- 0.2%         
         2,200      Dun and Bradstreet Corp                               73,700
        25,000      News Corporation Ltd ADR                             635,938
                                                                   -------------
                                                                         709,638
                                                                   -------------
Real Estate -- 2.2%                     
        10,000      Equity Residential Properties Trust                  479,375
        50,000      JP Realty Inc                                      1,256,250
         2,112      Starwood Hotels & Resorts                            119,481
       125,000      Summit Properties Inc                              2,531,250
       125,000      United Dominion Realty Trust                       1,750,000
        50,000      Walden Residential Properties Inc                  1,237,500
                                                                   -------------
                                                                       7,373,856
                                                                   -------------

10             See accompanying notes to the financial statements.              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares        Description                                     Value($)
------------------------------------------------------------------------------- 

Refining -- 0.2%                        
       22,500      Quaker State Corp                                   340,313
        2,000      Ultramar Diamond Shamrock Corp                       71,375
        5,000      Valero Energy Corp                                  177,500
                                                                 -------------
                                                                       589,188
                                                                 -------------
Retail Trade -- 5.3%                    
        7,800      Albertsons Inc                                      365,138
        4,000      American Stores Co                                  100,750
        3,100      Autozone Inc *                                       93,775
        1,600      Bed, Bath & Beyond Inc *                             69,100
       25,000      Cone Mills Corp *                                   204,688
        1,900      Costco Cos Inc *                                     92,863
        2,300      Dayton Hudson Corp                                  177,819
       14,000      Dillards Department Stores Inc                      498,750
       79,000      Federated Department Stores *                     3,703,125
        5,500      Food Products Lion Inc                               54,313
        1,700      Fruit of the Loom Inc *                              54,613
        7,300      Gap Inc                                             326,219
        1,000      General Nutrition Cos Inc *                          39,750
       14,500      Kmart Corp *                                        193,938
       27,700      Limited Inc                                         803,300
        2,300      May Department Stores Co                            139,725
        5,200      Mercantile Stores                                   342,225
        1,600      MSC Industrial Direct Co Inc *                       76,500
        5,300      Officemax Inc *                                      88,444
        3,500      Penney (JC) Co Inc                                  247,406
        3,600      Safeway Inc                                         125,550
       10,000      Saks Holdings Inc *                                 261,250
       62,400      Sears Roebuck & Co                                3,311,100
        2,300      Tandy Corp                                          102,350
       80,000      Toys R Us Inc *                                   2,100,000
        1,250      Tricon Global Restaurants *                          35,469
       80,000      Wal Mart Stores Inc                               3,705,000
        6,000      Weismarkets Inc                                     211,125
        1,400      Winn-Dixie Stores Inc                                75,513
        2,000      Woolworth (FW) Co *                                  47,500
                                                                 -------------
                                                                    17,647,298
                                                                 -------------

               See accompanying notes to the financial statements.            11


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Services -- 3.5%                        
           800      BHC Communications Inc, Class A                      110,400
         3,109      Chris Craft Industries Inc                           173,521
         3,500      Circus Circus Enterprises Inc *                       77,000
         3,900      Harrahs Entertainment Inc *                           82,144
        50,000      Hilton Hotels Corp                                 1,490,625
         1,400      Kelly Services                                        49,875
         5,400      Kingworld Productions Inc                            144,113
        35,000      Manpower Inc                                       1,476,563
         2,000      Meredith Corp                                         85,875
         3,100      Olsten Corp                                           49,988
         3,600      Servicemaster Company                                 97,650
         3,900      Supervalu Inc                                        185,738
       272,500      Waste Management Inc                               6,812,500
       150,000      Waste Management International PLC ADR *             909,375
                                                                   -------------
                                                                      11,745,367
                                                                   -------------
Technology -- 6.4%                      
         2,000      Adobe Systems Inc                                     88,375
        22,500      Advanced Micro Devices Inc *                         527,344
         4,100      Autodesk Inc                                         194,238
         1,400      Avnet Inc                                             89,250
         2,300      Bay Networks Inc *                                    77,913
         2,800      BMC Software Inc *                                   214,200
        11,900      Cabletron Systems Inc *                              184,450
        16,450      Cisco Systems Inc                                  1,083,644
        68,676      Compaq Computer Corp                               2,201,924
           500      Computer Sciences Corp *                              52,344
        25,000      Data General Corp *                                  515,625
        49,400      Digital Equipment Corp *                           2,812,713
         1,900      Electronic Arts *                                     83,838
           900      Grainger (WW) Inc                                     87,131
        31,700      Intel Corp                                         2,843,094
        58,400      Microsoft Corp                                     4,949,400
        40,600      Novell Inc *                                         426,933
         4,400      Seagate Technology Corp *                            106,975
        59,500      Storage Technology Corp *                          4,060,875
         1,000      Teradyne Inc *                                        47,188
         5,900      Xerox Corp                                           523,256
                                                                   -------------
                                                                      21,170,710
                                                                   -------------

12             See accompanying notes to the financial statements.              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Telecommunications -- 7.4%              
         1,500      Ameritech Corp                                        62,531
        61,500      AT & T Corp                                        3,743,813
         4,256      Bell Atlantic Corp                                   381,976
         5,500      Bellsouth Corp                                       335,500
        75,000      CBS Corp                                           2,320,313
           700      Century Telephone Enterprises Inc                     42,700
        22,500      Comsat Corp                                          752,344
         1,300      Frontier Corp                                         35,994
        78,500      GTE Corp                                           4,248,813
        19,500      MCI Communications Corp                              932,344
         2,600      Nextel Communications Inc, Class A *                  76,863
        44,601      SBC Communications                                 3,372,918
         6,000      Sprint Corp                                          396,000
             2      Telecom-TCI Ventures                                      31
         1,700      United States Cellular Corp *                         51,319
        77,700      US West Inc                                        4,045,256
       108,100      US West Media Group *                              3,479,469
         3,600      Viacom Inc, Class B *                                172,800
         2,100      Worldcom Inc *                                        80,194
                                                                   -------------
                                                                      24,531,178
                                                                   -------------
Tobacco -- 0.9%                         
         5,000      Gallaher Group Plc ADR                               115,625
        75,000      Imperial Tobacco Group Plc ADR                     1,039,755
        42,900      Philip Morris Cos Inc                              1,863,469
                                                                   -------------
                                                                       3,018,849
                                                                   -------------
Transportation -- 2.7%                  
         1,800      Alexander & Baldwin Inc                               50,850
        15,000      American West Holdings Corp, Class B *               372,188
         6,200      AMR Corp *                                           784,688
         4,600      Burlington Northern Santa Fe Railroad Co             458,275
        87,500      Canadian Pacific                                   2,499,219
         4,500      CSX Corp                                             251,719
         1,200      Delta Air Lines Inc                                  135,675
         1,000      FDX Corp *                                            63,688
         1,200      Gatx Corp                                             93,000
         1,800      Norfolk Southern Corp                                 61,988
         5,000      Ryder System Inc                                     183,438
        25,000      Sabre Group Holding Inc *                            825,000
           900      UAL Corp *                                            76,613
        47,500      USAir Group Inc *                                  3,007,360
                                                                   -------------
                                                                       8,863,701
                                                                   -------------

               See accompanying notes to the financial statements.            13


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares        Description                                     Value($)
------------------------------------------------------------------------------- 

Utilities -- 10.0%                      
        1,500      AES Corp                                             66,000
        1,100      American Electric Power Inc                          52,800
        5,300      American Water Works Co                             159,000
        2,600      Baltimore Gas and Electric Co                        82,063
        2,400      Boston Edison Co                                     93,150
       35,000      Calenergy Inc *                                     938,438
       35,000      Calpine Corp *                                      555,625
        5,400      Central & South West Corp                           144,788
       30,000      Cinergy Corp                                      1,044,375
       12,136      Citizens Utilities, Class B                         113,775
        1,600      CMS Energy Corp                                      70,800
        2,100      Coastal Corp                                        133,613
        9,200      Consolidated Edison Inc                             391,000
        2,500      Delmarva Power and Light Co                          53,844
        2,200      Dominion Resources Inc                               87,725
       30,000      DPL Inc                                             545,625
          800      DQE Inc                                              26,550
        7,100      DTE Energy Co                                       260,925
       20,000      Duke Power Co                                     1,111,250
       13,000      Edison International                                359,125
       35,000      Energy Group PLC ADR                              1,800,313
        2,400      Enova Corp                                           61,200
       81,300      Entergy Corp                                      2,352,619
       34,922      Firstenergy Corp                                  1,010,555
        1,700      Florida Progress Corp                                65,769
        1,800      FPL Group Inc                                       104,513
        4,900      General Public Utilities Inc                        196,919
       40,100      Houston Industries Inc                            1,037,588
       53,300      Illinova Corp                                     1,479,075
        6,000      Long Island Lighting Co                             186,000
        3,100      Midamerican Energy Holding Co                        64,325
        2,300      Montana Power Co                                     73,600
        2,500      New England Electric System                         105,313
        3,500      New York State Electric and Gas Corp                131,469
      195,000      Niagara Mohawk Power Corp *                       2,498,438
        5,400      Northeast Utilities                                  67,500
          900      Northern States Power Co                             49,444

14             See accompanying notes to the financial statements.              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Par Value ($)/                                                            
   Shares        Description                                      Value($)
--------------------------------------------------------------------------------

Utilities -- continued                  
        27,900      Pacificorp                                           674,831
        11,500      Peco Energy Co                                       227,125
        67,500      PG & E Corp                                        2,037,656
         1,800      Pinnacle West Capital Corp                            73,463
         5,800      PP & L Resources Inc                                 129,775
        35,500      Public Service Enterprise Group Inc                1,144,875
         1,500      Puget Sound Power and Light Co                        40,688
        32,900      Southern Co                                          812,219
       176,600      Texas Utilities Co                                 7,141,264
        25,000      TransCanada Pipeline Ltd                             564,063
        85,500      Unicom Corp                                        2,741,344
         1,600      Western Resources Inc                                 65,600
                                                                     -----------
                                                                      33,228,014
                                                                     -----------
                    TOTAL COMMON STOCKS  (COST  $242,384,672)        309,685,172
                                                                     -----------
PREFERRED STOCKS -- 1.2%                
Insurance -- 0.0%                       
         2,500      Aetna Inc 6.25% Convertible                          208,438
                                                                     -----------
Metals and Mining -- 0.1%               
         7,500      Freeport McMoran Corp $0.34                          166,875
                                                                     -----------
Real Estate -- 0.2%                     
        25,000      Crescent Real Estate 6.75% *                         618,750
                                                                     -----------
Refining -- 0.5%                        
        30,000      Unocal Corp Convertible 6.25% 144A                 1,661,250
                                                                     -----------
Transportation -- 0.4%                  
        23,900      Navistar International Corp $6.00                  1,211,431
                                                                     -----------

                    TOTAL PREFERRED STOCKS  (COST  $3,671,990)         3,866,744
                                                                     -----------
SHORT-TERM INVESTMENTS -- 10.7%         
Cash Equivalents -- 4.9%                
$   162,640      BankBoston Eurodollar Time Deposit, 5.7875% due          
                    3/2/98/(a)/                                          162,640
$   773,265      First Union National Bank of North Carolina              
                    Eurodollar Time Deposit, 5.6250% due 3/2/98/(a)/     773,265
     1,368,945      Merrimac Cash Fund Premium Class/(a)/              1,368,945
14,000,000      Prudential Securities Group Inc, Master Note,           
                    5.8875% due 3/2/98/(a)/                           14,000,000
                                                                     -----------
                                                                      16,304,850
                                                                     -----------

               See accompanying notes to the financial statements.            15


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

   Par Value ($)/                                                                                 
      Shares        Description                                                    Value($)       
--------------------------------------------------------------------------------------------------
                                                                                                  
                    U.S. Government -- 0.1%                                                       
   $   400,000      U.S. Treasury Bill, 5.165% due 5/28/98/(b)/                        394,992    
                                                                                 -------------    

                    Repurchase Agreements -- 5.7%                                                 
   $16,597,883      Salomon Smith Barney Inc. Repurchase Agreement, dated                         
                    2/27/98, due 3/2/98, with a maturity value of $16,604,895                     
                    and an effective yield of 5.07%, collateralized by a U.S.                     
                    Treasury Obligation with a rate of 8.125% with a maturity                     
                    date of 8/15/21 and with a market value of $16,929,840.         16,597,883    

   $ 2,205,642      Prudential Securities Inc. Repurchase Agreement, dated                        
                    2/27/98, due 3/2/98, with a maturity value of $2,206,574                      
                    and an effective yield of 5.07%, collateralized by a U.S.                     
                    Government Agency Obligation with a rate of 8.50%, with a                     
                    maturity date of 10/01/26 and with a market value of                          
                    $2,249,764.                                                      2,205,642    
                                                                                 -------------    
                                                                                    18,803,525    
                                                                                 -------------    

                    TOTAL SHORT-TERM INVESTMENTS  (COST $35,503,267)                35,503,367    
                                                                                 --------------   

                    TOTAL INVESTMENTS -- 105.1%                                                   
                    (COST $281,559,929)                                            349,055,283    

                    Other Assets and Liabilities (net)-- (5.1)%                    (16,951,961)   
                                                                                 -------------    

                    TOTAL NET ASSETS-- 100%                                      $ 332,103,322    
                                                                                 =============    

                    Notes to the Schedule of Investments:                                         

                    ADR - American Depositary Receipt                                             
                    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.                                            
                    * Non-income producing security.                                              
             /(a)/  Represents investments of security lending collateral (Note 1).               
             /(b)/  Security has been segregated to cover margin requirements on                  
                    open financial futures contracts.                                             

16              See accompanying notes to financial statements.                 


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                      
Assets:                                                                               
  Investments, at value (cost $281,559,929) (Note 1)                      $349,055,283
  Receivable for investments sold                                            4,763,189
  Dividends and interest receivable                                            663,472
  Receivable for expenses waived or borne by Manager (Note 2)                   50,301
                                                                          ------------

      Total assets                                                         354,532,245
                                                                          ------------

Liabilities:                                                                          
  Payable for investments purchased                                          4,586,409
  Payable upon return of securities loaned (Note 1)                         16,304,850
  Payable for Fund shares repurchased                                          571,465
  Payable to affiliate for (Note 2):                                                  
     Management fee                                                            175,506
     Shareholder service fee                                                    36,034
  Payable for open swap contracts (Notes 1 and 6)                              699,419
  Payable for variation margin on open futures contracts (Notes 1 and 6)         8,271
  Accrued expenses                                                              46,969
                                                                          ------------

      Total liabilities                                                     22,428,923
                                                                          ------------

Net assets                                                                $332,103,322
                                                                          ============

Net assets consist of:                                                                
  Paid-in capital                                                         $235,894,017
  Accumulated undistributed net investment income                               73,634
  Accumulated undistributed net realized gain                               29,235,527
  Net unrealized appreciation                                               66,900,144
                                                                          ------------
                                                                          $332,103,322
                                                                          ============

Net assets attributable to:                                                           
  Class III shares                                                        $332,103,322
                                                                          ============

Shares outstanding:                                                                   
  Class III                                                                 23,178,490
                                                                          ============

Net asset value per share:                                                            
  Class III                                                               $      14.33
                                                                          ============


         See accompanying notes to the financial statements.                  17


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
Dividends (net of withholding taxes of $33,224)                $  8,684,197 
Interest (including securities lending income of $38,120)         1,124,410 
                                                              ------------

    Total income                                                 9,808,607
                                                              ------------

Expenses:                                                                       
Management fee (Note 2)                                           2,742,196 
Custodian and transfer agent fees                                   105,128 
Audit fees                                                           37,514 
Registration fees                                                    35,494 
Legal fees                                                            9,449 
Trustees fees (Note 2)                                                3,748 
Miscellaneous                                                         2,584 
Fees waived or borne by Manager (Note 2)                         (1,134,088)
                                                              ------------
                                                                 1,802,025
Shareholder service fee (Note 2)                                            
   Class III                                                       586,036
                                                              ------------
   Net expenses                                                  2,388,061
                                                              ------------

       Net investment income                                     7,420,546
                                                              ------------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                                
   Investments                                                  87,186,933
   Closed futures contracts                                      3,492,360
   Closed swap contracts                                           663,985
                                                              ------------

       Net realized gain                                        91,343,278
                                                              ------------

Change in net unrealized appreciation (depreciation) on:                  
    Investments                                                  8,243,983
    Open futures contracts                                         329,824
     Open swap contracts                                           (544,630)
                                                              ------------

       Net unrealized gain                                       8,029,177
                                                              ------------

    Net realized and unrealized gain                            99,372,455
                                                              ------------

Net increase in net assets resulting from operations             $106,793,001   
                                                              ============

18                 See accompanying notes to the financial statements.          


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                             Year Ended         Year Ended    
                                                                          February 28, 1998  February 28, 1997
                                                                          -----------------  -----------------
                                                                                                              
Increase (decrease) in net assets:                                                                            
Operations:                                                                                                   
 Net investment income                                                      $   7,420,546      $  7,642,847   
 Net realized gain                                                             91,343,278        62,774,750   
 Change in net unrealized appreciation (depreciation)                           8,029,177        (1,146,140)  
                                                                            -------------      ------------   
 Net increase in net assets resulting from operations                         106,793,001        69,271,457   
                                                                            -------------      ------------   

Distributions to shareholders from:                                                                           
 Net investment income                                                                                        
   Class III                                                                   (8,678,684)       (7,540,588)  
                                                                            -------------      ------------   
 Net realized gains                                                                                           
   Class III                                                                  (95,748,520)      (44,759,234)  
                                                                            -------------      ------------   

                                                                             (104,427,204)      (52,299,822)  
                                                                            -------------      ------------   
 Net share transactions: (Note 5)                                                                             
   Class III                                                                 (139,853,837)      135,007,878   
                                                                            -------------      ------------   
 Increase (decrease) in net assets resulting from net share transactions     (139,853,837)      135,007,878   
                                                                            -------------      ------------   

   Total increase (decrease) in net assets                                   (137,488,040)      151,979,513   

Net assets:                                                                                                   
 Beginning of period                                                          469,591,362       317,611,849   
                                                                            -------------      ------------   

 End of period (including accumulated undistributed net investment                                            
  income of $73,634 and $1,263,932, respectively)                           $ 332,103,322      $469,591,362   
                                                                            ==============     ============   

            See accompanying notes to the financial statements.             19


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                           Year Ended February 28/29,                         
                                    --------------------------------------------------------------------------
                                       1998            1997            1996            1995            1994   
                                    ----------      ----------      ----------      ----------      ----------
                                                                                                              
Net asset value, beginning of                                                                                 
    period                          $   14.85       $   14.25       $   12.05       $   13.48       $   13.50 
                                    ----------      ----------      ----------      ----------      ----------

Income from investment                                                                                        
operations:                                                                                                   
    Net investment income                0.31            0.31            0.39            0.41            0.43 
    Net realized and unrealized                                                                               
       gain                              3.81            2.47            3.71            0.32            1.27 
                                    ----------      ----------      ----------      ----------      ----------

       Total from investment                                                                                  
       operations                        4.12            2.78            4.10            0.73            1.70 
                                    ----------      ----------      ----------      ----------      ----------

Less distributions to                                                                                         
shareholders:                                                                                                 
    From net investment income          (0.35)          (0.32)          (0.39)          (0.45)          (0.40)
    From net realized gains             (4.29)          (1.86)          (1.51)          (1.71)          (1.32)
                                    ----------      ----------      ----------      ----------      ----------

       Total distributions              (4.64)          (2.18)          (1.90)          (2.16)          (1.72)
                                    ----------      ----------      ----------      ----------      ----------
Net asset value, end of period      $   14.33       $   14.85       $   14.25       $   12.05       $   13.48 
                                    ==========      ==========      ==========      ==========      ==========

Total Return /(a)/                      31.54%          21.26%          35.54%           6.85%          13.02%

Ratios/Supplemental Data:                                                                                     
    Net assets, end of period                                                                                 
       (000's)                      $ 332,103       $ 469,591       $ 317,612       $ 350,694       $ 679,532 
    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          1.89%           2.17%           2.66%           2.86%           2.70%
    Portfolio turnover rate                40%             84%             65%             77%             35%
    Average broker commission                                                                                 
       rate per equity share /(b)/  $  0.0561       $  0.0457             N/A             N/A             N/A 
    Fees and expenses                                                                                         
       voluntarily waived or                                                                                  
       borne by the Manager                                                                                   
       consisted of the                                                                                       
       following per share                                                                                    
       amounts:                     $    0.05       $    0.04       $    0.02       $    0.02       $    0.02 

/(a)/ Calculation excludes purchase premiums. The total returns would have been 
lower had certain expenses not been waived during the periods shown.

/(b)/ For fiscal years beginning on or after September 1, 1995, a fund is       
   required to disclose its average commission rate per share for security
trades on which commissions are charged.                            

20             See accompanying notes to the financial statements.              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
------------------------------------------------------------------------------- 

1.   Significant accounting policies                                            

 GMO Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
     Fund is registered under the Investment Company Act of 1940, as amended, as
 an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the    
    "Manager" or "GMO"). The Trust was established as a Massachusetts Business
     Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
     The Declaration of Trust permits the Trustees to create an unlimited number
    of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.                                   

  The Fund seeks a total return greater than that of the Standard & Poor's
  500 Stock Index through investment of substantially all of its assets in
   common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity  
capitalization whose securities are listed on a United States national
securities exchange.                                                  

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
 as those shares. Effective January 9, 1998, Class I and Class II shares
ceased to be offered.                                                 

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.                    

Futures contracts                                                     
The Fund may purchase and sell futures contracts on the domestic stock
 indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity  
   securities at a specified price at a given date. The Fund may use futures
     contracts to manage its exposure to the stock 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                                                              

                                                                              21


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

    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 obligations in
    accordance with the initial margin requirements of the broker or exchange.
    Futures contracts are marked to market daily and an appropriate payable or
    receivable for the change in value ("variation margin") is recorded by the
 Fund. The payable or receivable is liquidated on the following business
   day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying 
  degrees, risk of loss in excess of the variation margin disclosed in the
   Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary 
 market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price  
  established each day by the board of trade or exchange on which they are
    traded. See Note 6 for all open futures contracts as of February 28, 1998.

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
The Fund may lend its securities to 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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $15,781,802, collateralized by cash in the amount of  
$16,304,850, which was invested in short-term instruments.            

Swap agreements                                                       
The Fund may enter into swap agreements to manage its exposure to the 
    equity markets. A swap is an agreement to exchange the return generated by
 one instrument for the return generated by another instrument. The Fund
    enters into equity swap agreements which involve a commitment by one party
 in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that 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. Equity swaps are 
 marked to market daily based upon quotations from market makers and the
    change, if any, is recorded as unrealized gain or loss in the Statement of
    Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations. 
  Entering into these agreements involves, to varying degrees, elements of

22                                                                              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

     credit and market risk in excess of the amounts recognized on the Statement
     of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the   
   agreements may default on its obligation to perform, or that there may be
    unfavorable changes in the price of the security or index underlying these
  transactions. See Note 6 for a summary of all open swap agreements as of
February 28, 1998.                                                    

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for 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.           

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
 distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                       

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for return of capital dividends and redemptions  
in-kind. Gains resulting from such in-kind transactions amounted to   
$452,043.                                                             

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated        Accumulated Undistributed                  
Undistributed Net            Net Realized                           
 Investment Income                Gain                 Paid-in Capital
   ---------------------  ---------------------------  ---------------------
   $67,840                  $(410,978)                  $343,138

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

                                                                              23


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the  
accrual basis and is adjusted for the accretion of discounts. In      
     determining the net gain or loss on securities sold, the cost of securities
     is determined on the identified cost basis. Dividends representing a return
of capital are reflected as a reduction of cost.                      

Allocation of operating activity                                      
The majority of expenses of the Trust are directly identifiable to an 
    individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
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 .14% of the amount    
    invested. Prior to June 1, 1996, the premium on cash purchases was .15% of
    the amount invested. All purchase premiums are paid to and recorded by the
    Fund as paid-in capital. This fee is allocated relative to each class' net
 assets on the share transaction date. Purchase premiums are included as
  part of each class' "shares sold", as summarized in Note 5. For the year
  ended February 28, 1998, the Fund received $14,513 in purchase premiums.
There is no premium for cash redemptions, reinvested distributions or 
in-kind transactions.                                                 

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .70% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .46% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .61%;
thus, the net annual expense ratio after the waiver for a Class III   
shareholder is unchanged.                                             

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998 was $3,748. No       
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

24                                                                              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$146,261,600 and $351,694,001, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                  Gross Unrealized  Gross Unrealized  Net Unrealized
 Aggregate Cost    Appreciation      Depreciation     Appreciation
 ---------------  ----------------  ----------------  --------------
 $283,064,824      $73,674,503       $7,684,044      $65,990,459

4.   Principal shareholder                                                      

     At February 28, 1998, 38.4% of the outstanding shares of the Fund were held
by one shareholder.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as 
follows:                                                              

                          Year Ended              Year Ended
Class III:                 February 28, 1998        February 28, 1997 
                           --------------------------- -----------------------
                            Shares       Amount        Shares       Amount
                           -----------  -------------- ---------- ------------
    Shares sold                681,641  $   10,600,108  9,674,742 $141,074,274
Shares issued to                                                      
shareholders                                                
in reinvestment                                             
         of distributions    7,181,148      99,150,661  3,486,567   48,679,629
     Shares repurchased     (16,313,781)   (249,604,606)(3,824,235) (54,746,025)
                           -----------  -------------- ---------- ------------
    Net increase (decrease) (8,450,992) $ (139,853,837) 9,337,074 $135,007,878
                           ===========  ============== ========== ============

                                                                              25


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Long futures contracts                                                

Number of                                             Net Unrealized
Contracts   Type    Expiration Date  Contract Value    Appreciation 
---------- -------  ---------------  ---------------  ------------- 
  20     S&P 500     March 1998    $   5,252,500    $    104,209
                                                     =============

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.            

Swap agreements                                                       

                                                        [Enlarge/Download Table]


    Notional Amount      Expiration                                               Net Unrealized  
   Fund/Counterparty        Date                     Description                   Depreciation   
  ---------------------  ------------  -----------------------------------------  ----------------
                                                                                                  
$     11,739,113/          5/16/98     Agreement with Morgan Stanley Capital      $    (512,884)  
       12,663,555                      Services, Inc. dated 5/13/97 to pay                        
                                       (receive) the notional amount                              
                                       multiplied by the return on the                            
                                       Standard & Poor's 500 Index (including                     
                                       dividends) less the notional amount                        
                                       multiplied by 6 month LIBOR adjusted                       
                                       by a specified spread and to receive                       
                                       (pay) the change in market value of a                      
                                       basket of selected securities                              
                                       (including dividends) less the                             
                                       counterparty's notional amount                             
                                       multiplied by 6 month LIBOR adjusted                       
                                       by a specified spread.                                     

26                                                                              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]


    Notional Amount      Expiration                                               Net Unrealized  
   Fund/Counterparty        Date                     Description                   Depreciation   
  ---------------------  ------------  -----------------------------------------  ----------------
                                                                                                  
$      4,111,077/          9/11/98     Agreement with Morgan Stanley Capital         (186,535)    
       4,354,873                       Services, Inc. dated 9/8/97 to pay                         
                                       (receive) the notional amount                              
                                       multiplied by the return on the                            
                                       Standard & Poor's 500 Index (including                     
                                       dividends) less the notional amount                        
                                       multiplied by 6 month LIBOR adjusted                       
                                       by a specified spread and to receive                       
                                       (pay) the change in market value of a                      
                                       basket of selected securities                              
                                       (including dividends) less the                             
                                       counterparty's notional amount                             
                                       multiplied by 6 month LIBOR adjusted                       
                                       by a specified spread.                                     

                                                                                  ----------------
                                            Net unrealized depreciation          $    (699,419)   
                                                                                  ================

                                                                              27


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
------------------------------------------------------------------------------- 

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated     
60.43% of distributions as net capital gain dividends.                          

28                                                                              


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GMO Value Fund                                                                  
(A Series of GMO Trust)                                                         

------------------------------------------------------------------------------- 

Portfolio Managers                                                              

     Mr. Richard A. Mayo, Mr. R. Jeremy Grantham and Mr. Christopher Darnell are
primarily responsible for the day-to-day management of the Fund's     
portfolio. Each of these individuals has been a portfolio manager at  
Grantham, Mayo, Van Otterloo & Co. LLC for more than fifteen years.   

Management Discussion and Analysis of Fund Performance                          

  The Class III shares of the GMO Value Fund returned 31.5% for the fiscal
year ended February 28, 1998, as compared to 35.0% for the S&P 500 and
33.7% for the Russell 1000 Value Index. Consistent with the Fund's    
    investment objectives and policies, the Fund was invested substantially in
common stocks throughout the period.                                  

    Although performance of the Fund was strong for the fiscal year, it lagged
the Russell 1000 Value Index somewhat. Contributing positively to     
 performance was our overweight of technology stocks. Technology stocks,
buoyed by good earnings growth and takeover activity, rose 42% for the
  year. Our technology holdings included Tandem (which was acquired during
    the year by Compaq) and Digital Equipment (a buyout of which by Compaq was
announced during the year). In addition, our holdings of Microsoft and
Storage Technology posted exceptionally strong gains.                 

Also contributing positively to performance was our underweight in oil
    stocks. We maintained an underweight in these issues throughout the fiscal
year. Because of falling energy prices, oil stocks underperformed the 
Russell 1000 Value Index by more than 10%.                            

Our underweight in financial stocks, on the other hand, contributed   
  negatively to the performance of the Fund compared to that of the Index.
   Financial stocks benefited from a declining interest rate environment and
    takeovers in the financial service industry, and the stocks rose more than
     40% during the fiscal year. In addition, our utility stock holdings did not
  keep pace with those in the Index. Last, our holding in Waste Management
  provided disappointing returns. However, our patience with the stock has
been rewarded. After the close of the fiscal year, USA Waste agreed to
acquire Waste Management, and the stock rallied 25%.                  

     Currently, the portfolio is well positioned in what may be a more difficult
environment for stocks. We are maintaining our overweights in both    
   technology and consumer discretionary stocks, focusing on low-expectation
     companies that are least likely to demonstrate earnings disappointments. We
     are also emphasizing medium-sized companies, as the largest stocks continue
to look significantly overpriced. Last, the Fund has a strong value   
  orientation, as demonstrated by both the average price to book ratio and
the average forward-looking price earnings ratio, which are trading at
     discounts to the benchmark and to the overall market. These characteristics
    should enable the Fund to do well in the event of market turbulence in the
current fiscal year.                                                  

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.

                                                                              29


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Comparison of Change in Value of a $10,000 Investment in  
GMO Value Fund Class III Shares and the S&P 500 Index 
As of February 28, 1998 

--------------------------------                        
Average Annual Total Return                       
--------------------------------                        
Since     
Inception     
1 Year   5 Year   11/13/90                      
--------------------------------                        
Class                                                                   
III        31.4%     21.1%    21.0%                                   
--------------------------------                        

[LINE GRAPH APPEARS HERE] 

GMO Value Fund          
                   Class III Shares            S & P 500 Index
                   ----------------            ---------------

11/13/90                        $9,986                      $10,000             
2/28/91                       $12,267                      $11,677            
2/29/92                       $13,854                      $13,544            
2/28/93                       $15,374                      $14,987            
2/28/94                       $17,374                      $16,236            
2/28/95                       $18,562                      $17,431            
2/29/96                       $25,159                      $23,479            
2/28/97                       $30,508                      $29,621            
2/28/98                       $40,130                      $39,989            

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    
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions.  Each performance figure assumes purchase at the      
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 14 bp on the purchase.  Transaction fees are paid to the Fund
to cover trading costs.  Class III shares are a redesignation of the single     
class of shares that has been offered by the Fund since inception.  Past        
performance is not indicative of future performance.  Information is unaudited. 


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of                            
GMO Tobacco-Free Core Fund (A Series of GMO Trust)                              

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 at      
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers and the      
application of alternative auditing procedures where confirmations from brokers 
were not received, provide a reasonable basis for the opinion expressed above.  

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 13, 1998                                                                  


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                  Value ($)  
------------------------------------------------------------------------------- 
COMMON STOCKS -- 95.8%                    

Advertising -- 0.5%                       
   8,500      Interpublic Group Inc                            463,250
                                                         -------------

Aerospace -- 0.4%                         
   1,000      Northrop Grumman Corp                            139,000
   3,900      Textron Inc                                      292,256
                                                         -------------
                                                               431,256
                                                         -------------

Automotive -- 3.3%                        
     100      Bandag Inc                                         5,606
  46,700      Ford Motor Co                                  2,641,468
   8,200      General Motors Corp                              565,288
   3,100      Genuine Parts Co                                 114,700
                                                         -------------
                                                             3,327,062
                                                         -------------

Banking and Financial Services -- 12.3%   
  11,200      Ahmanson (HF) & Co                               699,300
   3,550      Amsouth Bancorp                                  199,466
  13,480      Banc One Corp                                    761,619
   1,100      Bank of New York Inc                              64,419
   7,400      BankBoston Corp                                  737,688
   5,100      Bankers Trust New York Corp                      603,075
   6,335      Bear Stearns Inc                                 295,386
   2,300      Beneficial Corp                                  271,400
   8,700      Charles Schwab & Co Inc                          328,425
   9,264      Chase Manhattan Corp                           1,149,314
   1,300      Citicorp                                         172,250
   5,900      Countrywide Credit Industry Inc                  262,181
  11,200      Dime Bancorp Inc                                 341,600
   1,600      Donaldson Lufkin & Jenrette                      131,000
   6,850      Edwards (AG) Inc                                 288,128
   2,200      First of America Bank Corp                       170,913
   7,800      Franklin Resources Inc                           397,800
   2,500      Golden West Financial Corp                       223,125
   3,600      Greenpoint Financial Corp                        267,300
   4,300      Hibernia Corporation, Class A                     86,000
   2,700      Lehman Brothers Holding Inc                      170,269
  14,800      Merrill Lynch                                  1,059,124
     400      MGIC Investment Corp                              29,475
  11,845      Morgan Stanley Dean Witter Discover & Co         825,447
  10,106      Nationsbank Corp                                 692,261

 See accompanying notes to the financial statements.
                                                                               1


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares        Description                                     Value ($)
--------------------------------------------------------------------------------
 Banking and Financial Services -- continued
      8,300      Paine Webber Group Inc                              348,600
      9,100      PNC Bank Corp                                       505,050
        500      Providian Financial Corp                             28,375
        100      Republic New York Corp                               12,100
      3,600      Summit Bancorp                                      178,875
      9,265      Travelers Group Inc                                 516,524
      1,300      U.S. Bancorp                                        149,581
      4,200      Washington Mutual Inc                               281,925
                                                                ------------
                                                                  12,247,995
                                                                ------------

Chemicals -- 0.7%                         
      2,900      Eastman Chemical Co                                 189,950
      4,000      Great Lakes Chemical Corp                           194,500
      1,800      Lubrizol Corp                                        69,413
      5,500      Union Carbide Corp                                  255,406
                                                                ------------
                                                                     709,269
                                                                ------------

Computer and Office Equipment -- 1.6%     
        400      Computer Associates International Inc                18,850
     12,500      EMC Corp                                            478,125
      1,100      Gateway 2000 Inc                                     48,400
      5,100      Lexmark International Group Inc *                   218,025
     16,700      Micron Technology Inc *                             554,231
      1,900      Pitney Bowes Inc                                     89,063
      9,700      Unisys Corp *                                       173,388
      1,700      Western Digital Corp                                 31,025
                                                                ------------
                                                                   1,611,107
                                                                ------------

Construction -- 1.6%                      
      6,400      Georgia-Pacific Corp                                375,600
     19,400      Home Depot Inc                                    1,237,962
                                                                ------------
                                                                   1,613,562
                                                                ------------

Consumer Goods -- 4.7%                    
      2,800      Callaway Golf Co                                     90,300
      1,100      Colgate-Palmolive Co                                 89,306
      8,900      Eastman Kodak Co                                    584,063
     11,600      Fortune Brands Inc                                  460,375
      3,950      Hasbro Inc                                          143,434
      1,900      Jones Apparel Group Inc *                           104,500
        100      Liz Claiborne Inc                                     5,000

 See accompanying notes to the financial statements.
2                                                                               


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                   Value ($) 
--------------------------------------------------------------------------------
Consumer Goods -- continued               
   15,800      Mattel Co                                         668,538
   11,200      Maytag Corp                                       504,000
    1,500      Moore Corp Ltd                                     23,531
    4,800      Newell Co                                         220,200
   14,500      Procter and Gamble Co                           1,231,593
    3,600      Reebok International Ltd *                        112,275
    4,700      Sunbeam Corp                                      194,463
    6,300      VF Corp                                           300,431
                                                           -------------
                                                               4,732,009
                                                           -------------

Electronic Equipment -- 1.8%              
      600      Arrow Electronics Inc                              19,988
      900      Cooper Industries Inc                              50,513
    1,000      Harris Corp                                        50,688
    2,600      Litton Industries *                               161,850
    9,000      Motorola Inc                                      501,750
    1,400      National Semiconductor Corp *                      33,425
    9,700      Raytheon Co, Class B                              570,481
    6,900      Texas Instruments                                 399,338
                                                           -------------
                                                               1,788,033
                                                           -------------

Environmental Control -- 0.1%             
    5,500      Wheelabrator Technology Inc                        89,719
                                                           -------------

Food and Beverage -- 5.1%                 
   13,700      Anheuser Busch Cos Inc                            642,188
   10,771      Archer Daniels Midland Co                         241,674
    9,800      Bestfoods                                       1,032,674
   12,700      Coca Cola Enterprises Inc                         419,894
    1,100      Dean Foods Co                                      60,500
    5,000      IBP Inc                                           111,563
    7,400      Kellogg Co                                        315,425
   17,100      Sara Lee Corp                                     966,149
    7,600      Seagrams Co Ltd                                   288,800
   11,800      Unilever NV ADR                                   758,888
      400      Universal Foods Corp                               18,000
    4,900      Whitman Corp                                       87,281
    1,300      Wrigley (William Jr) Co                            99,288
                                                           -------------
                                                               5,042,324
                                                           -------------

 See accompanying notes to the financial statements.
                                                                               3


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                    Value ($)
--------------------------------------------------------------------------------
Health Care -- 3.0%                       
       400      Becton Dickinson & Co                               25,450
     3,200      Columbia HCA Healthcare Corp                        86,800
     1,300      Hillenbrand Industries Inc                          73,044
    19,400      Johnson & Johnson                                1,464,699
     4,700      Mallinckrodt Inc                                   182,419
     6,100      McKesson Corp                                      317,963
     4,800      Medtronic Inc                                      255,000
     5,900      Pharmacia & Upjohn Inc                             233,419
     3,100      United States Surgical Corp                         94,938
     4,500      Wellpoint Health Network *                         262,969
                                                             -------------
                                                                 2,996,701
                                                             -------------

Insurance -- 3.5%                         
     1,800      AMBAC Inc                                           95,850
       500      Cincinnati Financial Corp                           67,500
       500      CNA Financial Corp *                                71,969
    14,500      Conseco Inc                                        680,594
     3,900      Foundation Health Systems Inc, Class A *           107,981
     1,000      MBIA Inc                                            73,188
     1,300      Mercury General Corp                                73,775
     2,200      Old Republic International Corp                     92,813
     2,800      Progressive Corp                                   324,450
     3,500      Reliastar Financial Corp                           166,469
     5,400      Safeco Corp                                        283,163
     5,100      Saint Paul Cos Inc                                 451,988
    12,800      Torchmark Corp                                     596,000
     2,800      Transamerica Corp                                  326,025
     1,100      Transatlantic Holding Inc                           83,188
                                                             -------------
                                                                 3,494,953
                                                             -------------

Machinery -- 1.6%                         
    33,600      Applied Materials Inc                            1,236,899
     1,800      Cummins Engine Inc                                 104,175
     1,300      FMC Corp *                                          94,088
     1,100      Parker-Hannifin Corp                                51,288
     1,400      Smith International Inc *                           74,550
                                                             -------------
                                                                 1,561,000
                                                             -------------

Manufacturing -- 2.8%                     
     9,800      General Electric Co                                761,949
    11,900      IBM Corp                                         1,242,805
     7,800      International Game Technology                      189,150

 See accompanying notes to the financial statements.
4                                                                               


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                 Value ($)   
------------------------------------------------------------------------------  
Manufacturing -- continued                
  1,900      Leggett & Platt Inc                              95,356
 11,900      Owens Illinois Inc *                            456,663
    500      Temple Inland Inc                                29,813
                                                       -------------
                                                           2,775,736
                                                       -------------

Oil and Gas -- 7.0%                       
  1,100      Apache Corp                                      37,400
 18,000      Atlantic Richfield Co                         1,399,499
  2,200      BJ Services Co                                   75,625
  2,000      Chevron Corp                                    162,250
  1,400      Columbia Energy Group                           106,838
 25,100      Exxon Corp                                    1,603,262
  1,400      Mobil Corp                                      101,413
  2,000      Nabors Industries Inc *                          45,750
 11,000      Occidental Petroleum Corp                       281,188
  1,800      Pennzoil Co                                     120,488
  6,000      Phillips Petroleum Co                           294,000
 14,800      Schlumberger Ltd                              1,115,549
  9,600      Texaco Inc                                      535,800
 12,500      Union Pacific Resources Group                   279,688
  5,400      Unocal Corp                                     203,513
 17,500      USX - Marathon Group                            604,844
                                                       -------------
                                                           6,967,107
                                                       -------------

Paper and Allied Products -- 1.0%         
  4,500      Champion International Corp                     229,781
  2,200      Fort James Corp                                  99,825
  6,500      Mead Corp                                       222,219
  5,600      Sonoco Products Co                              216,650
  5,100      Westvaco Corp                                   165,750
  2,900      Willamette Industries Inc                       107,119
                                                       -------------
                                                           1,041,344
                                                       -------------

Pharmaceuticals -- 6.1%                   
 31,300      Abbott Laboratories                           2,341,630
  1,600      Allergan Inc                                     56,000
 18,100      Bristol Myers Squibb Co                       1,813,393
  4,500      Merck & Co Inc                                  574,031
  4,300      Schering Plough Corp                            327,069
  5,500      Warner Lambert Co                               804,374
  6,000      Watson Pharmaceutical Inc                       215,250
                                                       -------------
                                                           6,131,747
                                                       -------------

 See accompanying notes to the financial statements.
                                                                               5


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                Value ($)    
-----------------------------------------------------------------------------   
Primary Materials -- 0.2%                 
 1,900      EVI Inc                                         93,219
 1,100      Rubbermaid Inc                                  31,900
 1,100      Vulcan Materials Co                            110,688
                                                      --------------
                                                           235,807
                                                      --------------

Primary Processing -- 0.1%                
 3,400      USX-US Steel Group Inc                         119,425
                                                      --------------

Printing and Publishing -- 0.1%           
   500      AH Belo Corp                                    27,375
   100      Washington Post Co, Class B                     49,350
                                                      --------------
                                                            76,725
                                                      --------------

Refining -- 0.7%                          
   300      Murphy Oil Corp                                 14,981
10,900      Royal Dutch Petroleum                          592,006
 3,100      Sun Co Inc                                     123,806
                                                      --------------
                                                           730,793
                                                      --------------

Retail Trade -- 7.2%                      
12,400      Albertsons Inc                                 580,475
 6,400      American Stores Co                             161,200
 8,600      Autozone Inc *                                 260,150
12,900      Costco Cos Inc *                               630,488
 7,300      Dayton Hudson Corp                             564,381
 6,500      Dillards Inc                                   231,563
 3,800      Dollar General Corp                            175,275
 1,200      Family Dollar Stores Inc                        42,750
 6,600      Fred Meyer Inc                                 293,288
   300      Fruit of the Loom Inc *                          9,638
17,550      Gap Inc                                        784,265
41,800      Kmart Corp *                                   559,075
12,800      Limited Inc                                    371,200
 7,200      Rite Aid Corp                                  233,100
 8,900      Tandy Corp                                     396,050
   600      Toys R Us Inc *                                 15,750
37,100      Wal Mart Stores Inc                          1,718,193
 3,200      Winn-Dixie Stores Inc                          172,600

                                                      --------------
                                                         7,199,441
                                                      --------------

6               See accompanying notes to the financial statements.             


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

 Shares        Description                                     Value ($)
--------------------------------------------------------------------------------
Services -- 0.5%                          
        400      BHC Communications Inc, Class A                      55,200
      1,200      Cendant Corp *                                       45,000
        300      Fleming Cos Inc                                       5,344
      4,600      Halliburton Company                                 213,900
      3,300      Supervalu Inc                                       157,171
                                                                --------------
                                                                     476,615
                                                                --------------

Technology -- 11.9%                       
      8,700      Advanced Micro Devices Inc *                        203,906
      4,700      America Online Inc *                                569,288
      2,600      Avnet Inc                                           165,750
     20,100      Bay Networks Inc *                                  680,888
     60,600      Compaq Computer Corp                              1,942,987
        500      Computer Sciences Corp *                             52,344
      9,300      Dell Computer Corp                                1,300,837
      2,700      Grainger (WW) Inc                                   261,394
     32,800      Intel Corp                                        2,941,749
     33,600      Microsoft Corp                                    2,847,599
      4,100      Teradyne Inc *                                      193,469
      8,500      Xerox Corp                                          753,844
                                                                --------------
                                                                  11,914,055
                                                                --------------

Telecommunications -- 8.3%                
      9,700      Ameritech Corp                                      404,369
     33,700      AT & T Corp                                       2,051,487
     14,293      Bell Atlantic Corp                                1,282,796
        400      Bellsouth Corp                                       24,400
      3,800      CBS Corp                                            117,563
      3,900      Century Telephone Enterprises Inc                   237,900
      8,600      GTE Corp                                            465,475
     10,900      MCI Communications Corp                             521,156
     10,000      Nextel Communications Inc, Class A *                295,625
     10,400      SBC Communications                                  786,499
      2,500      Southern New England Telecommunications Corp        157,813
     14,500      Sprint Corp                                         956,999
     17,100      US West Inc                                         890,268
      2,500      Worldcom Inc *                                       95,469
                                                                --------------
                                                                   8,287,819
                                                                --------------

               See accompanying notes to the financial statements.             7


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                    Value ($)
--------------------------------------------------------------------------------
Transportation -- 2.2%                    
    10,800      Burlington Northern Santa Fe Railroad Co         1,075,949
     3,900      CSX Corp                                           218,156
     4,700      FDX Corp *                                         299,331
     6,100      Kansas City Southern Industries                    226,844
     2,800      UAL Corp *                                         238,350
     1,600      USAir Group Inc *                                  101,300
                                                              --------------
                                                                 2,159,930
                                                              --------------

Utilities -- 7.5%                         
    11,400      AES Corp                                           501,600
     5,400      Allegheny Energy Inc                               165,038
       600      Ameren Corp *                                       23,063
     8,000      American Electric Power Inc                        384,000
     7,900      Baltimore Gas and Electric Co                      249,344
     8,000      Carolina Power and Light Co                        334,000
    10,400      Cinergy Corp                                       362,050
     2,821      Citizens Utilities, Class B                         26,447
     4,900      CMS Energy Corp                                    216,825
     3,500      Coastal Corp                                       222,688
     5,900      Dominion Resources Inc                             235,263
     8,150      DPL Inc                                            148,228
     4,200      DQE Inc                                            139,388
     7,200      Duke Power Co                                      400,050
    19,400      Edison International                               535,925
    19,100      Entergy Corp                                       552,706
     5,700      Florida Progress Corp                              220,519
     9,100      FPL Group Inc                                      528,369
     7,400      General Public Utilities Inc                       297,388
     2,000      LG&E Energy Corp                                    47,875
     5,900      Long Island Lighting Co                            182,900
     2,100      New Century Energies Inc                            97,913
     4,500      New England Electric System                        189,563
     4,400      Nipsco Industries Inc                              113,025
     2,100      Northern States Power Co                           115,369
    11,200      Pacificorp                                         270,900
     6,300      Pinnacle West Capital Corp                         257,119
     3,300      Southern Co                                         81,469
     3,800      Teco Energy Inc                                     99,988
     1,600      Texas Utilities Co                                  64,700
     2,700      Western Resources Inc                              110,700
    12,300      Wisconsin Energy Corp                              335,175

8              See accompanying notes to the financial statements.              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


 Par Value($)/                                                                                
   Shares           Description                                                  Value ($)    
----------------------------------------------------------------------------------------------
                                                                                              
                    Utilities -- continued                                                    
                                                                               -------------  
                                                                                  7,509,587   
                                                                               -------------  

                    TOTAL COMMON STOCKS  (COST  $78,291,601)                     95,734,371   
                                                                               -------------  

                    SHORT-TERM INVESTMENTS -- 11.0%                                           

                    Cash Equivalents -- 4.0%                                                  
  $1,694,667        BankBoston Eurodollar Time Deposit, 5.7875% due 3/2/98(a)     1,694,667   
  $  186,667        First Union National Bank of North Carolina Eurodollar                    
                    Time Deposit, 5.6250% due 3/2/98(a)                             186,667   
   1,054,666        Merrimac Cash Fund Premium Class(a)                           1,054,666   
  $1,000,000        Prudential Securities Group Inc, Master Note, 5.8875% due                 
                    3/2/98(a)                                                     1,000,000   
                                                                               -------------  
                                                                                  3,936,000   
                                                                               -------------  

                    Repurchase Agreements -- 6.7%                                             
  $2,411,538        Prudential Securities Inc. Repurchase Agreement, dated                    
                    2/27/98, due 3/2/98, with a maturity value of $2,412,557                  
                    and an effective yield 5.07%, collateralized by a U.S.                    
                    Government Agency Obligation with a rate of 8.50%, with a                 
                    maturity date of 10/01/26 and with a market value of                      
                    $2,459,779.                                                   2,411,538   
  $4,307,288        Salomon Smith Barney Inc. Repurchase Agreement, dated                     
                    2/27/98, due 3/2/98, with a maturity value of $4,309,108                  
                    and an effective yield of 5.07%, collateralized by a U.S.                 
                    Treasury Obligation with a rate of 8.125%, with a maturity                
                    date of 8/15/21 and with an aggregate market value of                     
                    $4,393,434.                                                   4,307,288   
                                                                               -------------  
                                                                                  6,718,826   
                                                                               -------------  

                    U.S. Government -- 0.3%                                                   
  $ 300,000         U.S. Treasury Bill, 5.165%, due 5/28/98(b)                      296,244   
                                                                               -------------  

                    TOTAL SHORT-TERM INVESTMENTS  (COST  $10,950,995)            10,951,070   
                                                                               -------------  

                    TOTAL INVESTMENTS -- 106.8%                                               
                    (COST $89,242,596)                                          106,685,441   

                    Other Assets and Liabilities (net)-- (6.8)%                  (6,763,003)  
                                                                               -------------  

                    TOTAL NET ASSETS-- 100%                                      99,922,438   
                                                                               =============  

               See accompanying notes to the financial statements.             9


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Notes to the Schedule of Investments:                             
ADR - American Depositary Receipt                                 
* Non-income producing security.                                  
(a) Represents investments of security lending collateral (Note 1). 
 (b) Security has been segregated to cover margin requirements on open
financial futures contracts.                                

10             See accompanying notes to the financial statements.              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                       
Assets:                                                                                
   Investments, at value (cost $89,242,596) (Note 1)                       $106,685,441
   Receivable for Fund shares sold                                           16,258,747
   Receivable for investments sold                                            1,530,141
   Dividends and interest receivable                                            138,578
   Receivable for expenses waived or borne by Manager (Note 2)                   17,906
                                                                           ------------

       Total assets                                                         124,630,813
                                                                           ------------

Liabilities:                                                                           
   Payable for investments purchased                                         17,930,459
   Payable upon return of securities loaned (Note 1)                          3,936,000
   Payable for Fund shares repurchased                                        2,351,387
   Payable to affiliate for (Note 2):                                                  
      Management fee                                                             32,054
      Shareholder service fee                                                     9,256
   Payable for open swap contracts (Note 1 and 6)                               405,544
   Payable for variation margin on open futures contracts (Notes 1 and 6)         7,254
   Accrued expenses                                                              36,421
                                                                           ------------

       Total liabilities                                                     24,708,375
                                                                           ------------

Net assets                                                                 $ 99,922,438
                                                                           ============

Net assets consist of:                                                                 
   Paid-in capital                                                         $ 75,784,865
   Accumulated undistributed net investment income                              223,078
   Accumulated undistributed net realized gain                                6,776,064
   Net unrealized appreciation                                               17,138,431
                                                                           ============
                                                                           $ 99,922,438
                                                                           ============

Net assets attributable to:                                                            
   Class III shares                                                        $ 99,922,438
                                                                           ============

Shares outstanding:                                                                    
   Class III                                                                  7,114,000
                                                                           ============

Net asset value per share:                                                             
   Class III                                                               $      14.05
                                                                           ============

              See accompanying notes to the financial statements.             11


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                         
Investment Income:                                                       
   Dividends (net of withholding taxes of $1,526)            $ 1,332,605 
   Interest (including securities lending income of $4,540)      355,240 
                                                             ----------- 
       Total income                                            1,687,845 
                                                             ----------- 
Expenses:                                                                
   Management fee (Note 2)                                       394,815 
   Custodian and transfer agent fees                              41,642 
   Audit fees                                                     35,306 
   Registration fees                                               5,134 
   Legal fees                                                      1,556 
   Trustees fees (Note 2)                                            635 
   Miscellaneous                                                     185 
   Fees waived or borne by Manager (Note 2)                     (218,695)
                                                             ----------- 
                                                                 260,578 
   Shareholder service fee (Note 2)                                      
       Class III                                                 118,083 
                                                             ----------- 
       Net expenses                                              378,661 
                                                             ----------- 
          Net investment income                                1,309,184 
                                                             ----------- 
Realized and unrealized gain (loss):                                     
  Net realized gain (loss) on:                                           
       Investments                                            10,768,116 
       Closed futures contracts                                1,300,286 
       Closed swap contracts                                     138,889 
                                                             ----------- 
          Net realized gain                                   12,207,291 
                                                             ----------- 
   Change in net unrealized appreciation (depreciation) on:              
       Investments                                            11,758,144 
       Open futures contracts                                    113,686 
       Open swap contracts                                      (320,845)
                                                             ----------- 
          Net unrealized gain                                 11,550,985 
                                                             ----------- 
       Net realized and unrealized gain                       23,758,276 
                                                             ----------- 
Net increase in net assets resulting from operations         $25,067,460 
                                                             =========== 

See accompanying notes to the financial statements. 
12                                                                              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                               Year Ended        Year Ended    
                                                           February 28, 1998  February 28, 1998
                                                           -----------------  -----------------
                                                                                               
Increase (decrease) in net assets:                                                             
Operations:                                                                                    
   Net investment income                                      $ 1,309,184        $ 1,068,038   
   Net realized gain                                           12,207,291         17,195,664   
   Change in net unrealized appreciation (depreciation)        11,550,985         (6,109,720)  
                                                              -----------       ------------   
   Net increase in net assets resulting from operations        25,067,460         12,153,982   
                                                              -----------       ------------   
Distributions to shareholders from:                                                            
   Net investment income                                                                       
       Class III                                               (1,251,164)        (1,070,308)  
                                                              -----------       ------------   
   Net realized gains                                                                          
       Class III                                              (16,435,486)       (10,440,389)  
                                                              -----------       ------------   
                                                              (17,686,650)       (11,510,697)  
                                                              -----------       ------------   
   Net share transactions: (Note 5)                                                            
       Class III                                               26,281,193          8,132,135   
                                                              -----------       ------------   
   Increase in net assets resulting from net share                                             
      transactions                                             26,281,193          8,132,135   
                                                              -----------       ------------   
      Total increase in net assets                             33,662,003          8,775,420   
Net assets:                                                                                    
   Beginning of period                                         66,260,435         57,485,015   
                                                              -----------       ------------   
   End of period (including accumulated undistributed net                                      
      investment income of $223,078 and $165,058,                                              
      respectively)                                           $99,922,438        $66,260,435   
                                                              ===========       ============   

 See accompanying notes to the financial statements.
                                                                              13


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                    Year Ended February 28/29,                 
                                     --------------------------------------------------------- 

                                       1998        1997         1996         1995        1994  
                                     -------     -------      -------      -------     ------- 
                                                                                               
Net asset value, beginning of                                                                  
   period                            $ 12.98     $ 12.93      $ 10.65      $ 11.07     $ 11.35 
                                     -------     -------      -------      -------     ------- 
Income from investment operations:                                                             
   Net investment income                0.22        0.24         0.28         0.23        0.34 
   Net realized and unrealized                                                                 
      gain                              4.07        2.41         3.71         0.50        1.18 
                                     -------     -------      -------      -------     ------- 
      Total from investment                                                                    
      operations                        4.29        2.65         3.99         0.73        1.52 
                                     -------     -------      -------      -------     ------- 
Less distributions to shareholders:                                                            
   From net investment income          (0.22)      (0.24)       (0.25)       (0.28)      (0.35)
   From net realized gains             (3.00)      (2.36)       (1.46)       (0.87)      (1.45)
                                     -------     -------      -------      -------     ------- 

      Total distributions              (3.22)      (2.60)       (1.71)       (1.15)      (1.80)
                                     -------     -------      -------      -------     ------- 
Net asset value, end of period       $ 14.05     $ 12.98      $ 12.93      $ 10.65     $ 11.07 
                                     =======     =======      =======      =======     ======= 

Total Return/(a)/                      37.82%      22.76%       38.64%        7.36%      14.12%

Ratios/Supplemental Data:                                                                      
   Net assets, end of period                                                                   
      (000's)                        $99,922     $66,260      $57,485      $47,969     $55,845 
   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          1.66%       1.83%        2.25%        2.52%       2.42%
   Portfolio turnover rate                70%        131%          81%         112%         38%
   Average broker commission                                                                   
      rate per equity share/(b)/     $0.0251     $0.0259          N/A          N/A         N/A 
   Fees and expenses                                                                           
      voluntarily waived or                                                                    
      borne by the Manager                                                                     
      consisted of the                                                                         
      following per share                                                                      
      amounts:                       $  0.04     $  0.04      $  0.03      $  0.03     $  0.03 

/(a)/ Calculation excludes purchase premiums. The total returns would have been 
lower had certain expenses not been waived during the periods shown.
/(b)/ For fiscal years beginning on or after September 1, 1995, a fund is       
   required to disclose its average commission rate per share for security
trades on which commissions are charged.                            

 See accompanying notes to the financial statements.
14                                                                              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

GMO Tobacco-Free Core Fund (the "Fund") is a series of GMO Trust (the 
    "Trust"). The Fund is registered under the Investment Company Act of 1940,
    as amended, as an open-end, diversified management investment company. The
    Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
    "Manager" or "GMO"). The Trust was established as a Massachusetts Business
     Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
     The Declaration of Trust permits the Trustees to create an unlimited number
    of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.                                   

  The Fund seeks a total return greater than that of the Standard & Poor's
  500 Stock Index through investment of substantially all of its assets in
   common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity  
capitalization whose securities are listed on a United States national
securities exchange which are not tobacco producing issuers.          

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
 as those shares. Effective January 9, 1998, Class I and Class II shares
ceased to be offered.                                                 

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.                    

Futures contracts                                                     
The Fund may purchase and sell futures contracts on the domestic stock
 indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity  
   securities at a specified price at a given date. The Fund may use futures
     contracts to manage its exposure to the stock 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                                  

                                                                              15


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

  custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the  
  initial margin requirements of the broker or exchange. Futures contracts
     are marked to market daily and an appropriate payable or receivable for the
   change in value ("variation margin") is recorded by the Fund. The payable
    or receivable is liquidated on the following business day. Gains or losses
  are recognized but not considered realized until the contracts expire or
    are closed. Futures contracts involve, to varying degrees, risk of loss in
 excess of the variation margin disclosed in the Statement of Assets and
   Liabilities. Losses may arise from changes in the value of the underlying
    instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures    
  contracts are valued at the settlement price established each day by the
 board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts as of February 28, 1998.                       

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $3,816,731, collateralized by cash in the amount of   
$3,936,000, which was invested in short-term instruments.             

Swap agreements                                                       
The Fund may enter into swap agreements to manage its exposure to the 
    equity markets. A swap is an agreement to exchange the return generated by
 one instrument for the return generated by another instrument. The Fund
    enters into equity swap agreements which involve a commitment by one party
 in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that 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. Equity swaps are 
 marked to market daily based upon quotations from market makers and the
    change, if any, is recorded as unrealized gain or loss in the Statement of
    Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations. 
  Entering into these agreements involves, to varying degrees, elements of
     credit and market risk in excess of the amounts recognized on the Statement
of                                                                    

16                                                                              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

     Assets and Liabilities. Such risks involve the possibility that there is no
     liquid market for these agreements, that the counterparty to the agreements
    may default on its obligation to perform, or that there may be unfavorable
changes in the price of the security or index underlying these        
  transactions. See Note 6 for a summary of all open swap agreements as of
February 28, 1998.                                                    

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for 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.           

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
 distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                       

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis  
earnings and profits, if any, are reported in the Fund's financial    
statements as a return of capital. Differences in the recognition or  
 classification of income for financial statement and tax purposes which
     result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or     
accumulated net realized gains.                                       

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the  
accrual basis and is adjusted for the accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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.

                                                                              17


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Purchases and redemptions of Fund shares                              
The premium on cash purchases of Fund shares is .14% of the amount    
    invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
    the amount invested. All purchase premiums are paid to and recorded by the
    Fund as paid-in capital. This fee is allocated relative to each class' net
 assets on the share transaction date. Purchase premiums are included as
 part of each class' "shares sold" as summarized in Note 5. For the year
  ended February 28, 1998, the Fund received $10,986 in purchase premiums.
There is no premium for cash redemptions, reinvested distributions or 
in-kind transactions.                                                 

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .50% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .33% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III   
shareholder is unchanged.                                             

The Fund's portion of the fee paid by the Trust to the unaffiliated   
    Trustees during the year ended February 28, 1998 was $635. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$61,386,092 and $50,803,405, respectively.                            

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                        [Enlarge/Download Table]

                         Gross Unrealized        Gross Unrealized         Net Unrealized     
  Aggregate Cost           Appreciation            Depreciation            Appreciation      
--------------------  ----------------------- ----------------------- -----------------------
                                                                                             
    $89,359,634            $18,080,972               $755,165              $17,325,807       

18                                                                              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

4.   Principal shareholders                                                     

     At February 28, 1998, 93.6% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as 
follows:                                                              

                                                        [Enlarge/Download Table]

                                          Year Ended                        Year Ended           
Class III:                            February 28, 1998                 February 28, 1997        
                               ---------------------------------  -------------------------------
                                   Shares           Amount            Shares          Amount     
                               --------------- -----------------  --------------- ---------------
                                                                                                 
Shares sold                       1,705,285     $  23,536,920        1,730,490   $  22,801,781   
Shares issued to shareholders                                                                    
    in reinvestment of                                                                           
    distributions                 1,411,739        17,655,036          933,753      11,510,697   
Shares repurchased               (1,109,228)      (14,910,763)      (2,002,361)    (26,180,343)  
                               ===============  ================  ===============  ==============
Net increase                      2,007,796    $   26,281,193          661,882    $  8,132,135   
                               ===============  ================  ===============  ==============

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Long futures contracts                                                

                                                        [Enlarge/Download Table]

  Number of                                                                  Net Unrealized  
  Contracts           Type         Expiration Date       Contract Value       Appreciation   
---------------  ---------------  ------------------  ---------------------  ----------------
                                                                                             
      9             S&P 500           March 1998           $2,363,625             $101,130   
                                                                             ================

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.            

                                                                              19


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements                                                       

                                                        [Enlarge/Download Table]

                                                                                      Net       
   Notional Amount      Expiration                                                 Unrealized   
  Fund/Counterparty        Date                     Description                   Depreciation  
---------------------  ------------  -----------------------------------------  ----------------
                                                                                                
     $3,095,463/         5/11/98     Agreement with NatWest Securities            $ (26,086)    
      2,981,806                      Limited dated 5/6/97 to pay (receive)                      
                                     the notional amount multiplied by the                      
                                     change in market value of a basket of                      
                                     selected securities (including                             
                                     dividends) less the counterparty's                         
                                     notional amount multiplied by 6 month                      
                                     LIBOR adjusted by a specified spread                       
                                     and to receive (pay) the notional                          
                                     amount multiplied by the return on the                     
                                     Standard & Poor's 500 Index (including                     
                                     dividends) less the notional amount                        
                                     multiplied by 6 month LIBOR adjusted                       
                                     by a specified spread.                                     

      3,724,764/         5/16/98     Agreement with Morgan Stanley Capital         (162,736)    
      4,018,085                      Services, Inc. dated 5/13/97 to pay                        
                                     (receive) the notional amount                              
                                     multiplied by the return on the                            
                                     Standard & Poor's 500 Index (including                     
                                     dividends) less the notional amount                        
                                     multiplied by 6 month LIBOR adjusted                       
                                     by a specified spread and to receive                       
                                     (pay) the change in market value of a                      
                                     basket of selected securities                              
                                     (including dividends) less the                             
                                     counterparty's notional amount                             
                                     multiplied by 6 month LIBOR adjusted                       
                                     by a specified spread.                                     

20                                                                              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                                    

                                                        [Enlarge/Download Table]

                                                                                      Net       
  Notional Amount      Expiration                                                 Unrealized    
 Fund/Counterparty        Date                     Description                   Depreciation   
---------------------  ------------  -----------------------------------------  ----------------
                                                                                                
    $2,221,149/          9/11/98     Agreement with Morgan Stanley Capital         $(100,792)   
     2,353,309                       Services, Inc. dated 9/8/97 to pay                         
                                     (receive) the notional amount                              
                                     multiplied by the return on the                            
                                     Standard & Poor's 500 Index (including                     
                                     dividends) less the notional amount                        
                                     multiplied by 6 month LIBOR adjusted                       
                                     by a specified spread and to receive                       
                                     (pay) the change in market value of a                      
                                     basket of selected securities                              
                                     (including dividends) less the                             
                                     counterparty's notional amount                             
                                     multiplied by 6 month LIBOR adjusted                       
                                     by a specified spread.                                     

      1,481,251/         9/19/98     Agreement with Morgan Stanley Capital          (115,930)   
      1,378,812                      Services, Inc. dated 9/16/97 to pay                        
                                     (receive) the notional amount                              
                                     multiplied by the return on the                            
                                     Standard & Poor's 500 Index (including                     
                                     dividends) less the notional amount                        
                                     multiplied by 6 month LIBOR adjusted                       
                                     by a specified spread and to receive                       
                                     (pay) the counterparty's notional                          
                                     amount multiplied by the return on the                     
                                     Russell 2000 Index (including                              
                                     dividends) less the notional amount                        
                                     multiplied by 6 month LIBOR adjusted                       
                                     by a specified spread.                                     

                                                                                ================
                                          Net unrealized depreciation              $(405,544)   
                                                                                ================

                                                                              21


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated     
56.83% of distributions as net capital gain dividends.                          

22                                                                              


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily      
    responsible for the day-to-day management of the Fund's portfolio. Each of
these individuals has been a portfolio manager at Grantham, Mayo, Van 
Otterloo & Co. LLC for more than fifteen years.                       

Management Discussion and Analysis of Fund Performance                          

   The Class III shares of the GMO Tobacco-Free Core Fund returned 37.8% for
   the fiscal year ended February 28, 1998, as compared to 35.0% for the S&P
     500. Consistent with the Fund's investment objective and policies, the Fund
was invested substantially in common stocks throughout the period.    

  The Fund's outperformance of the benchmark is attributed to strong stock
     selection, especially within the technology and non-bank financial sectors,
as well as the Fund's lack of exposure to tobacco stocks, which       
    underperformed dramatically during the period. Sector selection strategies
posted neutral results for the year, as the losses from the Fund's    
overweights in electric utilities and small capitalization stocks were
   offset by the gains from the Fund's overweight in long distance telephone
companies and underweight in defensive, high growth stocks.           

During the year, the Fund's fair value and momentum stock selection   
   strategies worked successfully in identifying stocks for inclusion in the
    Fund's portfolio. The Fund's technology stock holdings, including Dell and
Compaq, contributed to strong performance for the portfolio. Dell was 
   selected for inclusion in the portfolio based on its attractive valuation
   by the momentum strategy, while Compaq earned inclusion based on positive
     valuations on both the fair value and momentum strategies. These strategies
 were also successful in selecting non-bank financial stocks. The Fund's
    value added within this sector came primarily from its overweight in large
 brokerage firms, which benefited from merger activity and record market
returns.                                                              

With respect to sector selection, the Fund employed a strategy of     
overweighting electric utilities. These stocks appeared significantly 
     undervalued relative to their historic levels. This strategy worked against
the Fund during the year's record setting returns, as utilities       
significantly underperformed for the majority of the year. Some early 
 losses were partially offset in the fourth quarter of 1997, as electric
 utilities strongly outperformed the market during the flight to quality
     following October's market turbulence. The Fund's strategy of overweighting
small capitalization stocks also detracted from performance. Small    
capitalization stocks, as represented by the Russell 2000 index,      
underperformed the S&P 500 by 5.1% during the year.                   

 These losses were partially offset by gains from the Fund's strategy of
  overweighting long distance telephone companies, including AT&T and MCI,
     which significantly outperformed during the period. The Fund also benefited
   from its strategy of underweighting defensive, high growth companies such
  as Coca-Cola and Gillette. Since the beginning of the fiscal year, these
   stocks have looked overvalued, and we continue to underweight them in the
  portfolio. Finally, the Fund's lack of exposure to tobacco stocks, which
underperformed the S&P 500 by 1.8% during the period, also contributed
positively to performance.                                            


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GMO Tobacco-Free Core Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

The risk control enhancements that we implemented in 1996 contributed 
positively to performance in 1997, by limiting our sector under- or   
  overweights. These control features limited our overweight in technology
    stocks in a volatile year for the sector. We expect to continue to benefit
from the enhanced controls going into another volatile year.          

Outlook                                                                         

    The Fund is typically overweight in high quality stocks as defined using a
GMO measure that focuses on high, stable return on equity and low debt
 ratios. However, we are now about 1% underweight in this group as these
stocks appear to be overvalued. In particular the market is paying a  
premium for high return on equity that we feel is excessive.          

  The Fund's overweight in utility stocks, which is in companies with good
   fundamental prospects in the continuing deregulatory environment, remains
    unchanged. We continue to believe that smaller stocks have more attractive
valuation levels than the largest stocks. We have moved from a 5%     
     underweight to an 8% underweight in the largest 100 stocks, and continue to
maintain a weight of 7% to 8% in small, value stocks.                 

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Tobacco-Free Core Fund Class III Shares and the S&P 500 Index 
As of February 28,1998  

--------------------------------                                
Average Annual Total Return                                 
--------------------------------                                
Since           
Inception           
1 Year     5 Year   10/31/91                                
--------------------------------                                
Class                                                                           
III        37.6%      23.4%     21.2%                                           
--------------------------------                                

[LINE GRAPH APPEARS HERE] 

GMO Tobacco-Free                        
  Core Fund            S&P 500 Index
----------------         -------------  

10/31/91                  $9,986                $10,000                         
2/29/92                 $10,548                $10,631                        
2/28/93                 $11,728                $11,764                        
2/28/94                 $13,384                $12,744                        
2/28/95                 $14,367                $13,682                        
2/29/96                 $19,919                $18,430                        
2/28/97                 $24,453                $23,251                        
2/28/98                 $33,701                $31,389                        

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 14 bp on the purchase. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Past performance is
not indicative of future performance. Information is unaudited.                 


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GMO Fundamental Value Fund                                                      

(A Series of GMO Trust)                                                         

Annual Report                                                                   

February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of                            
GMO Fundamental Value Fund (A Series of GMO Trust)                              

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 Fundamental Value Fund at      
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian, provide a reasonable    
basis for the opinion expressed above.                                          

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 13, 1998                                                                  


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                    Value ($)
--------------------------------------------------------------------------------
COMMON STOCKS -- 90.2%                    
Advertising -- 0.1%                       
    6,000      Cordiant Communications Group PLC ADR              54,750
    6,000      Saatchi & Saatchi Plc ADR *                        57,000
                                                            --------------
                                                                 111,750
                                                            --------------
Aerospace -- 0.1%                         
    2,500      Boeing Company                                    135,625
                                                            --------------
Automotive -- 1.9%                        
    5,000      Chrysler Corp                                     194,688
   16,500      General Motors Corp                             1,137,469
   50,000      Mascotech Industries Inc                        1,037,500
                                                            --------------
                                                               2,369,657
                                                            --------------
Banking and Financial Services -- 9.6%    
   17,500      American Express Co                             1,576,094
   60,000      Block (HR) Inc                                  2,823,749
   22,500      Chase Manhattan Corp                            2,791,405
   18,500      Citicorp                                        2,451,249
   45,000      Travelers Group Inc                             2,508,749
                                                            --------------
                                                              12,151,246
                                                            --------------
Chemicals -- 0.2%                         
   15,000      Engelhard Corp                                    271,875
                                                            --------------
Computer and Office Equipment -- 0.5%     
   70,000      Intergraph Corp *                                 682,508
                                                            --------------
Consumer Goods -- 3.1%                    
   10,000      Black and Decker Corp                             503,750
   35,000      Eastman Kodak Co                                2,296,874
    7,500      Groupe Danone ADR                                 299,063
   20,000      Maytag Corp                                       900,000
                                                            --------------
                                                               3,999,687
                                                            --------------
Electronic Equipment -- 0.9%              
   30,000      International Rectifier Corp *                    436,875
   25,000      National Semiconductor Corp *                     596,932
    5,000      Stewart & Stevenson Services Corp                 122,188
                                                            --------------
                                                               1,155,995
                                                            --------------

              See accompanying notes to the financial statements.              1


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                    Value ($)
--------------------------------------------------------------------------------
Food and Beverage -- 3.4%                 
   40,000      Anheuser Busch Cos Inc                          1,874,999
   25,000      Fresh Delaware Monte Produce Inc *                385,938
   22,500      Nestle SA ADR                                   1,970,052
    5,000      Wendy's International Inc                         108,438
                                                            --------------
                                                               4,339,427
                                                            --------------
Health Care -- 1.5%                       
   12,500      Baxter International Inc                          707,813
   25,000      Beverly Enterprises Inc *                         379,688
   10,000      Haemonetics Corp *                                166,875
    2,500      Johnson & Johnson                                 188,750
   20,000      Owens and Minor Holdings Co                       355,000
    5,625      Quest Diagnostics Inc *                            87,188
                                                            --------------
                                                               1,885,314
                                                            --------------
Insurance -- 5.5%                         
    5,000      Aetna Life and Casualty Co                        436,875
   15,000      Allstate Corp                                   1,398,750
   17,500      Chartwell Re Corp                                 535,938
   60,000      Reliance Group Holdings Inc                     1,020,000
   35,000      Sedgwick Group ADR                                439,688
   90,000      TIG Holdings Inc                                2,390,624
   65,000      Willis Corroon Group Plc ADR                      763,750
                                                            --------------
                                                               6,985,625
                                                            --------------
Machinery -- 0.9%                         
   25,000      Cincinnati Milacron Inc                           771,875
    2,500      FMC Corp *                                        180,938
   10,000      Pall Corp                                         209,375
                                                            --------------
                                                               1,162,188
                                                            --------------
Manufacturing -- 9.0%                     
   10,000      American Greetings Corp                           456,250
   15,000      Clayton Homes Inc                                 298,125
   50,000      Corning Inc                                     2,031,249
   25,000      General Electric Co                             1,943,749
   15,000      Griffon Corp *                                    246,563
   25,000      IBM Corp                                        2,610,937
   50,000      Owens Corning                                   1,543,750
   12,500      Rockwell International Corp                       756,250
   15,000      Tenneco Inc                                       616,875
   10,000      United Technologies Corp                          893,125
                                                            --------------
                                                              11,396,873
                                                            --------------

2              See accompanying notes to the financial statements.              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Shares      Description                                     Value ($)
--------------------------------------------------------------------------------
Metals and Mining -- 0.6%                 
   25,000      Amcol International Corp                          356,250
    5,000      Newmont Mining Corp                               144,688
   12,500      Pittston Minerals Group                           109,375
   10,000      Placer Dome Inc                                   128,750
                                                            --------------
                                                                 739,063
                                                            --------------

Oil and Gas -- 6.0%                       
    5,000      Amerada Hess Corp                                 296,563
   15,000      Cabot Oil & Gas Corp, Class A                     315,000
   25,000      EEX Corp *                                        214,063
   25,000      Enron Oil & Gas                                   534,375
   50,000      Gulf Canada Resources Ltd *                       293,750
   25,000      Lasmo Plc ADR                                     339,063
   25,000      Mitchell Energy, Class B                          685,938
   50,000      Occidental Petroleum Corp                       1,278,125
    5,000      Texaco Inc                                        279,063
    5,000      Total SA ADR                                      276,563
   15,000      Union Texas Petroleum Holdings Inc                302,813
   25,000      Unocal Corp                                       942,188
   25,000      USX - Marathon Group                              864,063
   40,000      Westcoast Energy Inc                            1,010,000
                                                            --------------
                                                               7,631,567
                                                            --------------

Paper and Allied Products -- 1.8%         
    5,000      Champion International Corp                       255,313
   32,500      Fort James Corp                                 1,474,688
    5,000      International Paper Co                            233,125
    7,500      Weyerhaeuser Co                                   374,531
                                                            --------------
                                                               2,337,657
                                                            --------------

Pharmaceuticals -- 2.7%                   
   35,000      Lilly (Eli) & Co                                2,303,437
   15,000      Medpartners Inc *                                 180,000
   25,000      Mylan Laboratories Inc                            509,375
    7,500      Smithkline Beecham PLC ADR                        464,063
                                                            --------------
                                                               3,456,875
                                                            --------------

Primary Processing -- 0.3%                
    2,500      Du Pont (EI) De Nemours & Co                      153,281
    5,000      USX-US Steel Group Inc                            175,625
                                                            --------------
                                                                 328,906
                                                            --------------

               See accompanying notes to the financial statements.             3


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                    Value ($)
--------------------------------------------------------------------------------
Real Estate -- 5.7%                       
   50,000      Amli Residential Properties Trust               1,125,000
   25,000      Crown American Realty Trust                       231,250
   70,000      JP Realty Inc                                   1,758,749
   25,000      Simon Debartolo Group Inc                         771,875
   75,000      Summit Properties Inc                           1,518,750
   10,000      Tower Realty Trust Inc                            235,000
   37,500      United Dominion Realty Trust                      525,000
   45,000      Walden Residential Properties Inc               1,113,750
                                                            --------------
                                                               7,279,374
                                                            --------------

Refining -- 0.1%                          
   10,000      Quaker State Corp                                 151,250
                                                            --------------

Retail Trade -- 5.1%                      
   10,000      Costco Cos Inc *                                  488,750
   40,000      Federated Department Stores *                   1,874,999
   35,000      Sears Roebuck & Co                              1,857,187
   25,000      Toys R Us Inc *                                   656,250
   35,000      Wal Mart Stores Inc                             1,620,937
                                                            --------------
                                                               6,498,123
                                                            --------------

Services -- 4.3%                          
   12,500      Hilton Hotels Corp                                372,656
   15,000      Manpower Inc                                      632,813
   15,000      Pinkertons Inc                                    345,000
  150,000      Waste Management Inc                            3,749,999
   50,000      Waste Management International PLC ADR *          303,125
                                                            --------------
                                                               5,403,593
                                                            --------------

Technology -- 7.7%                        
    7,500      Avnet Inc                                         478,125
   45,000      Compaq Computer Corp                            1,442,813
   25,000      Data General Corp *                               515,625
   40,000      Digital Equipment Corp *                        2,277,499
   37,500      Information Resources Inc *                       525,000
   10,000      Intel Corp                                        896,875
   25,000      Novell Inc *                                      262,890
   40,000      Storage Technology Corp *                       2,729,999
    7,500      Xerox Corp                                        665,156
                                                            --------------
                                                               9,793,982
                                                            --------------

4              See accompanying notes to the financial statements.              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

  Shares      Description                                    Value ($)
--------------------------------------------------------------------------------
Telecommunications -- 5.4%                
   25,000      CBS Corp                                          773,438
   15,000      Cox Communications, Class A *                     578,438
   50,000      GTE Corp                                        2,706,249
    2,500      SBC Communications                                189,081
   20,000      US West Inc                                     1,041,250
   50,000      US West Media Group *                           1,609,375
                                                            --------------
                                                               6,897,831
                                                            --------------

Tobacco -- 0.4%                           
   35,000      Imperial Tobacco Group Plc ADR                    485,219
                                                            --------------

Transportation -- 3.1%                    
    7,500      AMR Corp *                                        949,219
   35,000      Canadian Pacific                                  999,688
    5,000      Delta Air Lines Inc                               565,313
   10,000      Ryder System Inc                                  366,875
   12,500      Sabre Group Holding Inc *                         412,500
   10,000      USAir Group Inc *                                 633,125
                                                            --------------
                                                               3,926,720
                                                            --------------

Utilities -- 10.3%                        
   20,000      Cinergy Corp                                      696,250
   37,500      DPL Inc                                           682,031
   25,000      Duke Power Co                                   1,389,063
   40,000      Entergy Corp                                    1,157,500
   20,000      Firstenergy Corp                                  578,750
   50,000      Houston Industries Inc                          1,293,750
   10,000      Illinova Corp                                     277,500
   75,000      Niagara Mohawk Power Corp *                       960,938
   30,000      Pacificorp                                        725,625
   25,000      Public Service Enterprise Group Inc               806,250
   20,000      Southern Co                                       493,750
   65,000      Texas Utilities Co                              2,628,437
   25,000      TransCanada Pipeline Ltd                          564,063
   25,000      Unicom Corp                                       801,563
                                                            --------------
                                                              13,055,470
                                                            --------------

               TOTAL COMMON STOCKS (COST $77,193,328)        114,633,400
                                                            --------------

               See accompanying notes to the financial statements.             5


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


 Par Value ($)/                                                                                   
     Shares        Description                                                      Value ($)     
--------------------------------------------------------------------------------------------------
                                                                                                  
                   PREFERRED STOCKS -- 4.4%                                                       

                   Metals and Mining -- 0.8%                                                      
       47,500      Freeport McMoran Corp $0.34                                       1,056,875    
                                                                                 -------------    
                   Pharmaceuticals -- 0.3%                                                        
       25,000      Medpartners Inc 6.5%                                                357,813    
                                                                                 -------------    
                   Primary Processing -- 0.2%                                                     
        5,000      Armco Inc Convertible $3.625                                        240,000    
                                                                                 -------------    
                   Refining -- 1.1%                                                               
       25,000      Unocal Corp Convertible 6.25% 144A                                1,384,375    
                                                                                 -------------    
                   Services -- 0.4%                                                               
       25,000      International Technology Corp Convertible 7.00%                     540,625    
                                                                                 -------------    
                   Telecommunications -- 0.6%                                                     
       12,500      Sprint Corp Convertible 8.25%                                       687,500    
                                                                                 -------------    
                   Transportation -- 1.0%                                                         
       25,000      Navistar International Corp $6.00                                 1,267,188    
                                                                                 -------------    

                   TOTAL PREFERRED STOCKS  (COST  $5,768,241)                        5,534,376    
                                                                                 -------------    
                   DEBT OBLIGATIONS -- 1.9%                                                       

                   Health Care -- 1.2%                                                            
    $2,500,000     Roche Holdings Inc, 0.00% due 4/20/10                             1,512,500    
                                                                                 -------------    
                   Oil and Gas -- 0.7%                                                            
    $1,000,000     Noram Energy Corp, 6.00% due 3/15/12                                942,500    
                                                                                 -------------    

                   TOTAL DEBT OBLIGATIONS  (COST  $1,895,971)                        2,455,000    
                                                                                 -------------    
                   SHORT-TERM INVESTMENTS -- 11.5%                                                

                   Cash Equivalents -- 8.5%                                                       
    $2,370,970     BankBoston Eurodollar Time Deposit, 5.7875% due 3/2/98/(a)/       2,370,970    
    $  510,606     First Union National Bank of North Carolina Eurodollar                         
                   Time Deposit, 5.6250% due 3/2/98/(a)/                               510,606    
     2,884,924     Merrimac Cash Fund Premium Class/(a)/                             2,884,924    
    $5,000,000     Prudential Securities Group Inc, Master Note, 5.8875% due                      
                   3/2/98/(a)/                                                       5,000,000    
                                                                                 -------------    
                                                                                    10,766,500    
                                                                                 -------------    

6              See accompanying notes to the financial statements.              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

    Par Value      Description                                                         Value ($)  
--------------------------------------------------------------------------------------------------
                                                                                                  
                   Repurchase Agreements -- 3.0%                                                  
    $3,845,682     Salomon Smith Barney Inc. Repurchase Agreement, dated                          
                   2/27/98, due 3/2/98, with a maturity value of $3,874,307                       
                   and an effective yield of 5.07%, collateralized by a U.S.                      
                   Treasury Obligation with a rate of 8.125%, with a maturity                     
                   date of 8/15/21 and with a market value of $3,922,596.            3,845,682    
                                                                                 -------------    

                   TOTAL SHORT-TERM INVESTMENTS  (COST  $14,612,182)                14,612,182    
                                                                                 -------------    
                   TOTAL INVESTMENTS -- 108.0%                                                    
                   (COST $99,469,722)                                              137,234,958    

                   Other Assets and Liabilities (net) -- (8.0)%                    (10,198,675)   
                                                                                 -------------    

                   TOTAL NET ASSETS -- 100%                                      $ 127,036,283    
                                                                                 =============    

                   Notes to the Schedule of Investments:                                          

                   ADR - American Depositary Receipt                                              
                   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.                                                       
                   *     Non-income producing security.                                           
                   /(a)/ Represents investments of security lending collateral                    
                         (Note 1).                                                                

              See accompanying notes to the financial statements.              7


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

Assets:                                                                         
 Investments, at value (cost $99,469,722) (Note 1)              $137,234,958
 Receivable for investments sold                                     324,910
 Dividends and interest receivable                                   349,474
 Receivable for expenses waived or borne by Manager (Note 2)          18,634
                                                                ------------

     Total assets                                                137,927,976
                                                                ------------

Liabilities:                                                                    
 Payable upon return of securities loaned (Note 1)                10,766,500
Payable to affiliate for (Note 2):                                        
    Management fee                                                    71,446
    Shareholder service fee                                           13,424
 Accrued expenses                                                     40,323
                                                                ------------

     Total liabilities                                            10,891,693
                                                                ------------

Net assets                                                        $127,036,283  
                                                                ============

Net assets consist of:                                                          
 Paid-in capital                                                $ 69,989,128
 Accumulated undistributed net investment income                     389,111
 Accumulated undistributed net realized gain                      18,892,808
 Net unrealized appreciation                                      37,765,236
                                                                ------------
                                                                $127,036,283
                                                                ============

Net assets attributable to:                                                     
 Class III shares                                               $127,036,283
                                                                ============

Shares outstanding:                                                             
 Class III                                                        10,655,373
                                                                ============

Net asset value per share:                                                      
 Class III                                                      $      11.92
                                                                ============

8              See accompanying notes to the financial statements.              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
 Dividends (net of withholding taxes of  $13,810)                $ 4,578,330
 Interest (including securities lending income of $26,024)           345,383
                                                                 -----------

     Total income                                                  4,923,713
                                                                 -----------

Expenses:                                                                       
 Management fee (Note 2)                                           1,425,989
 Custodian and transfer agent fees                                    46,816
 Audit fees                                                           35,422
 Registration fees                                                     7,188
 Legal fees                                                            3,911
 Trustees fees (Note 2)                                                1,796
 Miscellaneous                                                         1,376
  Fees waived or borne by Manager (Note 2)                           (381,705)
                                                                 -----------
                                                                   1,140,793
Shareholder service fee (Note 2)                                          
     Class III                                                       284,344
                                                                 -----------
     Net expenses                                                  1,425,137
                                                                 -----------

        Net investment income                                      3,498,576
                                                                 -----------

Realized and unrealized gain (loss):                                            
Net realized gain on:                                                     
     Investments                                                  70,085,215
                                                                 -----------

        Net realized gain                                         70,085,215
                                                                 -----------

Change in net unrealized appreciation (depreciation) on:                  
      Investments                                                 (21,715,271)
                                                                 -----------

         Net unrealized loss                                      (21,715,271)
                                                                 -----------

     Net realized and unrealized gain                             48,369,944
                                                                 -----------

Net increase in net assets resulting from operations               $51,868,520  
                                                                 ===========

        See accompanying notes to the financial statements.                    9


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                              Year Ended         Year Ended    
                                                           February 28, 1998  February 28, 1997
                                                           -----------------  -----------------
                                                                                               
Increase (decrease) in net assets:                                                             
Operations:                                                                                    
   Net investment income                                     $  3,498,576       $  4,658,349   
   Net realized gain                                           70,085,215         18,434,364   
   Change in net unrealized appreciation (depreciation)       (21,715,271)        17,227,189   
                                                             ------------       ------------   

   Net increase in net assets resulting from operations        51,868,520         40,319,902   
                                                             ------------       ------------   

Distributions to shareholders from:                                                            
   Net investment income                                                                       
       Class III                                               (4,080,386)        (4,445,572)  
                                                             ------------       ------------   
   Net realized gains                                                                          
       Class III                                              (60,475,201)       (17,043,498)  
                                                             ------------       ------------   

                                                              (64,555,587)       (21,489,070)  
                                                             ------------       ------------   
   Net share transactions: (Note 5)                                                            
       Class III                                              (92,859,874)         1,324,046   
                                                             ------------       ------------   
   Increase (decrease) in net assets resulting from net                                        
      share transactions                                      (92,859,874)         1,324,046   
                                                             ------------       ------------   

      Total increase (decrease) in net assets                (105,546,941)        20,154,878   

Net assets:                                                                                    
   Beginning of period                                        232,583,224        212,428,346   
                                                             ------------       ------------   

   End of period (including accumulated undistributed net                                      
      investment income of $389,111 and $938,206,                                              
      respectively)                                          $127,036,283       $232,583,224   
                                                             ============       ============   

10            See accompanying notes to the financial statements.               


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                       Year Ended February 28/29,                    
                                     ----------------------------------------------------------------
                                       1998          1997         1996          1995          1994   
                                     ---------     ---------     --------      --------     ---------
                                                                                                     
Net asset value, beginning                                                                           
   of period                         $  16.33      $  15.04      $  12.54      $  12.49     $  11.71 
                                     ---------     ---------     --------     ---------     -------- 

Income from investment operations:                                                                   
   Net investment income                 0.35          0.33          0.37          0.34         0.27 
   Net realized and                                                                                  
      unrealized gain                    3.90          2.53          3.26          0.55         1.64 
                                     ---------     --------      --------     ---------     -------- 

      Total from investment                                                                          
      operations                         4.25          2.86          3.63          0.89         1.91 
                                     ---------     --------      --------     ---------     -------- 

Less distributions to shareholders:                                                                  
   From net investment                                                                               
      income                            (0.38)        (0.32)        (0.37)        (0.32)       (0.28)
   From net realized gains              (8.28)        (1.25)        (0.76)        (0.52)       (0.85)
                                     ---------     --------      --------     ---------     -------- 

      Total distributions               (8.66)        (1.57)        (1.13)        (0.84)       (1.13)
                                     ---------     --------      --------     ---------     -------- 
Net asset value, end                                                                                 
   of period                         $  11.92      $  16.33      $  15.04      $  12.54     $  12.49 
                                     =========     ========      ========     =========     ======== 

Total Return/(a)/                       30.43%        20.03%        29.95%         7.75%       16.78%

Ratios/Supplemental Data:                                                                            
   Net assets, end of                                                                                
      period (000's)                 $127,036      $232,583      $212,428     $ 182,871     $147,767 
   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                             1.84%         2.15%         2.61%         2.84%        2.32%
   Portfolio turnover rate                 21%           25%           34%           49%          65%
   Average broker                                                                                    
      commission rate per                                                                            
      equity share/(b)/              $ 0.0670      $ 0.0590           N/A           N/A          N/A 
   Fees and expenses                                                                                 
      voluntarily waived                                                                             
      or borne by the                                                                                
      Manager consisted of                                                                           
      the following per                                                                              
      share amounts:                 $   0.04      $   0.02       $  0.01      $   0.01     $   0.01 

/(a)/Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  
/(b)/For fiscal years beginning on or after September 1, 1995, a fund is        
 required to disclose its average commission rate per share for security
trades on which commissions are charged.                              

         See accompanying notes to the financial statements.                  11


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

GMO Fundamental 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 into classes.                                   

 The Fund seeks long-term capital growth through investment primarily in
equity securities.                                                    

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
 as those shares. Effective January 9, 1998, Class I and Class II shares
ceased to be offered.                                                 

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.                    

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,
realization of collateral by the Fund may be delayed or limited.      

12                                                                              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Security lending                                                      
  The Fund may lend its securities to certain member firms of the New York
Stock Exchange. 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 delay in recovery or even loss of rights in the collateral
   should the borrower of the securities fail financially. The Fund receives
 compensation for lending its securities. At February 28, 1998, the Fund
   loaned securities having a market value of $10,440,636, collateralized by
cash in the amount of $10,766,500, which was invested in short-term   
instruments.                                                          

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for 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.           

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
 distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                       

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for partnership interests.                       

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated              Accumulated                  
Undistributed Net        Undistributed Net                  
       Investment Income          Realized Gain            Paid-in Capital
         ---------------------  -------------------------   --------------------
     $32,715                 $(32,715)                    --

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

                                                                              13


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the  
accrual basis and is adjusted for the accretion of discounts. In      
     determining the net gain or loss on securities sold, the cost of securities
     is determined on the identified cost basis. Dividends representing a return
of capital are reflected as a reduction of cost.                      

Allocation of operating activity                                      
The majority of expenses of the Trust are directly identifiable to an 
    individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
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 .15% of the amount    
invested. The Manager may waive such premium to the extent that a     
     transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded by the Fund as paid-in 
  capital. This fee is allocated relative to each class' net assets on the
share transaction date. Purchase premiums are included as part of each
   class' "shares sold" as summarized in Note 5. For the year ended February
    28, 1998, the Fund received $150 in purchase premiums. There is no premium
 for cash redemptions, reinvested distributions or in-kind transactions.

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .75% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .60% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .75%;
thus, the net annual expense ratio after the waiver for a Class III   
shareholder is unchanged.                                             

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998 was $1,796. No       
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$38,530,662 and $194,752,575, respectively.                           

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                        [Enlarge/Download Table]

                        Gross Unrealized         Gross Unrealized         Net Unrealized    
   Aggregate Cost         Appreciation             Depreciation            Appreciation     
--------------------  ---------------------  ------------------------  ---------------------
                                                                                            
     $99,561,728           $40,643,636              $2,970,406             $37,673,230      

4.   Principal shareholders                                                     

     At February 28, 1998, 99.9% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as 
follows:                                                              

                                                        [Enlarge/Download Table]

                                                 Year Ended                        Year Ended            
Class III:                                   February 28, 1998                 February 28, 1997         
                                      ---------------------------------  ------------------------------- 
                                          Shares           Amount            Shares          Amount      
                                      --------------- -----------------  --------------- --------------- 
                                                                                                         
Shares sold                                   5,670    $      100,000            7,028    $    107,000   
Shares issued to shareholders                                                                            
    in reinvestment of distributions      5,160,848        61,023,843        1,161,012      17,805,046   
Shares repurchased                       (8,757,323)     (153,983,717)      (1,045,307)    (16,588,000)  
                                      ===============  ================  ===============  ===============
Net increase (decrease)                  (3,590,805)  $   (92,859,874)         122,733    $  1,324,046   
                                      ===============  ================  ===============  ===============

                                                                              15


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated     
83.34% of distributions as net capital gain dividends.                          

16                                                                              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Manager                                                               

   Mr. Richard Mayo is responsible for the management of the GMO Fundamental
Value Fund. Mr. Mayo has been a portfolio manager with GMO since its  
founding in 1977 and began his career in the late 1960's.             

Management Discussion and Analysis of Fund Performance                          

The Investing Environment                                             

  The investing environment has been quite volatile the last six months of
   the year. The emergence of the financial crisis in Southeast Asia and its
  potential impact has generated much greater volatility in the U.S. stock
market and rotation within the market has increased. Our performance  
  reflects a shift in our assessment of the risks in the financial markets
     due to some probable economic stress and concern about the increase in risk
  in the economic environment that could add additional pressure to profit
 margins. However, at the present time, investors do not share our view.
     This was even highlighted by Alan Greenspan in testimony at a congressional
   hearing: "Lenders and investors in the stock market are demanding less in
the way of protection against risks by historical standards."         

     Our behavior in the market has been influenced by our belief that we may be
    near the end of the rise in profit margins that have been dramatic in this
    cycle. After-tax profit margins have reached 6.4% up from the low of 3.9%.
The dilemma is that the present level of the stock market requires    
continued increases. According to our valuation formula investors are 
expecting earnings to grow 8.0-9.0% annually for the next ten years   
    (assuming present interest rates). If revenues grow at the present rate of
 5.0%, profit margins must rise to 7.3%. We think this is unlikely for a
series of reasons. Restructuring and downsizing benefits may have been
fully exploited. The favorable cost environment, specifically labor   
   expenses, may be shifting unfavorably (see the graph below). The strength
of the dollar reduces the value of foreign profits, and the economic  
    dislocations in Southeast Asia, as well as the anemic growth in Japan, are
beginning to impact the profitability of more U.S. companies. IBM,    
Motorola, Intel and Compaq are just a few of the companies that have  
discussed the negative impact. There will be more.                    

                                                                              17


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

U.S. Employment Cost Index                                                      

(% Year-Over-Year)                                                              

[A LINE GRAPH DEPICTING THE PERCENTAGE GROWTH OF U.S. EMPLOYMENT COST INDEX FROM
1980 TO 1998 APPEARS HERE.]                                                     

   We think profit growth this year will be less than 5.0% and this would be
disappointing to investors. Presently, if we used the Federal Reserve 
    market model, stocks are approximately 18% overvalued and any doubts about
     profitability may create reactions in the market similar to the sell off in
August and October of 1997.                                           

Fed's S&P 500 Valuation Model                                                   
(percent)                                                                       

[A LINE GRAPH DEPICTING THE FEDERAL RESERVE S&P 500 VALUATION MODEL FROM 1980 TO
1998 APPEARS HERE.]                                                             

We have tried to build a portfolio that does better in a difficult    
     environment and our experiences in August and October were encouraging. Our
   return of -1.59% was a 4.01% gain over the S&P's 5.60% decline in August.
    This was due mainly to the recovery in small stocks that started in August
  and continued to the first of October. At that point we started reducing
    this segment due to the major advances of some of the stocks, but also due
   to the fear that smaller companies would be penalized in a more difficult
market because of their lower liquidity.                              

18                                                                              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Fundamental Value Fund                                                          
As of February 28, 1998                                                         

               Fundamental
                               Value Fund*         S&P 500
                               -----------         -------
RISK                                                                            
Beta                                          0.89              1.00            
% of LT Debt to Capital                        47%               42%            
LIQUIDITY                                                                       
Market Cap ($000)                            25,642            61,300           
PROFITABILITY                                                                   
Return on Equity                             13.0%             19.0%            
Return on Capital                             7.3%             -                
EBITDA Margin                                17.8%             16.9%            
Net Profit Margin                             5.8%              6.5%            
Earnings 5 Yr Hist Gr Rate                     19%               15%            
VALUATION                                                                       
Price/Earnings Trailing 4 Qtrs               18.0              23.3             
Price to Cashflow                             9.3              13.7             
Price to Book                                 2.5               4.0             
Price to Sales                                1.07              1.66            
Dividend Yield                                2.2%              1.5%            

*  Equally Weighted                                                             

     Looking at the characteristics of the present portfolio you can see we have
    maintained a risk profile (measured by beta) that is less than the market.
     In addition we have gravitated to stocks with low expectations to avoid the
    penalty of disappointments. We are expecting improvement in our selections
    but favorable performance may require some patience -- something investors
  don't have at the moment. In other words, at this stage of the market we
   think there is more to gain by investing in stocks that can still improve
   long term returns on capital and possibly experience a positive valuation
  change, rather than invest in those companies that have improved and the
stock price reflects the change without a discount for some cyclical  
erosion.                                                              

    In the chart you can also see we own stocks with market caps significantly
  below average. For the last year we have maintained our bias against the
    "Mega Fifty" stocks. Very simply, we think their valuations are at extreme
     levels and are unlikely to produce good returns going forward. Our view has
    not been shared by the majority of investors and they have continued to do
   better than the market. The fifty largest stocks exceeded the S&P by 5.5%
  in 1997, and in 1998 through February they are 1.5% ahead. Our fears are
   expressed in the charts below. The out-performance is demonstrated in the
     top chart and the valuation measures in the charts below show the very high
     levels versus the past. These stocks are perceived as safe havens but given
their lofty valuations we don't think                                 

                                                                              19


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

   they will give the protection expected in a market sell off. They did not
in August and October of last year.                                   

Exhibit 3. The Biggest Have Outperformed For a Number of Years.       

Biggest 50 Stocks/Large-Cap Universe --                               
Cumulative Relative Performance                                       

[LINE GRAPH APPEARS HERE] 

Source: Prudential Securities, Inc.                                   

Price/Sales                                                           

[LINE GRAPH APPEARS HERE] 

Source: Compusheet; Prudential Securities, Inc.                       

Price/Cash Flow                                                       

[LINE GRAPH APPEARS HERE] 

Source: Compusheet; Prudential Securities, Inc.                       

Return on Equity                                                      
(ROE)                                                                 

[LINE GRAPH APPEARS HERE] 

Source: Compusheet; Prudential Securities, Inc.                       

We hope to make money with an eclectic portfolio that excludes very   
    overvalued areas (the Mega Fifty) and sectors that are experiencing profit
 declines -- segments of technology and major energy companies. We can't
find any sectors that are significantly undervalued comparable to last
year. At the beginning of 1997 we were buying all the cable TV stocks 
    thinking they were 30-40% undervalued, adding to our small stock exposure,
    and accumulated electric utilities and telephone companies into the second
quarter. The cable TV stocks have doubled in the last 12 months. Small
   stocks, the utilities and telephone companies underperformed for the year
   but each had a quarter of major outperformance; small stocks in the third
  quarter and telephone and utility stocks were up 17% vs. the S&P gain of
2.87%. Due to these price moves we have cut back in these areas and in
 technology as well. The technology sector outperformed the group (i.e.,
     Microsoft, Cisco and Dell Computer) and we took profits aggressively as our
concerns about deteriorating profitability were reinforced by negative
  earnings estimate revisions caused by slowing final demand aggravated by
the major exposure to Southeast Asia.                                 

20                                                                              


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

With the funds generated from these profits we have responded         
opportunistically. We are waiting for good risk reward situations to  
    present themselves to add to good values presently in the portfolio. Waste
Management Inc. was a major frustration in the last year. We were too 
    optimistic about its potential profitability improvement and getting a new
   chief executive proved troublesome. First they hired the former president
    of Sprint. Unfortunately he left after three months so for five months the
    company has been led by an interim CEO, a man with excellent capabilities,
but the market required more certainty. We stayed with the investment 
   believing margins that were 40% below the top tier in the industry, could
be improved by a new and motivated management. The stock sold off     
     dramatically in October and January and each time we added to the position.
This poor performance cost the portfolio 1.5% relatively. Patience was
  rewarded in March. USA Waste, the most profitable waste services company
has agreed to acquire Waste Management and the stock has rallied 25%, 
recapturing half of last year's performance.                          

Another sector ignored last year was retail. For instance, Federated  
     Department Stores was ignored in the first half providing an opportunity to
 buy the stock at 14 times earnings (the market at the time was 20 times
earnings) with no hint of profit difficulties. A more controversial   
    opportunity occurred in October when Sears announced it was experiencing a
  dramatic increase in credit card charge offs. The stock, which peaked at
$65.00 per share in early summer dropped as low as $40.00 per share in
 October. This allowed us the opportunity to buy the stock at 15 times a
   worst case scenario, which now seems to be an exaggerated fear. The stock
has rebounded recently to $50.00 per share. More recently Toys-R-Us   
declined precipitously and reduced earnings expectations. We responded
    similarly to the Sears situation, encouraged by the company's announced $1
     billion stock buyback. The Toys-R-Us situation will probably not be as good
as Sears and Federated, but the risk-reward at its lows looked very   
attractive.                                                           

   Another success in the past year was Digital Equipment. We had bought the
    stock earlier but were convinced to add significantly to the position when
the stock traded down to $25.00 per share. Our analysis suggested the 
   company's assets were worth at least $50.00 per share. In December Compaq
     confirmed our analysis by announcing a merger worth $60.00 per share at the
time.                                                                 

I have mentioned these examples because they reflect the types of     
  situations we are trying to find today to put in the portfolio which are
   low expectation opportunities where perceptions are excessively negative.
    The chances of improvement in profitability have risen (without paying for
     it) and the value of the companies' assets may be worth more to a strategic
buyer limiting the downside risk.                                     

     Data General is an example like Digital Equipment, and Occidental Petroleum
   could attract the attention of a larger oil company that is struggling to
grow revenues in an environment of declining oil prices.              

                                                                              21


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GMO Fundamental Value Fund                                                      
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

  Listed below are the major additions or increases in the last six months
     and they are opportunities created by the rotational aspects of the market.
    That is, if it appears not to be a short-term performer, sell it and go to
where the action is.                                                  

Federated Department Stores                                           
Sears Roebuck                                                         
Corning                                                               
Occidental Petroleum                                                  
Unicom                                                                
Stewart & Stevenson                                                   

  Our experience to date is that good investments are created and interest
     can shift quickly. A great example is Electronics for Imaging. The stock in
    1997 went from $52.00 to $14.00 (earnings were very disappointing but this
   was due to an inventory adjustment by its customers). The inventory shift
is almost over and the stock has doubled in three months.             

    We will keep looking for opportunities but think they will be more limited
    so we will concentrate the portfolio in fewer positions. This has and will
    create more volatility in month to month relative performance particularly
     when the major market cap stocks make a major move like they did in January
 to mid February. We fear this less going forward because the market has
  obviously broadened in March and good values with potential catalysts or
     favorable news are clearly doing well in the present market phase. However,
risk must not be ignored. The concentration of 1997 may erode in 1998 
giving us a better opportunity for picking stocks.                    

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.

22                                                                              


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Comparison of Change in Value of a $10,000 Investment in  
GMO Fundamental Value Fund Class III Shares and the S&P 500 Index 
As of February 28, 1998 

---------------------------------                             
Average Annual Total Return                             
---------------------------------                             
Since         
Inception         
1 Year    5 Year   10/31/91                             
---------------------------------                             
Class                                                                           
III        30.2%      20.6%     20.3%                                         
---------------------------------                             

[LINE GRAPH APPEARS HERE] 

GMO Fundamental     S&P 500                     
Date            Value Fund         Index                                    
----          ---------------     -------                                   
10/31/91           $9,985           $10,000                                     
2/29/92          $10,870           $10,631                                    
2/28/93          $12,571           $11,764                                    
2/28/94          $14,680           $12,744                                    
2/28/95          $15,818           $13,682                                    
2/29/96          $20,554           $18,430                                    
2/28/97          $24,671           $23,251                                    
2/28/98          $32,178           $31,389                                    

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 return would have been lower had certain expenses not been      
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Past performance is
not indicative of future performance. Information is unaudited.                 


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of                            
GMO Small Cap Growth Fund (A Series of GMO Trust)                               

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 at       
February 28, 1998, the results of its operations for the year then ended, the   
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers and the      
application of alternative auditing procedures where confirmations from brokers 
were not received, provide a reasonable basis for the opinion expressed above.  

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 13, 1998                                                                  


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares        Description                                      Value ($)    
--------------------------------------------------------------------------------

COMMON STOCKS -- 97.6%                          

Advertising -- 0.0%                             
  6,100      CKS Group Inc *                                       115,900
                                                               -------------

Aerospace -- 1.2%                               
 20,400      AAR Corp                                              619,650
  7,900      BE Aerospace Inc *                                    232,556
 26,300      Gencorp Inc                                           716,675
 16,400      Orbital Sciences Corp *                               625,250
 26,100      Thiokol Corp                                        2,495,812
                                                               -------------
                                                                 4,689,943
                                                               -------------

Automotive -- 0.7%                              
 34,900      Arvin Industries Inc                                1,382,913
 21,900      Mascotech Industries Inc                              454,425
 36,000      Wabash National Corp                                1,068,750
                                                               -------------
                                                                 2,906,088
                                                               -------------

Banking and Financial Services -- 5.6%          
 32,300      Americredit *                                         882,194
 31,000      Amresco Inc *                                       1,046,250
  2,677      Associated Banc Corp                                  140,208
  4,800      Astoria Financial Corp                                268,200
 35,620      BOK Financial Corporation                           1,749,833
 15,250      Comdisco Inc                                          635,734
 12,800      Deposit Guaranty Corp                                 709,600
 21,700      Dime Bancorp Inc                                      661,850
 20,400      Eaton Vance Corp                                      847,875
  2,700      First Citizens Bancshares, Class A                    313,200
    700      First Empire State Corp                               330,400
 12,300      First Federal Financial Corp *                        496,613
 11,180      First Financial Bancorp                               610,708
  4,500      Fund American Enterprises Holdings                    588,375
 41,400      Golden State Bancorp *                              1,474,875
 10,300      Jefferies Group Inc                                   456,419
 17,333      Legg Mason Inc                                      1,035,647
 14,100      Mercantile Bankshares                                 493,940
  9,900      National Commerce Bancorp                             372,488
 68,600      Northfork Bancorp                                   2,345,262
  8,200      Onbancorp Inc                                         595,525

             See accompanying notes to the financial statements.             1


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                    Value ($)      
--------------------------------------------------------------------------------

Banking and Financial Services -- continued       
18,400      Park District National Corp                        1,598,500  
21,600      Piper Jaffray Inc                                    793,800  
13,100      Provident Financial Group                            671,375  
12,200      Raymond James Financial Corp                         486,475  
24,750      St. Paul Bancorp Inc                                 655,875  
8,800      Sumitomo Bank Of California                          411,400 
31,100      The Trust Company of N. J.                           851,363  
23,300      Value Line Inc                                       978,600  
                                                          --------------
                                                            22,502,584
                                                          --------------

Chemicals -- 1.6%                                 
44,600      Albemarle Corp                                     1,087,125  
18,800      Crompton & Knowles Corp                              566,350  
18,900      Cytec Industries Inc *                               923,738  
7,100      Dexter Corp                                          288,438 
44,200      Kaiser Aluminum Corp *                               433,713  
54,600      Macdermid Inc                                      1,904,174  
88,600      Nl Industries Inc *                                1,317,925  
                                                          --------------
                                                             6,521,463
                                                          --------------

Communications -- 0.0%                            
1,100      NTL Inc *                                             36,575 
                                                          --------------

Computer and Office Equipment -- 2.1%             
27,000      Apple Computer Inc *                                 637,875  
18,060      Comverse Technology Inc *                            844,305  
29,500      Intergraph Corp *                                    287,625  
15,400      Lexmark International Group Inc *                    658,350  
17,100      Sequent Computer Inc *                               362,306  
27,900      Stratus Computer Inc *                             1,400,231  
33,400      Telxon Corp *                                        780,725  
193,900      Unisys Corp *                                      3,465,962   
                                                          --------------
                                                             8,437,379
                                                          --------------

Construction -- 2.4%                              
37,300      Centex Corp                                        2,725,230  
27,100      Horton (DR) Inc                                      631,769  
30,900      Kaufman & Broad Home Corp                            799,538  
58,800      McDermott International Inc                        2,315,249  
134,100      Standard Pacific Corp                              2,321,605   
12,400      Texas Industries Inc                                 700,600  
                                                          --------------
                                                             9,493,991
                                                          --------------

2             See accompanying notes to the financial statements.               


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Consumer Goods -- 5.2%                            
46,500      Furniture Brands International Inc *                 1,272,938
64,000      Genesco Inc *                                          880,000
15,800      Gulf South Medical Supply Inc *                        570,775
35,800      Hartmarx Corp *                                        290,875
30,900      Hon Industries Inc                                   2,031,674
15,300      Jones Apparel Group Inc *                              841,500
40,500      Miller Herman Inc                                    2,480,624
25,800      N. E. Business SVC Inc                                 822,375
52,700      O'Sullivan Industries Holdings Inc *                   602,756
 9,000      Oneida LTD                                             240,750
32,300      Oxford Industries Inc                                1,017,450
16,000      Pittston Brinks Group                                  618,000
18,700      Russ Berrie and Co                                     521,263
13,500      Samsonite Corp *                                       445,500
12,800      Scotts Company, Class A *                              435,200
31,800      Technology Data Corp *                               1,478,700
50,200      Timberland Co *                                      3,639,499
13,000      Unifi Inc                                              477,750
46,100      US Industries Inc                                    1,285,038
18,400      VWR Scientific Products Corp *                         634,800
                                                              --------------
                                                                20,587,467
                                                              --------------

Electronic Equipment -- 7.1%                      
17,600      American Power Conversion Corp *                       510,400
15,600      Amphenol Corp, Class A *                               975,975
22,500      Burr-Brown Corp                                        925,313
23,200      Cable Design Technologies                              674,250
40,500      Cellstar Corp                                        1,308,656
73,100      CTS Corp                                             2,352,905
39,600      Dallas Semiconductor Corp                            1,880,999
36,500      Digital Microwave Corp                                 670,688
18,400      DSP Communications Inc *                               325,450
21,000      Electro Scientific Industries *                        798,000
11,400      Highwaymaster Communications *                          77,663
 8,700      Hutchinson Technology Inc *                            201,188

              See accompanying notes to the financial statements.              3


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                    Value ($)      
--------------------------------------------------------------------------------

Electronic Equipment -- continued                 
18,600      Integrated Circuit Systems Inc *                     651,000  
51,000      Integrated Process Equipment *                       943,500  
22,800      Inter-Tel Inc                                        504,450  
35,500      Jabil Circuit Inc                                  1,868,188  
16,900      Lattice Semiconductor Corp *                         905,206  
21,600      Level One Communications Inc                         970,650  
40,400      Magnetek Inc *                                       717,100  
5,600      Microchip Technology Inc *                           135,450 
164,800      Oak Technology Inc *                               1,153,600   
11,900      P-Com Inc                                            240,975  
29,500      Pacific Scientific Co                                886,844  
21,700      PMC-Sierra Inc *                                     781,200  
12,200      Sanmina Corp *                                       972,188  
32,000      Silicon Valley Group Inc *                           872,000  
12,300      Siliconix Inc *                                      518,138  
6,900      Technitrol Inc                                       252,281 
63,000      Tekelec                                            2,575,124  
40,700      Trimble Navigation Limited *                         814,000  
27,400      Unitrode Corp                                        515,463  
51,800      VLSI Technology *                                  1,000,388  
12,500      Xylan Corp *                                         301,563  
                                                          --------------
                                                            28,280,795
                                                          --------------

Food and Beverage -- 5.0%                         
31,900      Canadnaigua Wine Co, Class B *                     1,786,400  
41,400      Coors (Adolph) Co                                  1,293,750  
80,700      Darden Restaurants Inc                             1,089,450  
47,600      Dean Foods Co                                      2,617,999  
20,400      Dekalb Genetics Corp                               1,370,625  
15,200      Dimon Inc                                            266,000  
38,700      Interstate Bakeries Corp                           1,296,450  
66,500      Michael Foods Inc                                  1,687,438  
19,100      Pilgrims Pride Corp                                  205,325  
2,500      Quality Food Centers Inc *                           209,063 
29,500      Ralcorp Holdings Inc *                               499,656  
1,000      Seaboard Corp                                        412,000 
6,100      Showbiz Pizza Time *                                 176,900 
37,300      Smithfield Foods Inc                               1,179,613  

4             See accompanying notes to the financial statements.               


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Food and Beverage -- continued                    
35,900      Tootsie Roll Industries Inc                          2,679,037
25,300      Triarc Companies *                                     635,663
53,900      Universal Corp                                       2,560,249
                                                              --------------
                                                                19,965,618
                                                              --------------

Health Care -- 4.0%                               
21,200      BioMet Inc                                             632,025
20,600      Concentra Managed Care Inc *                           706,838
19,100      Cooper (The) Companies Inc *                           892,925
71,000      Coventry Corp *                                      1,149,313
35,100      Medimmune Inc *                                      1,820,813
50,100      Novacare Corp *                                        701,400
15,600      Orthodontic Centers of America *                       301,275
27,500      Paragon Health Network Inc                             512,188
 8,300      Pediatrix Medical Group Inc *                          342,375
34,900      Physician Sales & Service Inc *                        728,538
62,400      Safeskin Corp *                                      3,829,799
 6,200      Sofamor Denek Group Inc *                              466,550
73,725      Total Renal Care Holdings                            2,373,022
116,500      Vivus Inc                                            1,354,313 
                                                              --------------
                                                                15,811,374
                                                              --------------

Insurance -- 5.0%                                 
45,000      American Annuity Group Inc                           1,001,250
11,600      CMAC Investment Corp                                   777,200
11,500      Commerce Group Inc                                     399,625
62,500      Crawford and Co                                      1,187,500
13,800      Enhance Financial Services Group Inc                   856,463
93,100      Everest Re Holdings Inc                              3,433,062
18,200      Fidelity National Financial Inc                        532,350
16,600      First American Financial Corp                          989,775
43,100      Fremont General Corp                                 2,529,430
34,618      Frontier Insurance Group Inc                           815,687
19,900      John Alden Financial Corp                              446,506
61,900      Mercury General Corp                                 3,512,824
35,200      Presidential Life Corp                                 765,600
 1,600      Reliance Group Holdings Inc                             27,200
48,400      Twentieth Century Industries                         1,294,700
17,500      UICI *                                                 562,188

              See accompanying notes to the financial statements.              5


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Insurance -- continued                            
11,300      United Wisconsin Services                              350,300
11,600      Vesta Insurance Group                                  664,825
                                                              --------------
                                                                20,146,485
                                                              --------------

Machinery -- 4.2%                                 
118,600      Aviall Inc *                                         1,704,875 
24,000      Camco International Inc                              1,404,000
17,000      Cooper Cameron Corp                                    911,625
11,800      Donaldson Co Inc                                       280,988
10,200      ETEC Systems Inc *                                     534,863
62,700      Federal Mogul Corp                                   3,076,218
12,500      Gleason Corp                                           417,188
11,850      Graco Inc                                              349,575
49,300      Helix Technology Corp                                1,121,575
18,200      Kaydon Corp                                            676,813
31,700      Kulicke & Soffa Industries *                           879,675
30,000      Novellus System Inc                                  1,438,125
 8,750      Paxar Corp                                             122,500
10,300      Smith International Inc *                              548,475
20,700      Tennant Co                                             752,963
32,000      Terex Corp *                                           764,000
75,400      Varco International Inc                              1,875,574
                                                              --------------
                                                                16,859,032
                                                              --------------

Manufacturing -- 4.0%                             
18,100      ACX Technologies Inc *                                 432,138
22,700      Aeroquip-Vickers Inc                                 1,318,019
34,400      Applied Power Inc, Class A                           1,238,400
16,500      Barnes Group Inc                                       486,750
19,200      Blyth Industries Inc                                   577,200
17,600      Crane Co                                               862,400
 8,500      CSS Industries Inc *                                   299,625
21,100      Gentex Corp *                                          680,475
17,100      Griffon Corp *                                         281,081
37,300      Handy & Harman                                       1,359,119
27,000      Lafarge Corp                                           906,188
36,425      Manitowoc Co Inc                                     1,436,511
17,600      Mine Safety Appliances                               1,091,200
37,800      Nortek Inc *                                         1,176,525

6             See accompanying notes to the financial statements.               


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                    Value ($)      
--------------------------------------------------------------------------------

Manufacturing -- continued                        
18,500      Robbins & Myers Inc                                  733,063  
12,200      Tredegar Industries                                  854,000  
33,000      Trinity Industries Inc                             1,658,250  
20,000      Wyman-Gordon Co. *                                   400,000  
                                                          --------------
                                                            15,790,944
                                                          --------------

Metals and Mining -- 1.4%                         
15,750      Amcol International Corp                             224,438  
9,600      Nacco Inds Inc, Class A                            1,248,600 
395,500      Sunshine Mining & Refining Co *                      519,094   
29,300      Timken Co                                            944,925  
7,200      Wesco Financial Corp                               2,620,799 
                                                          --------------
                                                             5,557,856
                                                          --------------

Oil and Gas -- 3.0%                               
9,300      Atwood Oceanics Inc                                  456,863 
33,800      BJ Services Co                                     1,161,875  
6,700      Cabot Oil & Gas Corp, Class A                        140,700 
62,400      Global Industries Limited                          1,076,400  
45,600      Helmerich & Payne Inc                              1,319,550  
8,100      Louis Dreyfus Natural Gas *                          146,306 
49,100      Marine Drilling Co Inc *                             880,731  
29,900      Nabors Industries Inc *                              683,963  
11,500      Ocean Energy Inc *                                   537,625  
101,800      Parker Drilling Co *                               1,119,800   
57,000      Pooled Funds Energy Services Co *                  1,346,625  
32,800      RPC Inc                                              371,050  
22,500      Surety Corp *                                        354,375  
35,300      Tuboscope Vetco International Corp *                 690,556  
13,900      Unit Corp *                                          110,331  
41,700      Weatherford Enterra Inc *                          1,443,863  
                                                          --------------
                                                            11,840,613
                                                          --------------

Paper and Allied Products -- 1.0%                 
35,300      Bowater Inc                                        1,747,350  
64,600      Jefferson Smurfit Corp *                             964,963  
10,000      TJ International Inc                                 300,000  
9,800      United Stationers Inc *                              586,775 
31,200      US Office Products Co                                577,200  
                                                          --------------
                                                             4,176,288
                                                          --------------

              See accompanying notes to the financial statements.              7


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Pharmaceuticals -- 3.0%                           
38,500      Agouron Pharmaceuticals Inc                          1,419,688
37,400      Alpharma Inc                                           864,875
 5,900      Amerisource Health Corp *                              345,150
22,200      Bergen Brunswig Corp, Class A                          999,000
20,000      Biomatrix Inc *                                        652,500
 9,700      Dura Pharmaceuticals Inc *                             243,713
93,100      Gensia Sicor Inc *                                     526,592
28,400      ICN Pharmaceuticals Inc                              1,640,100
16,100      IDEC Pharmaceuticals Corp *                            730,538
11,300      Immnunex Corp *                                        668,113
15,900      NBTY Inc *                                             740,344
17,000      Protein Design Labs Inc *                              731,000
 8,700      Quintiles Transnational Corp                           425,213
38,000      Rexall Sundown Inc                                   1,406,000
15,000      Watson Pharmaceutical Inc                              538,125
                                                              --------------
                                                                11,930,951
                                                              --------------

Primary Materials -- 2.5%                         
12,800      Carlisle Cos Inc                                       620,000
25,300      Centec Construction Products                           803,275
18,250      Elcor Corp                                             489,328
41,200      EVI Inc                                              2,021,374
11,300      Kuhlman Corp                                           498,613
 5,800      Lone Star Industries                                   349,450
28,900      Martin Marietta Materials Inc                        1,100,006
14,200      Premark International Inc                              441,975
24,300      Southdown Inc                                        1,555,200
40,200      USG Corp *                                           2,195,924
                                                              --------------
                                                                10,075,145
                                                              --------------

Primary Processing -- 1.6%                        
122,300      Armco Inc *                                            649,719 
142,500      Bethlehem Steel Corp *                               1,514,063 
38,800      Inland Steel Industries Inc                            800,250
34,300      Lone Star Technologies Inc *                         1,063,300
82,900      National Steel Corp, Class B                         1,284,950

8             See accompanying notes to the financial statements.               


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Primary Processing -- continued                   
22,300      Oregon Steel Mills Inc                                 448,788
14,200      Precision Castparts Corp                               787,213
                                                              --------------
                                                                 6,548,283
                                                              --------------

Printing and Publishing -- 1.7%                   
29,300      Central Newspapers, Class A                          2,093,118
33,300      Hollinger International Inc                            534,881
 5,700      John Wiley and Sons, Class A                           282,506
23,675      McClatchy Newspapers Inc                               649,583
 2,800      Pulitzer Publishing Co                                 235,200
81,100      Valassis Communications Inc *                        3,091,937
                                                              --------------
                                                                 6,887,225
                                                              --------------

Real Estate -- 0.8%                               
59,900      CN Fairfield Communities Inc                         1,340,263
65,800      PEC Isreal Economic Corp *                           1,328,338
25,100      Penn Virginia Corp                                     704,369
                                                              --------------
                                                                 3,372,970
                                                              --------------

Refining -- 0.8%                                  
30,700      Lyondell Petro Chemical Co                             836,575
20,100      Sun Co Inc                                             802,744
43,600      Valero Energy Corp                                   1,547,800
                                                              --------------
                                                                 3,187,119
                                                              --------------

Retail Trade -- 10.9%                             
21,700      American Eagle Outfitters                              642,863
 7,500      AnnTaylor Stores Corp *                                106,406
33,400      Arbor Drugs Inc                                        784,900
33,100      Barnes & Noble Inc                                   1,162,638
65,300      Best Buy Co Inc *                                    3,893,512
51,600      Borders Group Inc                                    1,718,925
23,100      Buckle Inc                                             949,988
84,880      Burlington Coat Factory Warehouse                    1,289,115
39,400      Cash American Investments Inc                          472,800
19,800      Cato Corp, Class A                                     262,350
66,050      CKE Restaurants Inc                                  2,802,996
24,850      Dollar Tree Stores Inc                               1,077,869
152,400      Dress Barn Inc *                                     4,448,174 
64,500      Ethan Allen Interiors Inc                            3,595,874

              See accompanying notes to the financial statements.              9


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Retail Trade -- continued                         
81,550      Family Dollar Stores Inc                             2,905,218
35,000      Fingerhut Cos Inc                                      868,438
53,000      Foodmaker Inc *                                        963,938
20,790      Fred Meyer Inc                                         923,856
38,100      General Nutrition Cos Inc *                          1,514,475
11,660      Genovese Drug Stores Inc, Class A                      210,609
45,100      Goodys Family Clothing Inc *                         1,691,250
88,600      Hanover Direct Inc                                     310,100
25,200      Michaels Stores Inc *                                  856,800
24,500      Micro Warehouse Inc *                                  336,875
84,200      Microage Inc *                                       1,084,075
74,200      Pier 1 Imports Inc                                   1,984,849
25,500      Proffitts Inc                                          863,813
19,300      Ross Stores Inc                                        759,938
21,800      Shopko Stores Inc *                                    573,613
12,300      Stein Mart Inc *                                       397,444
33,800      Stride Rite Corp                                       414,050
24,300      Transportation World Entertainment Corp                669,769
126,200      Valhi Inc                                            1,214,675 
16,900      Whole Foods Market Inc *                             1,034,069
12,600      Williams-Sonoma Inc *                                  648,900
                                                              --------------
                                                                43,435,164
                                                              --------------

Services -- 5.1%                                  
30,900      Accustaff Inc *                                        872,925
18,900      Advo Inc *                                             461,869
20,300      AMC Entertainment Inc *                                522,725
27,200      Anchor Gaming *                                      1,849,600
13,200      Apollo Group Inc *                                     559,350
120,100      Aura Systems Inc *                                     375,313 
62,700      Avid Technology Inc *                                2,167,068
 4,900      Bowne and Co Inc                                       207,638
25,350      Central Parking Corp                                 1,102,725
28,500      COR Therapeutics Inc *                                 359,813
41,500      Corestaff Inc *                                      1,294,281
49,900      Icos Corp *                                            701,719
125,600      McGrath Rentcorp                                     2,747,499 
16,600      Meredith Corp                                          712,763

10            See accompanying notes to the financial statements.               


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Services -- continued                             
89,200      Metromedia International Group Inc *                 1,014,650
10,200      Norrell Corp                                           238,425
12,600      Oakwood Homes Corp                                     499,275
19,000      Promus Hotel Corp                                      916,750
21,700      Renters Choice Inc *                                   542,500
13,100      Sonic Corp *                                           383,175
 6,000      SPS Transaction Services Corp *                        175,125
 3,800      Stone & Webster Inc                                    156,988
14,400      United Video Satellite Group Inc *                     532,800
31,550      Volt Information Sciences Inc                        1,658,347
 6,300      XTRA Corp                                              387,450
                                                              --------------
                                                                20,440,773
                                                              --------------

Technology -- 8.0%                                
 4,900      ABR Information Services Inc *                         139,038
 5,200      Affiliated Computer Services *                         167,375
30,100      Autodesk Inc                                         1,425,988
27,100      Avanti Corporation *                                   379,400
31,800      Cerner Corp *                                          655,875
31,300      Checkfree Holdings Corp *                              672,950
77,150      Citrix Systems Inc                                   3,245,121
17,200      CMG Information Services Inc                           823,450
50,100      Cognex Corp *                                        1,205,531
12,400      Cohu Inc                                               573,500
14,900      Computer Horizons Corp                                 777,594
26,900      Credence Systems Corp *                                897,788
16,100      CSG Systems International Inc *                        623,875
64,100      Data General Corp *                                  1,322,063
25,800      Digi International Inc *                               625,650
17,200      FileNet Corp *                                         574,050
11,900      HNC Software Inc *                                     423,938
42,000      Hyperion Software Corp *                             1,727,250
40,600      Information Resources Inc *                            568,400
55,400      Input/Output Inc *                                   1,194,563
27,300      Intersolv Inc *                                        424,856
53,800      Keane Inc                                            2,501,699
   400      KLA Instruments Corp *                                  18,462
28,050      National Instruments Corp                              845,006

              See accompanying notes to the financial statements.             11


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                      Value ($)    
--------------------------------------------------------------------------------

Technology -- continued                           
10,600      Network Appliance Inc                                  312,700
85,200      Platinum Technology Inc *                            2,161,949
40,400      Psinet Inc *                                           311,835
21,700      Remedy Corp *                                          416,369
54,800      Symantec *                                           1,380,275
41,300      Systems & Computer Technology Corp *                 1,806,875
16,900      Transaction Systems Archit, Class A *                  735,150
12,400      Uniphase Corp                                          496,775
16,500      Vantive Corp *                                         451,688
18,800      Viasoft Inc *                                          507,600
37,800      Visio Corp                                           1,360,800
                                                              --------------
                                                                31,755,438
                                                              --------------

Telecommunications -- 3.2%                        
24,700      Adelphia Communications Corp, Class A *                636,025
25,600      Adtran Inc *                                           764,800
15,500      Aliant Communications Inc                              406,875
23,800      Cablevision Systems Corp *                           2,326,449
24,200      Cellular Commerce International Inc *                1,155,550
15,600      Centennial Cellular Corp, Class A *                    290,550
10,500      Jacor Communications Inc *                             607,688
18,300      LCI International Inc *                                603,900
11,800      Mastec Inc                                             330,400
102,100      Mobile Telecommunications Technologies Corp *        2,297,249 
83,100      Paging Network Inc *                                 1,204,950
31,000      Premiere Technologies Inc *                            972,625
19,900      Sinclair Broadcast Group, Class A                    1,125,594
 5,500      TCI Music Inc, Class A *                                42,625
                                                              --------------
                                                                12,765,280
                                                              --------------

Textiles -- 0.3%                                  
20,700      Interface Flooring Systems Inc                         791,775
10,800      Westpoint Stevens Inc *                                576,450
                                                              --------------
                                                                 1,368,225
                                                              --------------

Transportation -- 5.6%                            
110,000      Airborne Freight Corp                                3,980,624 
73,700      CNF Transportation Inc                               2,883,512

12            See accompanying notes to the financial statements.               


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Par Value ($)/                                                                  
Shares       Description                                      Value ($)   
--------------------------------------------------------------------------------

Transportation -- continued                     
  25,500      Comair Holdings Inc                                    678,938
  29,400      Expeditors International Washington Inc              1,190,700
  33,100      FDX Corp *                                           2,108,055
  21,800      Fleetwood Enterprises Inc                            1,021,875
  54,400      Fritz Companies Inc *                                  754,800
 117,900      Navistar International Corp *                        3,581,212
  37,400      Overseas Shipholding Group Inc                         776,050
  14,300      Skywest Inc                                            557,700
   8,500      Swift Transportation Co *                              277,313
  26,800      US Freightways Corp                                    936,325
  22,000      USAir Group Inc *                                    1,392,875
  30,500      Westinghouse Air Brake Co                              770,125
  73,200      Yellow Corp *                                        1,541,775
                                                                --------------
                                                                  22,451,879
                                                                --------------

Utilities -- 0.6%                               
   5,200      Calenergy Inc *                                        139,425
  13,400      IPALCO Enterprises Inc                                 572,013
  32,700      Kinder Morgan Energy Partners                        1,193,550
  11,800      UGI Corp                                               337,775
                                                                --------------
                                                                   2,242,763
                                                                --------------

              TOTAL COMMON STOCKS (COST $355,817,081)            390,181,610
                                                                --------------

SHORT-TERM INVESTMENTS -- 15.4%                 

Cash Equivalents -- 12.9%                       
$17,202,422     BankBoston Eurodollar Time Deposit, 5.7875% due                 
              3/2/98/(a)/                                         17,202,422
$ 2,438,562     First Union National Bank of North Carolina                     
              Eurodollar Time Deposit, 5.6250% due 3/2/98/(a)/     2,438,562
13,777,872     Merrimac Cash Fund Premium Class/(a)/               13,777,872 
$18,000,000     Prudential Securities Group Inc, Master Note,                   
              5.8875% due 3/2/98/(a)/                             18,000,000
                                                                --------------
                                                                  51,418,856
                                                                --------------

U.S. Government -- 0.1%                         
$  300,000      U.S. Treasury Bill, 5.165%, due 5/28/98/(b)/           296,245  
                                                                --------------

              See accompanying notes to the financial statements.             13


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Par Value       Description                                      Value ($)      
--------------------------------------------------------------------------------

Repurchase Agreements -- 2.4%                   
$9,719,100      Salomon Brothers Repurchase Agreement, dated                    
2/27/98, due 3/2/98, with a maturity value of   
$9,723,206 and an effective yield of 5.07%,     
collateralized by U.S. Treasury Obligation      
with a rate of 8.125%, with a maturity date of  
              8/15/21 and with a market value of $9,913,482.       9,719,100
                                                                --------------

TOTAL SHORT-TERM INVESTMENTS                    
              (COST $61,434,125)                                  61,434,201
                                                                --------------

TOTAL INVESTMENTS -- 113.0%                     
              (COST $417,251,206)                                451,615,811

               Other Assets and Liabilities (net)--(13.0)%        (52,002,818)
                                                                --------------

              TOTAL NET ASSETS-- 100%                          $ 399,612,993
                                                                ==============

Notes to the Schedule of Investments:           

* Non-income producing security.                    
         /(a)/ Represents investments of security lending collateral (Note 1).
      /(b)/ Security has been segregated to cover margin requirements on
open financial futures contracts.               

14            See accompanying notes to the financial statements.               


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                      
Assets:                                                                               
  Investments, at value (cost $417,251,206) (Note 1)                      $451,615,811
  Receivable for investments sold                                           17,522,940
  Dividends and interest receivable                                            209,455
  Receivable for expenses waived or borne by Manager (Note 2)                   80,751
                                                                          ------------

      Total assets                                                         469,428,957
                                                                          ------------

Liabilities:                                                                          
  Payable for investments purchased                                         18,111,305
  Payable upon return of securities loaned (Note 1)                         51,418,856
  Payable for Fund shares repurchased                                           13,819
  Payable to affiliate for (Note 2):                                                  
     Management fee                                                            150,300
     Shareholder service fee                                                    43,456
  Payable for variation margin on open futures contracts (Notes 1 and 6)        12,597
  Accrued expenses                                                              65,631
                                                                          ------------

      Total liabilities                                                     69,815,964
                                                                          ------------

Net assets                                                                $399,612,993
                                                                          ============

Net assets consist of:                                                                
  Paid-in capital                                                         $355,342,044
  Accumulated undistributed net realized gain                                9,900,974
  Net unrealized appreciation                                               34,369,975
                                                                          ------------
                                                                          $399,612,993
                                                                          ============

Net assets attributable to:                                                           
  Class III shares                                                        $399,612,993
                                                                          ============

Shares outstanding:                                                                   
  Class III                                                                 32,547,633
                                                                          ============

Net asset value per share:                                                            
  Class III                                                               $      12.28
                                                                          ============

              See accompanying notes to the financial statements.             15


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
  Dividends                                                        $ 1,661,804
  Interest (including securities lending income of $199,072)         1,255,784
                                                                   -----------

      Total income                                                   2,917,588
                                                                   -----------

Expenses:                                                                       
  Management fee (Note 2)                                            1,537,995
  Custodian and transfer agent fees                                    129,517
  Registration fees                                                     38,202
  Audit fees                                                            23,457
  Legal fees                                                             6,718
  Trustees fees (Note 2)                                                 2,722
  Miscellaneous                                                            434
   Fees waived or borne by Manager (Note 2)                            (725,457)
                                                                   -----------
                                                                     1,013,588
Shareholder service fee (Note 2)                                          
      Class III                                                        459,765
                                                                   -----------
      Net expenses                                                   1,473,353
                                                                   -----------

         Net investment income                                       1,444,235
                                                                   -----------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                              
      Investments                                                   37,950,146
      Closed futures contracts                                       1,867,495
                                                                   -----------

         Net realized gain                                          39,817,641
                                                                   -----------

Change in net unrealized appreciation (depreciation) on:                  
      Investments                                                   37,483,260
      Open futures contracts                                           288,725
                                                                   -----------

         Net unrealized gain                                        37,771,985
                                                                   -----------

      Net realized and unrealized gain                              77,589,626
                                                                   -----------

Net increase in net assets resulting from operations                $79,033,861 
                                                                   ===========

16               See accompanying notes to the financial statements.            


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                            Period from December 31, 1996
                                             Year Ended      (commencement of operations)
                                          February 28, 1998      to February 28, 1997    
                                          ----------------- -----------------------------
                                                                                         
Increase (decrease) in net assets:                                                       
Operations:                                                                              
   Net investment income                      $ 1,444,235           $   173,151          
   Net realized gain                           39,817,641                18,414          
   Change in net unrealized appreciation                                                 
      (depreciation)                           37,771,985            (3,402,010)         
                                             ------------          ------------          

   Net increase (decrease) in net assets                                                 
      resulting from operations                79,033,861            (3,210,445)         
                                             ------------          ------------          

Distributions to shareholders from:                                                      
   Net investment income                                                                 
       Class III                               (1,617,385)                   --          
                                             ------------          ------------          
   In excess of net investment income                                                    
       Class III                                 (159,172)                   --          
                                             ------------          ------------          
   Net realized gains                                                                    
       Class III                              (29,775,910)                   --          
                                             ------------          ------------          

                                              (31,552,467)                   --          
                                             ------------          ------------          
   Net share transactions: (Note 5)                                                      
       Class III                              192,233,498           163,108,546          
                                             ------------          ------------          
   Increase in net assets resulting from net                                             
      share transactions                      192,233,498           163,108,546          
                                             ------------          ------------          

      Total increase in net assets            239,714,892           159,898,101          

Net assets:                                                                              
   Beginning of period                        159,898,101                    --          
                                             ------------          ------------          

   End of period (including accumulated                                                  
      undistributed net investment income                                                
      of $0 and $173,151, respectively)      $399,612,993          $159,898,101          
                                             ============          ============          

               See accompanying notes to the financial statements.            17


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                Period from December 31, 1996
                                                Year Ended       (commencement of operations)
                                             February 28, 1998       to February 28, 1997    
                                             -----------------  -----------------------------
                                                                                             
Net asset value, beginning of period              $  9.82                $  10.00            
                                                  -------                --------            

Income from investment operations:                                                           
   Net investment income                             0.05                    0.01            
   Net realized and unrealized gain (loss)           3.43                   (0.19)           
                                                  -------                --------            

      Total from investment operations               3.48                   (0.18)           
                                                  -------                --------            

Less distributions to shareholders:                                                          
   From net investment income                       (0.06)                     --            
   In excess of net investment income               (0.01)                     --            
   From net realized gains                          (0.95)                     --            
                                                  -------                --------            

      Total distributions                           (1.02)                     --            
                                                  -------                --------            
Net asset value, end of period                    $ 12.28                $   9.82            
                                                  =======                ========            

Total Return (a)                                    36.66%                  (1.80)%          

Ratios/Supplemental Data:                                                                    
   Net assets, end of period (000's)             $399,613                $159,898            
   Net expenses to average daily net assets          0.48%                   0.48%*          
   Net investment income to average daily net                                                
      assets                                         0.47%                   0.70%*          
   Portfolio turnover rate                            132%                     13%           
   Average broker commission rate per equity                                                 
      share                                       $0.0277                $ 0.0344            
   Fees and expenses voluntarily waived or                                                   
      borne by the Manager consisted of the                                                  
      following per share amounts:                $  0.03                $   0.01            

(a) Calculation excludes purchase premiums and redemption fees. The total       
 returns would have been lower had certain expenses not been waived during
the periods shown.                                                      

*   Annualized.                                                                 

18             See accompanying notes to the financial statements.              


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

GMO Small Cap Growth Fund (the "Fund"), which commenced operations on 
December 31, 1996, 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 into classes.                                   

    The Fund seeks long-term growth of capital through investment primarily in
    companies whose equity capitalization ranks in the lower two-thirds of the
     1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.               

At the beginning of the fiscal year, the Fund offered three classes of
    shares: Class I, Class II and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  
Effective January 9, 1998, Class I and Class II shares ceased to be   
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.                    

Futures contracts                                                     
The Fund may purchase and sell futures contracts on the domestic stock
 indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity  
   securities at a specified price at a given date. The Fund may use futures
     contracts to manage its exposure to the stock 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  
obligations in accordance with the initial margin requirements of the 
broker or exchange.                                                   

                                                                            19


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

    Futures contracts are marked to market daily and an appropriate payable or
    receivable for the change in value ("variation margin") is recorded by the
 Fund. The payable or receivable is liquidated on the following business
   day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying 
  degrees, risk of loss in excess of the variation margin disclosed in the
   Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary 
 market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price  
  established each day by the board of trade or exchange on which they are
    traded. See Note 6 for all open futures contracts as of February 28, 1998.

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $49,651,424, collateralized by cash in the amount of  
$51,418,856, which was invested in short-term instruments.            

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for 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.           

20                                                                              


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Distributions to shareholders                                         
   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 will be paid in shares of the
 Fund, at net asset value, unless the shareholder elects to receive cash
 distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                       

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatment of short-term capital gains.                      

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated              Accumulated                          
Undistributed Net        Undistributed Net                          
Investment Income          Realized Gain            Paid-in Capital 
  ---------------------  -------------------------   ---------------------
$159,171                ($159,171)                   --   

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the  
accrual basis and is adjusted for the accretion of discounts. 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 in such manner as deemed equitable by the Trustees,
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.

                                                                              21


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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. 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. Purchase premiums are included as part of each class' "shares sold"
and redemption fees are included as part of each class' "shares       
 repurchased," respectively, as summarized in Note 5. For the year ended
  February 28, 1998, the Fund received $1,015,515 in purchase premiums and
$261,172 in redemption fees. There is no premium for reinvested       
distributions or in-kind transactions.                                

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .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 of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III  
shares.                                                               

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.      

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998 was $2,722. No       
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$559,715,731 and $386,665,017, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                      Gross Unrealized   Gross Unrealized     Net Unrealized
   Aggregate Cost      Appreciation       Depreciation        Appreciation
    ----------------  ------------------  ----------------- ------------------
  $ 418,193,555      $ 50,407,457       $ 16,985,201        $ 33,422,256

4.   Principal shareholder                                                      

     At February 28, 1998, 21.9% of the outstanding shares of the Fund were held
by one shareholder.                                                   

22                                                                              


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]

                                                                        Period from          
                                                                     December 31, 1996       
                                           Year Ended           (commencement of operations) 
Class III:                             February 28, 1998            to February 28, 1997     
                                  ----------------------------- -----------------------------
                                     Shares         Amount         Shares         Amount     
                                  ------------- --------------- ------------- ---------------
                                                                                             
Shares sold                        17,993,943  $  216,188,799     16,278,745 $  163,108,546  
Shares issued to shareholders                                                                
   in reinvestment of distibutions  2,786,345      30,554,838       --             --        
Shares repurchased                 (4,511,400)    (54,510,139)      --             --        
                                  ============= =============== ============= ===============
Net increase                       16,268,888  $  192,233,498     16,278,745 $  163,108,546  
                                  ============= =============== ============= ===============

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Long futures contracts                                                

 Number of                                              Net Unrealized
Contracts       Type    Expiration Date Contract Value  Appreciation
----------- ------------ --------------- -------------- --------------
    12     Russell 2000   March 1998    $   2,776,500   $      5,370
                                                        ==============

 At February 28, 1998, the Fund had sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.            

                                                                              23


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's        
   distributions are from investment company taxable income, except that the
   Fund has designated 3.99% of distributions as net capital gain dividends.

24                                                                              


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GMO Small Cap Growth Fund                                                       
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

  Mr. R. Jeremy Grantham, Mr. Christopher Darnell and Mr. Robert Soucy are
primarily responsible for the day-to-day management of the Fund's     
     portfolio. Mssrs. Grantham and Darnell have each been portfolio managers at
 Grantham, Mayo, Van Otterloo & Co. LLC for more than fifteen years; Mr.
Soucy for more than ten years.                                        

Management Discussion and Analysis of Fund Performance                          

  The Class III shares of the GMO Small Cap Growth Fund returned 36.7% for
  the fiscal year ended February 28, 1998 as compared to 35.0% for the S&P
500. The Russell 2000 Growth Index returned 25.9% for the same period.
    Consistent with the Fund's investment objective and policies, the Fund was
primarily invested in common stocks throughout the period.            

 In the fiscal year that just ended, small stocks posted strong returns.
   However, in a continuation of a market trend that has persisted for three
years, large capitalization stocks recorded even better gains. In this
environment, the performance of the GMO Small Cap Growth Fund was     
   excellent, outperforming not only the Russell 2000 Growth Index, but also
the S&P 500.                                                          

Strong performing sectors in the Russell 2000 Growth Index included   
consumer stocks, which benefited from the strong economy and low      
unemployment. Utility and financial stocks also performed well in an  
    environment of declining interest rates. On the other hand, technology and
health care stocks posted smaller gains. These more speculative issues
   declined sharply during the fall of 1997 in the wake of events in the Far
East. In a "flight to quality," investors adjusted their portfolios to
    increase their holdings of the stocks of larger companies with more stable
earnings.                                                             

    The primary reason for good performance in the Fund during the fiscal year
  was strong stock selection. The GMO Small Cap Growth Fund selects stocks
    based on three strategies: the trend in consensus analyst estimates, price
momentum and earnings surprises. Using these strategies, we favor the 
stocks of companies that have had upward revisions in earnings        
     expectations, strong price momentum, and positive earnings surprises. These
strategies allowed us to realize superior returns from our holdings in
technology, consumer and retail stocks.                               

    Our sector emphasis also benefited performance, albeit to a lesser extent.
     Our underweight of health care issues contributed positively to returns, as
these issues underperformed the rest of the index. These gains were   
partially offset by our overweight of technology stocks.              

Outlook                                                                         

Since 1983, small capitalization stocks have lagged their larger      
counterparts. At the current time, they look increasingly attractive  
relative to large capitalization stocks on a number of measures --    
    price-to-book, price-to-cash flow, price-to-sales and price-to-fair value.
Although not as cheap as they were in the mid-1970's (prior to their  
    legendary rise through 1983), today small-cap stocks are at their cheapest
relative price since the late 1970's when institutions began to treat 
     small-cap stocks as a separate asset class. We believe that this bodes well
for the relative returns of small cap stocks over the next few years. 

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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--------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in  
GMO Small Cap Growth Fund Class III Shares and the S&P 500 Index  
As of February 28, 1998 

---------------------------------                                   
Average Annual Total Return                                   
---------------------------------                                   
Since               
1 Year     5 Year     Inception                                   
---------------------------------                                   
Class                       12/31/96                                            
III    35.3%      n/a        27.8%                                            
---------------------------------                                   

[LINE GRAPH APPEARS HERE] 

Date            GMO Small Cap Growth Fund        S&P 500 Index              
--------          -------------------------        -------------                

12/31/96                   $9,950                     $10,000                   
2/28/97                   $9,811                     $10,764                  
2/28/98                  $13,286                     $14,455                  

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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 paid to the Fund to cover trading costs. Past performance  
is not indicative of future performance. Information is unaudited.              
--------------------------------------------------------------------------------


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                   

 To the Trustees of GMO Trust and the Shareholders of GMO REIT Fund (A
Series of GMO Trust)                                                

 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
      REIT Fund at February 28, 1998, the results of its operations for the year
      then ended, the changes in its net assets and the financial highlights for
   the periods presented, in conformity with generally accepted accounting
      principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
    Trust'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 generally accepted auditing 
standards 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 28, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing   
    procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.                   

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 13, 1998                                                      


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares     Description                                             Value ($)  
--------------------------------------------------------------------------------

REAL ESTATE INVESTMENT TRUSTS -- 93.8%                  

Apartments -- 12.4%                                     
  10,800   Ambassador Apartments Inc                                   218,700
  14,500   AMLI Residential Properties Trust                           326,250
 140,600   Apartment Investment & Management Co, Class A             5,123,113
 116,300   Avalon Properties Inc                                     3,343,625
 113,000   Bay Apartment Communities Inc                             4,272,813
  71,900   Berkshire Realty Co                                         826,850
 104,700   BRE Properties Inc                                        2,839,988
  64,204   Camden Property Trust                                     1,857,903
  72,900   Cornerstone Realty Income Trust                             924,919
 172,925   Equity Residential Properties Trust                       8,289,567
  40,500   Gables Residential Trust                                  1,070,719
  75,400   Home Properties of NY Inc                                 2,007,525
  35,900   Irvine Apartment Communities                              1,094,950
  78,400   Merry Land & Investment Co                                1,817,900
  39,100   Mid America Apartment Community                           1,107,019
  76,100   Security Capital Atlantic                                 1,598,100
  43,038   Security Capital Group Inc, Class B Warrants 9/18/98        158,703
 171,128   Security Capital Pacific Trust                            3,925,249
  50,000   Smith (Charles E) Residential                             1,650,000
 202,238   United Dominion Realty Trust                              2,831,332
  49,600   Walden Residential Properties Inc                         1,227,600
                                                                  --------------
                                                                    46,512,825
                                                                  --------------

Diversified -- 9.2%                                     
 846,100   Catellus Development Corp *                              15,335,562
  27,900   Colonial Properties Trust                                   847,463
  87,500   Cousins Properties Inc                                    2,559,375
 460,000   First Union Real Estate                                   5,433,750
  83,500   Glenborough Realty Trust Inc                              2,379,750
  37,700   MGI Properties Inc                                          902,444
  55,300   Pacific Gulf Properties Inc                               1,282,269
 174,400   The Rouse Company                                         5,798,800
                                                                  --------------
                                                                    34,539,413
                                                                  --------------

Enclosed Malls -- 6.3%                                  
 120,900   Crown American Realty Trust                               1,118,325
 119,000   General Growth Properties                                 4,343,500
     200   JP Realty Inc                                                 5,025
  60,300   Macerich Co                                               1,703,475
  46,400   Mills Corp                                                1,238,300

             See accompanying notes to the financial statements.             1


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                            Value($) 
------------------------------------------------------------------------------- 

Enclosed Malls -- continued                         
  404,200    Simon Debartolo Group Inc                              12,479,674
   66,500    Taubman Centers Inc                                       868,656
   51,600    Urban Shopping Centers Inc                              1,722,150
                                                                  --------------
                                                                    23,479,105
                                                                  --------------
Factory Outlet -- 0.4%                              
   22,400    Chelsea GCA Realty Inc                                    837,200
   46,900    Prime Retail Inc                                          682,981
                                                                  --------------
                                                                     1,520,181
                                                                  --------------
Hotel/Motel -- 11.4%                                
   85,000    American General Hospitality                            2,295,000
   35,400    Boykin Lodging Co                                         878,363
   25,000    Capstar Hotel Co *                                        843,750
  116,700    Equity Inns Inc                                         1,852,613
  110,600    Felcor Suite Hotels Inc                                 3,967,775
  114,600    Franchise Finance Corp of America                       3,065,550
   33,626    Homestead Village                                         477,069
   80,000    Hospitalities Properties Trust                          2,800,000
   25,000    Host Marriott Corp *                                      495,313
  141,700    Innkeepers USA Trust                                    2,098,931
   10,500    Jameson Inns Inc                                          122,063
  206,574    Patriot America Hospitality Inc                         5,164,350
   56,100    RFS Hotel Investors Inc                                 1,016,813
  253,800    Starwood Lodging Trust                                 14,355,562
  195,500    Sunstone Hotel Investors Inc                            3,128,000
   15,200    Winston Hotels Inc                                        200,450
                                                                  --------------
                                                                    42,761,602
                                                                  --------------
Industrial -- 11.5%                                 
   25,000    AMB Property Corp                                         587,500
   65,400    Bedford Property Investors                              1,283,475
   52,100    Centerpoint Properties Corp                             1,768,144
  329,000    Duke Realty Investments                                 7,546,437
  122,350    Eastgroup Properties Inc                                2,477,588
  143,600    First Industrial Reality Trust                          5,187,550
  181,300    Liberty Property Trust                                  4,815,781
  101,900    Meridian Industrial Trust Inc                           2,528,394
  324,290    Security Capital Industrial Trust                       7,864,032
  155,600    Spieker Properties Inc                                  6,175,374
   34,300    Trinet Corporate Realty Trust                           1,329,125
   40,600    Weeks Corp                                              1,339,800
                                                                  --------------
                                                                    42,903,200
                                                                  --------------

2             See accompanying notes to the financial statements.               


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                           Value($)
--------------------------------------------------------------------------------

Manufactured Housing -- 1.3%                      
    52,500    Chateau Communities Inc                                1,575,000
    67,800    Manufactured Home Communities                          1,745,850
    45,800    Sun Communities Inc                                    1,597,275
                                                                  --------------
                                                                     4,918,125
                                                                  --------------

Office -- 26.4%                                   
    12,100    Alexandria Real Estate Equities Inc                      412,913
   101,600    Arden Realty Group Inc                                 2,901,950
   267,100    Boston Properties Inc                                  9,081,399
   215,000    Brandywine Realty Trust                                5,079,375
   127,800    Carramercia Realty Corp                                3,802,050
   195,100    Cornerstone Properties Inc                             3,487,413
   556,300    Crescent Real Estate Equities                         18,948,968
   527,600    Equity Office Properties                              15,564,199
    43,000    Great Lakes Reit Inc                                     814,313
   183,500    Highwood Properties Inc                                6,388,093
   106,400    Kilroy Realty Corp                                     2,799,650
    67,700    Koger Equity Inc                                       1,506,325
   221,100    Mack-Cali Realty Corp                                  8,346,524
   138,700    Parkway Properties Inc                                 4,525,088
   107,300    Prentiss Properties Trust                              2,863,569
   124,900    Reckson Associates Realty                              3,145,919
   100,000    SL Green Realty Corp                                   2,656,250
   269,800    Trizec Hahn Corporation                                6,626,962
                                                                  --------------
                                                                    98,950,960
                                                                  --------------

Recreation -- 0.0%                                
     4,100    National Golf Properties Inc                             125,050
                                                                  --------------

Regional Malls -- 1.5%                            
    92,500    Cadillac Fairview Corp *                               2,000,313
   202,800    Westfield America Inc                                  3,625,050
                                                                  --------------
                                                                     5,625,363
                                                                  --------------

Self Storage -- 2.2%                              
   219,900    Public Storage Inc                                     6,775,668
     7,200    Shurgard Storage Centers                                 200,700
       400    Storage Trust Realty                                      10,000
    28,700    Storage USA Inc                                        1,146,206
                                                                  --------------
                                                                     8,132,574
                                                                  --------------

             See accompanying notes to the financial statements.             3


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Shares      Description                                         Value($)  
------------------------------------------------------------------------------- 

Shopping Centers -- 0.3%                          
   36,600    Mid Atlantic Realty Trust                               491,813
   30,000    Pan Pacific Retail Properties Inc                       667,500
                                                                --------------
                                                                   1,159,313
                                                                --------------

Shopping/Power Center -- 10.7%                    
   10,300    Alexander Haagen Properties                             177,031
   62,900    Bradley Real Estate Inc                               1,348,419
   40,600    Burnham Pacific Properties Inc                          603,925
   59,600    Commercial Net Lease Realty                           1,039,275
   55,900    Developers Diversified Realty Corp                    2,281,419
   49,000    Essex Property Trust Inc                              1,586,375
   70,400    Excel Realty Trust Inc                                2,261,600
   42,200    Federal Realty Investment Trust                       1,044,450
   10,900    First Washington Realty Trust                           283,400
   48,600    Glimcher Realty Trust                                 1,093,500
   61,900    IRT Property Co                                         719,588
   62,100    JDN Realty Corp                                       2,064,825
   52,500    Kimco Realty Corp                                     1,844,063
    6,300    Kranzco Realty Trust                                    116,944
   60,600    New Plan Realty Trust                                 1,511,213
   24,100    Price Reit Inc                                        1,073,956
   54,900    Realty Income Corp                                    1,417,106
   76,800    Regency Realty Corp                                   2,011,200
      500    Saul Centers Inc                                          8,781
  352,516    Vornado Realty Trust                                 14,959,898
   55,200    Weingarten Realty                                     2,463,300
   16,000    Western Investment Real Estate Trust                    233,000
                                                                --------------
                                                                  40,143,268
                                                                --------------

Triple Net -- 0.2%                                
   57,900    Lexington Corporate                                     846,788
                                                                --------------

TOTAL REAL ESTATE INVESTMENT TRUSTS (COST         
             $333,188,075)                                       351,617,767
                                                                --------------

4             See accompanying notes to the financial statements.               


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Par Value      Description                                                     Value ($)   
---------------------------------------------------------------------------------------------- 
                                                                                               
                   SHORT-TERM INVESTMENTS -- 7.5%                                              

                   Cash Equivalents -- 1.8%                                                    
    $  622,200     BankBoston Eurodollar Time Deposit, 5.7875% due                             
                   3/2/98/(a)/                                                         622,200 
    $6,000,000     Prudential Securities Group Inc, Master Note, 5.8875% due                   
                   3/2/98/(a)/                                                       6,000,000 
                                                                                -------------- 
                                                                                     6,622,200 
                                                                                -------------- 

                   U.S. Government -- 0.2%                                                     
    $  600,000     U.S. Treasury Bill, 5.165%, due 5/28/98/(b)/                        592,489 
                                                                                -------------- 

                   Repurchase Agreements -- 5.5%                                               
    $18,869,438    Salomon Smith Barney Inc. Repurchase Agreement, dated                       
                   2/27/98, due 3/2/98, with a maturity value of $18,877,410                   
                   and an effective yield of 5.07%, collateralized by a U.S.                   
                   Treasury Obligation with a rate of 8.125%, with a                           
                   maturity date of 8/15/21 and with a market value of                         
                   $19,246,827.                                                     18,869,438 
    $1,869,282     Prudential Securities Inc. Repurchase Agreement, dated                      
                   2/27/98, due 3/2/98, with a maturity value of $1,870,072                    
                   and an effective yield 5.07%, collateralized by a U.S.                      
                   Government Agency Obligation with a rate of 8.5%, with a                    
                   maturity date of 10/1/26 and with a market value of                         
                   $1,906,676.                                                       1,869,282 
                                                                                -------------- 
                                                                                    20,738,720 
                                                                                -------------- 
                   TOTAL SHORT-TERM INVESTMENTS                                                
                   (COST  $27,953,259)                                              27,953,409 
                                                                                -------------- 
                   TOTAL INVESTMENTS -- 101.3%                                                 
                   (COST $361,141,334)                                             379,571,176 

                   Other Assets and Liabilities (net) -- (1.3)%                     (4,797,023)
                                                                                -------------- 

                   TOTAL NET ASSETS -- 100%                                      $ 374,774,153 
                                                                                ============== 

Notes to the Schedule of Investments:     
*  Non-income producing security.               
      /(a)/Represents investments of security lending collateral
(Note 1).                                 
          /(b)/Security has been segregated to cover margin requirements
on open financial futures contracts.      

             See accompanying notes to the financial statements.             5


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]
                                                                                       
Assets:                                                                                
   Investments, at value (cost $361,141,334) (Note 1)                      $379,571,176
   Receivable for investments sold                                           13,159,243
   Dividends and interest receivable                                            471,096
   Receivable for expenses waived or borne by Manager (Note 2)                  101,808
   Receivable for Fund shares sold                                                7,313
                                                                           ------------

       Total assets                                                         393,310,636
                                                                           ------------

Liabilities:                                                                           
   Payable for investments purchased                                         10,123,892
   Payable upon return of securities loaned (Note 1)                          6,622,200
   Payable for Fund shares repurchased                                        1,462,614
   Payable to affiliate for (Note 2):                                                  
       Management fee                                                           221,737
       Shareholder service fee                                                   42,758
   Payable for variation margin on open futures contracts (Notes 1 and 6)        13,614
   Accrued expenses                                                              49,668
                                                                           ------------

       Total liabilities                                                     18,536,483
                                                                           ------------

Net assets                                                                 $374,774,153
                                                                           ============

Net assets consist of:                                                                 
   Paid-in capital                                                         $341,541,377
   Accumulated undistributed net realized gain                               14,480,459
   Net unrealized appreciation                                               18,752,317
                                                                           ============
                                                                           $374,774,153
                                                                           ============

Net assets attributable to:                                                            
   Class III shares                                                        $374,774,153
                                                                           ============

Shares outstanding:                                                                    
   Class III                                                                 29,015,600
                                                                           ============

Net asset value per share:                                                             
   Class III                                                               $      12.92
                                                                           ============

6              See accompanying notes to the financial statements.              


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
------------------------------------------------------------------------------- 

Investment Income:                                                              
 Dividends (net of withholding taxes of $8,996)                  $16,593,373
 Interest (including securities lending income of $320,286)        1,054,521
                                                                 -----------

     Total income                                                 17,647,894
                                                                 -----------

Expenses:                                                                       
 Management fee (Note 2)                                           2,765,300
 Custodian and transfer agent fees                                    90,424
 Registration fees                                                    40,681
 Audit fees                                                           37,906
 Legal fees                                                            9,340
 Trustees fees (Note 2)                                                3,363
 Miscellaneous                                                         2,290
  Fees waived or borne by Manager (Note 2)                           (961,297)
                                                                 -----------
                                                                   1,988,007
Shareholder service fee (Note 2)                                          
     Class I                                                             219
     Class II                                                          1,386
     Class III                                                       550,421
                                                                 -----------
     Net expenses                                                  2,540,033
                                                                 -----------

        Net investment income                                     15,107,861
                                                                 -----------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                              
     Investments                                                  34,322,635
     Closed futures contracts                                      1,445,024
                                                                 -----------

        Net realized gain                                         35,767,659
                                                                 -----------

Change in net unrealized appreciation (depreciation) on:                  
      Investments                                                  (3,597,519)
     Open futures contracts                                           16,547
                                                                 -----------

         Net unrealized loss                                       (3,580,972)
                                                                 -----------

     Net realized and unrealized gain                             32,186,687
                                                                 -----------

Net increase in net assets resulting from operations               $47,294,548  
                                                                 ===========

              See accompanying notes to the financial statements.              7


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
------------------------------------------------------------------------------- 

                                                                [Download Table]


                                                           Period from May 31, 1996
                                           Year Ended          (commencement of    
                                          February 28,            operations)      
                                              1998           to February 28, 1997  
                                         ---------------  ------------------------ 
                                                                                   
Increase (decrease) in net assets:                                                 
Operations:                                                                        
   Net investment income                   $15,107,861            $ 4,196,242      
   Net realized gain                        35,767,659              4,239,035      
   Change in net unrealized                                                        
      appreciation (depreciation)           (3,580,972)            22,333,289      
                                          ------------           ------------      

   Net increase in net assets resulting                                            
      from operations                       47,294,548             30,768,566      
                                          ------------           ------------      

Distributions to shareholders from:                                                
   Net investment income                                                           
       Class I                                  (4,860)                    --      
       Class II                                 (8,347)                    --      
       Class III                           (15,852,407)            (2,888,627)     
                                          ------------           ------------      
       Total distributions from net                                                
       investment income                   (15,865,614)            (2,888,627)     
                                          ------------           ------------      
   In excess of net investment income                                              
       Class I                                    (223)                    --      
       Class II                                   (382)                    --      
       Class III                              (726,208)                    --      
                                          ------------           ------------      
       Total distributions in excess of                                            
       net investment income                  (726,813)                    --      
                                          ------------           ------------      
   Net realized gains                                                              
       Class I                                  (7,273)                    --      
       Class II                                (26,734)                    --      
       Class III                           (24,529,349)              (784,771)     
                                          ------------           ------------      
       Total distributions from net                                                
       realized gains                      (24,563,356)              (784,771)     
                                          ------------           ------------      

                                           (41,155,783)            (3,673,398)     
                                          ------------           ------------      
   Net share transactions: (Note 5)                                                
       Class I                                 (42,863)                41,658      
       Class II                               (218,750)                    --      
       Class III                           107,926,697            233,833,478      
                                          ------------           ------------      
   Increase in net assets resulting                                                
      from net share transactions          107,665,084            233,875,136      
                                          ------------           ------------      

      Total increase in net assets         113,803,849            260,970,304      

Net assets:                                                                        
   Beginning of period                     260,970,304                     --      
                                          ------------           ------------      

   End of period (including accumulated                                            
      undistributed net investment                                                 
      income of $0 and $1,209,863,                                                 
      respectively)                       $374,774,153           $260,970,304      
                                          ============           ============      

8             See accompanying notes to the financial statements.               


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                              Period from          
                                                     Period from           December 31, 1996       
                                                   March 1, 1997      (commencement of operations) 
                                                 to January 9, 1998      to February 28, 1997      
                                                ---------------------------------------------------
                                                                                                   
Net asset value, beginning of period                    $12.62                   $ 12.58           
                                                        ------                   -------           

Income from investment operations:                                                                 
   Net investment income                                  0.47+                     0.03           
   Net realized and unrealized gain                       1.57                      0.01           
                                                        ------                   -------           

      Total from investment operations                    2.04                      0.04           
                                                        ------                   -------           

Less distributions to shareholders:                                                                
   From net investment income                            (0.56)                       --           
   In excess of net investment income                    (0.03)                       --           
   From net realized gains                               (0.89)                       --           
                                                        ------                   -------           

      Total distributions                                (1.48)                       --           
                                                        ------                   -------           
Net asset value, end of period                          $13.18/(c)/              $ 12.62           
                                                        ======                   =======           

Total Return/(a)/                                        16.55%                     0.32%          

Ratios/Supplemental Data:                                                                          
   Net assets, end of period (000's)                        --                   $    41           
   Net expenses to average daily net assets               0.82%*                    0.82%*         
   Net investment income to average daily net assets      3.99%*                    3.17%*         
   Portfolio turnover rate                                  86%                       21%          
   Average broker commission rate per equity share     $0.0394                   $0.0323           
   Fees and expenses voluntarily waived or borne                                                   
      by the Manager consisted of the following                                                    
      per share amounts:                                $ 0.03                   (b)               

/(a)/Calculation excludes purchase premiums and redemption fees. The total      
   returns would have been lower had certain expenses not been waived during
the periods shown.                                                    
/(b)/Fees and expenses waived or borne by the Manager were less than $0.01 per  
share.                                                                
+    Computed using average shares outstanding throughout the period.           
/(c)/All Class I shares of the Fund were exchanged for Class III shares on      
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                      
*    Annualized.                                                                

              See accompanying notes to the financial statements.              9


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class II share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                  Period from April 30, 1997
                                                  (commencement of operations)
                                                 to August 4, 1997
                                                  ----------------------------
Net asset value, beginning of period                          $12.31            
                                                  ------

Income from investment operations:                                              
Net investment income                                       0.14+       
Net realized and unrealized gain                            1.27        
                                                  ------

Total from investment operations                          1.41      
                                                  ------

Less distributions to shareholders:                                             
From net investment income                                 (0.05)       
In excess of net investment income                            --/(a)/   
From net realized gains                                    (0.15)       
                                                  ------

Total distributions                                      (0.20)     
                                                  ------
Net asset value, end of period                                $13.52/(b)/       
                                                  ======

Total Return/(c)/                                              11.46%           

Ratios/Supplemental Data:                                                       
Net expenses to average daily net assets                    0.76%*      
Net investment income to average daily net assets           3.96%*      
Portfolio turnover rate                                       86%       
Average broker commission rate per equity share          $0.0394        
Fees and expenses voluntarily waived or borne by the                    
Manager consisted of the following                                  
per share amount:                                      $  0.01      

+   Computed using average shares outstanding throughout the period.            
(a) The per share distribution in excess of net investment income was $0.002.   
(b) All Class II shares of the Fund were exchanged for Class III shares on      
August 4, 1997. Amount represents ending net asset value per share on   
August 4, 1997.                                                         
(c) Calculation excludes purchase premiums and redemption fees. The total       
 returns would have been lower had certain expenses not been waived during
the periods shown.                                                      
*   Annualized.                                                                 

10            See accompanying notes to the financial statements.               


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                            Period from May 31, 1996  
                                                           Year Ended     (commencement of operations)
                                                        February 28,1998      to February 28, 1997    
                                                        ----------------  ----------------------------
                                                                                                      
Net asset value, beginning of period                         $  12.62                $  10.00         
                                                             --------                --------         

Income from investment operations:                                                                    
   Net investment income                                         0.53                    0.24         
   Net realized and unrealized gain                              1.26                    2.60         
                                                             --------                --------         

      Total from investment operations                           1.79                    2.84         
                                                             --------                --------         

Less distributions to shareholders:                                                                   
   From net investment income                                   (0.57)                  (0.17)        
   In excess of net investment income                           (0.03)                     --         
   From net realized gains                                      (0.89)                  (0.05)        
                                                             --------                --------         

      Total distributions                                       (1.49)                  (0.22)        
                                                             --------                --------         
Net asset value, end of period                               $  12.92                $  12.62         
                                                             ========                ========         

Total Return /(a)/                                              14.29%                  28.49%        

Ratios/Supplemental Data:                                                                             
   Net assets, end of period (000's)                         $374,774                $260,929         
   Net expenses to average daily net assets                      0.69%*                  0.69%*       
   Net investment income to average daily net assets             4.10%*                  4.72%*       
   Portfolio turnover rate                                         86%                     21%        
   Average broker commission rate per equity share           $ 0.0394                $ 0.0323         
   Fees and expenses voluntarily waived or borne by the                                               
      Manager consisted of the following per share                                                    
      amounts:                                               $   0.03                $   0.02         

/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  
*     Annualized.                                                               

              See accompanying notes to the financial statements.             11


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

    GMO REIT Fund (the "Fund"), which commenced operations on May 31, 1996, 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
into classes.                                                         

  The Fund seeks maximum total return through investment primarily in real
estate investment trusts ("REITs").                                   

At the beginning of the fiscal year, the Fund offered three classes of
    shares: Class I, Class II and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  

     Class I and Class II shares ceased operations on January 9, 1998 and August
   4, 1997, respectively and all shares were exchanged for Class III shares.

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.                    

Futures contracts                                                     

The Fund may purchase and sell futures contracts on the domestic stock
 indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity  
   securities at a specified price at a given date. The Fund may use futures
     contracts to manage its exposure to the stock 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  
obligations in accordance with the initial margin requirements of the 
broker or exchange.                                                   

12                                                                              


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

    Futures contracts are marked to market daily and an appropriate payable or
    receivable for the change in value ("variation margin") is recorded by the
 Fund. The payable or receivable is liquidated on the following business
   day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying 
  degrees, risk of loss in excess of the variation margin disclosed in the
   Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary 
 market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price  
  established each day by the board of trade or exchange on which they are
    traded. See Note 6 for all open futures contracts as of February 28, 1998.

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      

  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund loaned securities having a 
market value of $6,432,613, collateralized by cash in the amount of   
$6,622,200, which was invested in short-term instruments.             

Taxes                                                                 

 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
   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 federal income
   tax purposes. Therefore, no provision for 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.           

Distributions to shareholders                                         

   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

                                                                              13


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
   differing treatment of short-term capital gains and the classification of
income received from REIT securities.                                 

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated             Accumulated                 
Undistributed Net       Undistributed Net                 
      Investment Income         Realized Gain          Paid-in Capital
       --------------------- ------------------------- ---------------------
      $274,703                ($275,860)                $1,157

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

     The Fund's investments in REIT equity securities may at times result in the
  Fund's receipt of cash in excess of its interest in the REIT's earnings.
    The excess amount cannot be determined by the Fund at the time of receipt.
     If the Fund distributes amounts which are subsequently determined to exceed
  REIT earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.                         

Security transactions and related investment income                   

   Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the  
accrual basis and is adjusted for the accretion of discounts. In      
     determining the net gain or loss on securities sold, the cost of securities
     is determined on the identified cost basis. Dividends representing a return
of capital are reflected as a reduction of cost.                      

Allocation of operating activity                                      

The majority of expenses of the Trust are directly identifiable to an 
    individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
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.

14                                                                              


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

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. Prior to March 25, 1997, the premium on
   cash purchases and the fee on redemptions was .75% of the amount invested
or redeemed. 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. Purchase premiums
   are included as part of each class' "shares sold" and redemption fees are
included as part of each class' "shares repurchased", respectively, as
summarized in Note 5. For the year ended February 28, 1998, the Fund  
 received $793,466 in purchase premiums and $458,911 in redemption fees.
   There is no premium for reinvested distributions or in-kind transactions.

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.                                          

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .75% 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 .28%
for Class I shares, .22% for Class II shares, and .15% for Class III  
shares.                                                               

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .54% of average daily net assets.      

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998 was $3,363. No       
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

                                                                              15


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$365,569,410 and $297,803,278, respectively.                          

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                       Gross Unrealized     Gross Unrealized    Net Unrealized
    Aggregate Cost      Appreciation         Depreciation       Appreciation
     ----------------  ------------------   ------------------  ----------------
     $ 361,379,058      $ 21,741,354          $ 3,549,236       $ 18,192,118

4.   Principal shareholders                                                     

     At February 28, 1998, 29.2% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's      
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:                           

                                                        [Enlarge/Download Table]


                                            Period from             Period from December 31, 1996
                                           March 1, 1997             (commencement of operations)
Class I:                                 to January 9, 1998              to February 28, 1997    
                                    -------------------------------------------------------------
                                        Shares         Amount           Shares         Amount    
                                    ------------   --------------   ------------   --------------
                                                                                                 
Shares sold                                6,339  $        84,207          3,284  $        41,658
Shares issued to shareholders in                                                                 
     reinvestment of distributions           953           12,356           --               --  
Shares repurchased                       (10,576)        (139,426)          --               --  
                                    ------------   --------------   ------------   --------------
Net increase (decrease)                   (3,284) $       (42,863)         3,284  $        41,658
                                    ============   ==============   ============   ==============

                              Period from April 30, 1997
                              (commencement of operations)
Class II:                                 to August 4, 1997           
                               -----------------------------
                              Shares          Amount
                               ------------   --------------
Shares sold                              181,864  $     2,240,225     
Shares issued to shareholders in                                      
reinvestment of distributions           2,703           35,463  
Shares repurchased                      (184,567)      (2,494,438)    
                               ============   ==============
Net decrease                                --    $      (218,750)    
                               ============   ==============

16                                                                              


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Share transactions -- continued                                       

                                                        [Enlarge/Download Table]

                                                                   Period from May 31, 1996   
                                           Year Ended            (commencement of operations) 
Class III:                              February 28, 1998            to February 28, 1997     
                                   ----------------------------- -----------------------------
                                       Shares        Amount          Shares        Amount     
                                   ------------- --------------- ------------- ---------------
                                                                                              
Shares sold                          12,232,100 $   161,677,900    20,722,033 $   234,377,685 
Shares issued to shareholders in                                                              
    reinvestment of distributions     2,754,721      35,760,499       180,673       2,193,376 

Shares repurchased                   (6,643,834)    (89,511,702)     (230,093)     (2,737,583)
                                   ------------- --------------- ------------- ---------------
Net increase                          8,342,987 $   107,926,697    20,672,613 $   233,833,478 
                                   ============= =============== ============= ===============

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Long futures contracts                                                

     Number of                                                  Net Unrealized
    Contracts      Type      Expiration Date   Contract Value   Appreciation
    ----------- ------------ ----------------- ---------------- --------------
      32       S & P 500      March 1998       $8,404,000       $322,475
                                                                ==============

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.            

                                                                              17


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
------------------------------------------------------------------------------- 

For the fiscal year ended February 28, 1998, all of the Fund's        
   distributions are from investment company taxable income, except that the
   Fund has designated 9.25% of distributions as net capital gain dividends.

18                                                                              


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

------------------------------------------------------------------------------- 

Portfolio Managers                                                              

Mr. R. Jeremy Grantham, Mr. Richard McQuaid and Mr. Robert Brokaw are 
primarily responsible for the day-to-day management of the Fund's     
  portfolio. Mr. Grantham has been with Grantham, Mayo, Van Otterloo & Co.
LLC since its founding in 1977. Mr. McQuaid has been with GMO for four
years and Mr. Brokaw for ten years.                                   

Management Discussion and Analysis of Fund Performance                          

    The Class III shares of the GMO REIT Fund returned 14.3% during the twelve
months ending February 28, 1998. The Morgan Stanley REIT Index (MSRI) 
returned 15.3% and the S&P 500 returned 35.0% during the same period. 

REIT Industry Review                                                  

During fiscal 1998, REITs holding commercial office, retail shopping, 
factory outlet and hotel assets led industry total return. REITs with 
 diversified holdings also had high returns. Both office and hotel REITs
have lagged during the past two months. Residential REITs lagged once 
    again, as did self-storage and regional retail mall REITs. Hotels, offices
and diversified companies reported rapid funds from operations (FFO)  
   growth, while retail and apartment FFOs were relatively sluggish. So, FFO
   growth dominated investor thinking, but some sectors corrected past over-
or underpricing.                                                      

Fundamental Stock Selection                                           

    The Fund's fundamental valuation process analyzes individual companies and
   adds a strong component of sector and geographic information. This stream
uses a present value model to incorporate the information and rank the
     stocks. It looks out two to three years and emphasizes a value approach. We
    also use a traditional fundamental approach to select a few new issues and
  existing companies for a separate component portfolio. Fundamental stock
    selection added value, although the select portfolio lost some of its gain
after December.                                                       

Quantitative Stock Selection                                          

     The Fund uses two entirely different quantitative models. One model selects
  stocks based on short-term technical indicators, while the other selects
    stocks on the basis of long-term return momentum. Both models added value.
     Long-term momentum was strong until the reversal in office and hotel prices
after December 31, while the short-term model had more difficulty with
sudden sector shifts than in the prior year.                          

                                                                              19


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GMO REIT Fund                                                                   
(A Series of GMO Trust)                                                         

------------------------------------------------------------------------------- 

Implementation                                                        

   Implementation negatively affected the Fund's performance relative to the
  MSRI during the year. We tightly controlled direct expenses, cash levels
and turnover, but indirect trading costs were again significant. This 
   results from the small size and, therefore, relatively illiquid nature of
  REIT stocks. We trade with minimal market impact, but this often adds to
timing risk. When the Fund holds cash, it uses S&P 500 futures to gain
temporary equity market exposure until it invests those funds. This   
     strategy protected our clients against most of the risk of holding cash and
helped Fund results during the year.                                  

Outlook                                                                         

    The Fund holds a concentrated subset of the REIT and real estate operating
  company (REOC) universe in each of its four streams. Because the streams
have a loose correlation, this gives it a broad exposure to U.S. real 
estate equities. As an asset class, REITs have attractive valuations  
   relative to large capitalization U.S. equities. REIT valuations are close
  to the fair value of property assets and they have higher yields than do
equities. Further, the REIT market is capturing the attention of      
 institutional investors as an attractive alternative to the less liquid
   private market for real estate investing. The resulting influx of capital
  to the REIT market should improve price discovery and liquidity over the
next few years.                                                       

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.

20                                                                              


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Comparison of Change in Value of a $10,000 Investment in  
GMO REIT Fund Class III Shares and the Morgan Stanley REIT Index "MSRI" 
As of February 28, 1998 

-----------------------------                                       
Average Annual Total Return                                       
-----------------------------                                       
Since                           
1 Year        Inception                                         
-----------------------------                                       
Class                  5/31/96                                                  
III    13.2%           23.9%                                                  
-----------------------------                                       

[LINE GRAPH APPEARS HERE] 

             GMO REIT Fund     Morgan Stanley REIT Index
             -------------     -------------------------

5/31/96                      $9,950                 $10,000                     
2/28/97                     $12,721                 $12,982                     
2/28/98                     $14,539                 $14,968                     

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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 paid to the Fund to cover trading costs. Past performance  
is not indicative of future performance. Information is unaudited.              


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of GMO Currency Hedged        
International Bond Fund (A Series of GMO Trust)                                 

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 at February 28, 1998, the results of its operations for the year then 
ended, the changes in its net assets and the financial highlights for the       
periods presented, in conformity with generally accepted accounting principles. 
These financial statements and financial highlights (hereafter referred to as   
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers, provide a   
reasonable basis for the opinion expressed above.                               

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

           Par Value       Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           DEBT OBLIGATIONS -- 90.2%                                           

                           Argentina -- 0.2%                                                   
USD         1,000,000      Republic of Argentina Par Bond,                                     
                              Variable Rate, Step Up, 5.50%, due 3/31/23               758,125 
                                                                                 --------------
                           Australia -- 5.5%                                                   
GBP         8,700,000      Commonwealth Bank Australia Series EMTN, 8.13%,                     
                              due 12/7/06                                           15,592,273 
AUD         2,620,000      Queensland Treasury Corp, 8.00%, due 9/14/07              2,007,239 
                                                                                 --------------
                                                                                    17,599,512 
                                                                                 --------------
                           Brazil -- 3.0%                                                      
USD         8,664,194      Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14       7,039,657 
USD         3,000,000      Brazil Discount ZL Bond,                                            
                              Variable Rate, 6 Mo. LIBOR + .81%, 6.69%, due                    
                              4/15/24                                                2,482,500 
                                                                                 --------------
                                                                                     9,522,157 
                                                                                 --------------
                           Bulgaria -- 1.5%                                                    
USD        10,000,000      Bulgaria Discount Series B Strips, Basket 2,                        
                              0.00%, due 7/28/24                                     1,275,000 
USD        15,000,000      Bulgaria Discount Strips, 0.00%, due 7/28/24              2,887,500 
USD         1,000,000      Bulgaria FLIRB Series B,                                            
                              Variable Rate, Step up, 2.75%, due 7/28/12               645,000 
                                                                                 --------------
                                                                                     4,807,500 
                                                                                 --------------
                           Canada -- 5.5%                                                      
CAD         3,750,000      Government of Canada, 10.25%, due 3/15/14                 3,891,495 
CAD         8,000,000      Government of Canada Real Return, 4.25%, due                        
                              12/1/21                                                6,294,660 
CAD         5,000,000      Government of Canada Real Return, 4.25%, due                        
                              12/1/26                                                3,729,132 
CAD         5,000,000      Province of Quebec, 7.50%, due 12/1/03                    3,822,372 
                                                                                 --------------
                                                                                    17,737,659 
                                                                                 --------------
                           Cayman Islands -- 1.0%                                              
CAD         4,000,000      Government of Canada (Cayman), 7.25%, due 6/1/08          3,083,193 
                                                                                 --------------
                           Denmark -- 5.0%                                                     
DKK         9,680,000      Kingdom of Denmark Bullet, 8.00%, due 3/15/06             1,658,597 
DKK        87,900,000      Kingdom of Denmark Bullet, 7.00%, due 11/15/07           14,363,492 
                                                                                 --------------
                                                                                    16,022,089 
                                                                                 --------------
                           Ecuador -- 0.1%                                                     
USD           533,019      Republic of Ecuador PDI (Registered), PIK,                          
                              Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due                    
                              2/27/15                                                  341,132 
                                                                                 --------------

              See accompanying notes to the financial statements.              1


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

          Par Value        Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           France -- 9.1%                                                      
FRF        21,000,000      Auxiliare Credit Foncier, 10.00%, due 4/20/01             3,959,076 
FRF        30,000,000      Auxiliare Credit Foncier, 6.25%, due 3/28/03              5,182,862 
SEK        30,000,000      Credit Foncier, 6.50%, due 2/22/99                        3,779,789 
ECU        11,000,000      Government of France, 8.25%, due 4/25/22                 16,252,518 
                                                                                 --------------
                                                                                    29,174,245 
                                                                                 --------------
                           Germany -- 5.4%                                                     
DEM         1,000,000      Bundesrepublic Deutschland, 6.00%, due 6/20/16              595,933 
ESP       320,000,000      Deutsche Ausgleichsbank, 8.60%, due 5/22/03               2,423,660 
GBP         2,000,000      KFW International Finance, 10.63%, due 9/3/01             3,653,584 
DEM        19,000,000      Westdeutsche LB, 5.25%, due 10/14/05                     10,664,205 
                                                                                 --------------
                                                                                    17,337,382 
                                                                                 --------------
                           Greece -- 1.0%                                                      
GRD      1,000,000,000     Hellenic Republic,                                                  
                              Variable Rate, 12 mo. GTB + 1.50%, 11.00%, due                   
                              9/30/03                                                3,277,948 
                                                                                 --------------
                           Italy -- 1.4%                                                       
ITL      1,550,000,000     BTPS, 8.50%, due 8/1/04                                   1,022,275 
ITL      3,485,000,000     BTPS, 6.75%, due 2/1/07                                   2,151,042 
ITL      1,700,000,000     BTPS, 9.00%, due 11/1/23                                  1,358,043 
                                                                                 --------------
                                                                                     4,531,360 
                                                                                 --------------
                           Japan -- 6.8%                                                       
GBP         2,300,000      Export Import Bank of Japan, 10.75%, due 5/15/01          4,173,219 
USD           800,000      Japan Development Bank, 6.88%, due 12/16/99                 810,800 
GBP         3,000,000      Japan Finance Corp Municipal Enterprises, 9.13%,                    
                              due 2/16/05                                            5,581,635 
GBP         6,000,000      Kobe City, 9.50%, due 10/20/04                           11,271,939 
                                                                                 --------------
                                                                                    21,837,593 
                                                                                 --------------
                           Jordan -- 0.2%                                                      
USD         1,000,000      Hashemite Kingdom of Jordan Par Bond,                               
                              Variable Rate, Step up 144A, 5.00%, due                          
                              12/23/23                                                 692,500 
                                                                                 --------------
                           Mexico -- 0.4%                                                      
FRF        10,000,000      Mexico Par Bond, 6.63%, due 12/31/19                      1,430,788 
                                                                                 --------------
                           New Zealand -- 1.6%                                                 
NZD         9,200,000      New Zealand Index Linked Bond, 4.50%, due 2/15/16         5,124,519 
                                                                                 --------------
                           Norway -- 0.6%                                                      
SEK        13,700,000      A/S Eksportfinans, 7.50%, due 8/16/01                     1,828,515 
                                                                                 --------------

2             See accompanying notes to the financial statements.               


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

          Par Value        Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           Supra National -- 8.6%                                              
JPY       440,000,000      Asian Development Bank, 5.00%, due 2/5/03                 4,115,095 
AUD        24,200,000      European Bank Recon and Development, Zero Coupon,                   
                              0.00%, due 2/10/28                                     2,483,011 
CAD         2,700,000      European Investment Bank, 8.50%, due 8/30/05              2,194,983 
ESP       821,900,000      European Investment Bank, 10.35%, due 12/20/05            7,065,517 
GBP         1,755,000      European Investment Bank, 8.75%, due 8/25/17              3,652,464 
JPY       200,000,000      International Bank Recon and Development, 6.75%,                    
                              due 6/18/01                                            1,894,245 
GBP         3,000,000      International Bank Recon and Development, 11.50%,                   
                              due 11/9/03                                            6,080,525 
                                                                                 --------------
                                                                                    27,485,840 
                                                                                 --------------
                           Sweden -- 4.7%                                                      
SEK        35,000,000      Government of Sweden Index Linked Bond, 4.00%, due                  
                              12/1/20                                                4,848,871 
SEK        43,900,000      Kingdom of Sweden, 6.00%, due 2/9/05                      5,695,858 
SEK         6,100,000      Kingdom of Sweden, 6.50%, due 10/25/06                      817,737 
SEK        24,800,000      Kingdom of Sweden, 8.00%, due 8/15/07                     3,669,944 
                                                                                 --------------
                                                                                    15,032,410 
                                                                                 --------------
                           United States -- 27.9%                                              

                           Asset Backed Securities -- 18.7%                                    
USD         3,000,000      Augusta Funding VI Series 96-A3, 144A, 7.38%, due                   
                              4/15/13                                                3,134,970 
USD        10,000,000      Chyps CBO 97-1, Class A2, 144A, 6.72%, due 1/15/10        9,862,500 
USD         3,297,386      CS First Boston Mortgage Securities Corp, Series                    
                              96-1 Class A1, Variable Rate, 3 mo. LIBOR + .23%,                
                              5.98%, due 7/28/29                                     3,299,364 
USD        11,500,000      Discover Card Master Trust I 94-2 Class A,                          
                              Variable Rate, 1 mo. LIBOR + .35%, 5.98%, due                    
                              10/16/04                                              11,600,625 
USD         1,950,000      Keycorp Student Loan Trust 94-B Certificates,                       
                              Variable Rate, 1 mo. LIBOR + .73%, 6.38%, due                    
                              11/25/21                                               1,950,000 
USD         9,000,000      National Premier Finance 95-2 Class A, 144A,                        
                              6.21%, due 6/01/99                                     9,000,000 
USD         6,500,000      National Premier Finance IX 96-1 Class A, 144A,                     
                              7.20%, due 7/01/00                                     6,636,500 
USD           724,634      New York City Tax Lien Series 96-1 Class B, 144A,                   
                              6.91%, due 5/25/05                                       735,504 
USD         5,000,000      Rhyno CBO Series 97-1 Class A-2, 144A,                              
                              Variable Rate, Step Up, 0.00%, due 9/15/09             5,322,656 
USD         5,000,000      Student Loan Marketing Association Series 96-4                      
                              Class A2, Variable Rate, 3 mo. U.S. Treasury                     
                              Bill +.64%, 5.92%, due 7/25/09                         4,979,688 

              See accompanying notes to the financial statements.              3


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

          Par Value        Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           Asset Backed Securities -- continued                                
USD         3,465,000      TMS Auto Grantor Trust Series 96-1 Class CTFS,                      
                              7.10%, due 12/20/02                                    3,544,695 
                                                                                 --------------
                                                                                    60,066,502 
                                                                                 --------------
                           Corporate Debt -- 1.8%                                              
SEK        44,000,000      Toyota Motor Credit, 7.50%, due 8/06/01                   5,843,475 
                                                                                 --------------
                           U.S. Government -- 4.6%                                             
USD        10,100,000      U.S. Treasury 0.00% Receipts, due 8/15/13                 3,877,390 
USD        10,100,000      U.S. Treasury 0.00% Receipts, due 2/15/14                 3,747,605 
USD         7,050,680      U.S. Treasury Inflation Indexed Note, 3.63%, due                    
                              7/15/02/(a)/                                           7,013,220 
                                                                                 --------------
                                                                                    14,638,215 
                                                                                 --------------
                           U.S. Government Agency -- 2.8%                                      
USD         1,600,000      Agency for International Development Floater                        
                              (Support of Belize), Variable Rate, 6 mo. U.S.                   
                              Treasury Bill + .50%, 5.74%, due 1/01/14               1,594,250 
USD         5,000,000      Agency for International Development Floater                        
                              (Support of India), Variable Rate, 3 mo.                         
                              LIBOR + .10%, 5.73%, due 2/01/27                       5,017,969 
USD         2,333,334      Agency for International Development Floater                        
                              (Support of Zimbabwe), Variable Rate, 3 mo.                      
                              U.S. Treasury Bill x 115%, 5.88%, due 1/01/12          2,330,782 
                                                                                 --------------
                                                                                     8,943,001 
                                                                                 --------------

                           Total United States                                      89,491,193 
                                                                                 --------------
                           Venezuela -- 0.7%                                                   
USD           500,000      Republic of Venezuela, 9.25%, due 9/15/27                   448,250 
USD         2,000,000      Republic of Venezuela Discount Bond Series A,                       
                              Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due                    
                              3/31/20                                                1,750,000 
                                                                                 --------------
                                                                                     2,198,250 
                                                                                 --------------

                           TOTAL DEBT OBLIGATIONS  (COST  $280,491,083)            289,313,910 
                                                                                 --------------
                           LOAN ASSIGNMENTS -- 0.0%                                            

                           Russia -- 0.0%                                                      
USD               278      Russia Vnesh Restructured Loan Agreements, LIBOR +                  
                              .8125% (3.2486%)                                             168 
                                                                                 --------------

                           TOTAL LOAN ASSIGNMENTS  (COST  $155)                            168 
                                                                                 --------------

4             See accompanying notes to the financial statements.               


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

            Shares         Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           PREFERRED STOCKS -- 3.1%                                            

                           United States -- 3.1%                                               
               10,000      Bear Stearns Managed Income Securities Plus Fund                    
                           13.27%                                                    9,975,700 
                                                                                 --------------

                           TOTAL PREFERRED STOCKS  (COST $9,778,893)                 9,975,700 
                                                                                 --------------

       Principal Amount                                                                        
----------------------------                                                                   
                                                                                               
                           CALL OPTIONS PURCHASED -- 2.3%                                      

                           Cross Currency Options -- 0.2%                                      
DEM       236,300,000      DEM Call/BEF Put, Expires 7/8/98, Strike 20.6               273,435 
DEM       109,800,000      DEM Call/ITL Put, Expires 9/22/98, Strike 993               447,718 
                                                                                 --------------
                                                                                       721,153 
                                                                                 --------------
                           Options on Bonds -- 0.4%                                            
SEK       348,000,000      Sweden Government Bond, Expires 4/30/98, Strike                     
                           100.677                                                   1,338,728 
                                                                                 --------------
                           Options on Currency -- 1.7%                                         
USD        97,500,000      German Mark, Expires 9/17/98, Strike 1.725                5,079,750 
USD       110,000,000      Japanese Yen, Expires 6/15/98, Strike 140                   187,000 
                                                                                 --------------
                                                                                     5,266,750 
                                                                                 --------------
                           Options on Futures -- 0.0%                                          
USD           750,000      Eurodollar, Expires 3/16/98, Strike 94.25                    60,000 
                                                                                 --------------
                           TOTAL CALL OPTIONS PURCHASED                                        
                           (COST  $7,626,861)                                        7,386,631 
                                                                                 --------------
                           PUT OPTIONS PURCHASED -- 0.5%                                       

                           Cross Currency Options -- 0.1%                                      
DEM       109,800,000      DEM Put/ITL Call, Expires 9/22/98, Strike 993               278,311 
USD         5,146,502      TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires                    
                           5/12/98, Strike 545,000                                      26,560 
                                                                                 --------------
                                                                                       304,871 
                                                                                 --------------

              See accompanying notes to the financial statements.              5


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

       Principal Amount    Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           Options on Currency -- 0.4%                                         
USD        97,500,000      German Mark, Expires 9/17/98, Strike 1.725                1,365,000 
                                                                                 --------------
                           Options on Futures -- 0.0%                                          
USD           750,000      Eurodollar, Expires 3/16/98, Strike 94                        3,750 
                                                                                 --------------
                           TOTAL PUT OPTIONS PURCHASED                                         
                            (COST  $4,446,404)                                       1,673,621 
                                                                                 --------------

    Par Value/Shares                                                                           
----------------------------                                                                   
                                                                                               
                           RIGHTS AND WARRANTS -- 0.0%                                         

                           Mexico -- 0.0%                                                      
            3,846,000      United Mexican States Warrants, Expires 6/30/03*                 -- 
                                                                                 --------------
                           Venezuela -- 0.0%                                                   
               19,280      Republic of Venezuela Recovery Warrants,                            
                           Expires 04/15/20*                                                -- 
                                                                                 --------------
                           TOTAL RIGHTS AND WARRANTS  (COST  $0)                            -- 
                                                                                 --------------
                           SHORT-TERM INVESTMENTS -- 1.4%                                      

                           Commercial Paper -- 1.3%                                            
USD         4,000,000      GE Capital Corp, 5.68% due 3/02/98                        4,000,000 
                                                                                 --------------
                           Repurchase Agreements -- 0.1%                                       
USD           417,086      Salomon Smith Barney Inc. Repurchase Agreement,                     
                           dated 2/27/98, due 3/2/98, with a maturity value                    
                           of $417,262 and an effective yield of 5.07%,                        
                           collateralized by a U.S. Treasury Obligation with                   
                           a rate of 8.875%, with a maturity date of 8/15/17                   
                           and with a market value of $425,427.                        417,086 
                                                                                 --------------
                           TOTAL SHORT-TERM INVESTMENTS                                        
                            (COST  $4,417,086)                                       4,417,086 
                                                                                 --------------
                           TOTAL INVESTMENTS -- 97.5%                                          
                           (COST $306,760,482)                                     312,767,116 

                           Other Assets and Liabilities (net)-- 2.5%                 8,138,091 
                                                                                 --------------

                           TOTAL NET ASSETS-- 100%                               $ 320,905,207 
                                                                                 ==============

6             See accompanying notes to the financial statements.               


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Notes to the Schedule of Investments:       

EMTN -- Euromarket Medium Term Note         

 FLIRB -- Front Loaded Interest Reduction Bond

GTB -- Greek Treasury Bill                  

PDI -- Past Due Interest                    

PIK -- Payment In Kind                      

     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 buyers.                 

    Variable and step up rates -- The rates shown on
         variable and step up rate notes are the current
        interest rates at February 28, 1998, which are
     subject to change based on the terms of the
  security, including varying reset dates.

Currency Abbreviations:                     
       AUD - Australian Dollar         GRD - Greek Drachma
      BEF - Belgian Franc             ITL - Italian Lira
      CAD - Canadian Dollar           JPY - Japanese Yen
           CHF - Swiss Franc               MYR - Malaysian Ringgit
             DEM - German Mark               NLG - Netherlands Guilder
            DKK - Danish Krone              NZD - New Zealand Dollar
       ECU - European Currency Unit    SEK - Swedish Krona
       ESP - Spanish Peseta            THB - Thailand Baht
      FRF - French Franc              TRL - Turkish Lira
              GBP - British Pound             USD - United States Dollar

                  /(a)/ All or a portion of this security has been segregated to
                  cover margin requirements on open financial futures contracts.
* Non-income producing security.          

              See accompanying notes to the financial statements.              7


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

                                                        [Enlarge/Download Table]


Statement of Assets and Liabilities -- February 28, 1998                                        
----------------------------------------------------------------------------------------------- 
                                                                                                
Assets:                                                                                         
   Investments, at value (cost $306,760,482) (Note 1)                              $312,767,116 
   Cash (Note 1)                                                                      2,027,623 
   Interest receivable                                                                5,966,109 
   Receivable for Fund shares sold                                                   10,560,000 
   Receivable for open forward foreign currency contracts (Notes 1 and 6)             7,346,694 
   Receivable for expenses waived or borne by Manager (Note 2)                           45,222 
                                                                                   -------------

       Total assets                                                                 338,712,764 
                                                                                   -------------

Liabilities:                                                                                    
   Written options outstanding, at value (premiums $11,606,055) (Notes 1 and 6)      11,000,690 
   Payable for open forward foreign currency contracts (Notes 1 and 6)                4,863,044 
   Payable for Fund shares repurchased                                                  997,624 
   Payable to affiliate for (Note 2):                                                           
      Management fee                                                                    121,287 
      Shareholder service fee                                                            35,162 
   Payable for open swap contracts (Notes 1 and 6)                                      590,287 
   Payable for variation margin on open futures contracts (Notes 1 and 6)                89,298 
   Accrued expenses                                                                     110,165 
                                                                                   -------------

       Total liabilities                                                             17,807,557 
                                                                                   -------------

Net assets                                                                         $320,905,207 
                                                                                   =============

Net assets consist of:                                                                          
   Paid-in capital                                                                 $300,447,376 
   Accumulated undistributed net investment income                                    2,799,507 
   Accumulated undistributed net realized gain                                        9,655,525 
   Net unrealized appreciation                                                        8,002,799 
                                                                                   =============
                                                                                   $320,905,207 
                                                                                   =============

Net assets attributable to:                                                                     
   Class III shares                                                                $320,905,207 
                                                                                   =============

Shares outstanding:                                                                             
   Class III                                                                         30,095,080 
                                                                                   =============

Net asset value per share:                                                                      
   Class III                                                                       $      10.66 
                                                                                   =============

8              See accompanying notes to the financial statements.              


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                     
Investment Income:                                                                   
   Interest (including securities lending income of $1,024)              $25,157,706 
   Dividends                                                                 995,250 
                                                                         ----------- 

       Total income                                                       26,152,956 
                                                                         ----------- 

Expenses:                                                                            
   Management fee (Note 2)                                                 1,895,291 
   Custodian and transfer agent fees                                         253,222 
   Audit fees                                                                 59,189 
   Legal fees                                                                 25,224 
   Registration fees                                                          23,663 
   Trustees fees (Note 2)                                                      3,610 
   Miscellaneous                                                               4,214 
   Fees waived or borne by Manager (Note 2)                               (1,316,764)
                                                                         ----------- 
                                                                             947,649 
   Shareholder service fee (Note 2)                                                  
       Class I                                                                 3,065 
       Class III                                                             565,710 
                                                                         ----------- 
       Net expenses                                                        1,516,424 
                                                                         ----------- 

          Net investment income                                           24,636,532 
                                                                         ----------- 

Realized-and-unrealized gain (loss):                                                 
   Net realized gain on:                                                             
       Investments                                                         1,512,850 
       Closed futures contracts                                            5,700,403 
       Closed swap contracts                                               1,088,107 
       Written options                                                     2,237,605 
       Foreign currency, forward contracts and foreign currency related              
       transactions                                                       51,333,095 
                                                                         ----------- 

          Net realized gain                                               61,872,060 
                                                                         ----------- 

   Change in net unrealized appreciation (depreciation) on:                          
       Investments                                                       (15,283,041)
       Open futures contracts                                              1,376,174 
       Open swap contracts                                                  (590,287)
       Written options                                                       361,615 
       Foreign currency, forward contracts and foreign currency related              
       transactions                                                      (20,400,594)
                                                                         ----------- 

          Net unrealized loss                                            (34,536,133)
                                                                         ----------- 

       Net realized and unrealized gain                                   27,335,927 
                                                                         ----------- 

Net increase in net assets resulting from operations                     $51,972,459 
                                                                         =========== 

              See accompanying notes to the financial statements.              9


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                             Year Ended        Year Ended     
                                                          February 28, 1998  February 28, 1997
                                                          -----------------  -----------------
                                                                                              
Increase (decrease) in net assets:                                                            
Operations:                                                                                   
   Net investment income                                     $ 24,636,532        $24,438,613  
   Net realized gain                                           61,872,060         37,539,759  
   Change in net unrealized appreciation (depreciation)       (34,536,133)        19,999,551  
                                                             ------------        -----------  

   Net increase in net assets resulting from operations        51,972,459         81,977,923  
                                                             ------------        -----------  

Distributions to shareholders from:                                                           
   Net investment income                                                                      
       Class I                                                    (93,768)                --  
       Class III                                              (22,677,467)       (20,376,190) 
                                                             ------------        -----------  
       Total distributions from net investment income         (22,771,235)       (20,376,190) 
                                                             ------------        -----------  
   Net realized gains                                                                         
       Class I                                                   (232,835)                --  
       Class III                                              (65,046,883)       (15,129,774) 
                                                             ------------        -----------  
       Total distributions from net realized gains            (65,279,718)       (15,129,774) 
                                                             ------------        -----------  
   In excess of net realized gains                                                            
       Class III                                                       --        (14,706,753) 
                                                             ------------        -----------  
       Total distributions in excess of net realized gains             --        (14,706,753) 
                                                             ------------        -----------  

                                                              (88,050,953)       (50,212,717) 
                                                             ------------        -----------  
   Net share transactions: (Note 5)                                                           
       Class I                                                 (1,008,924)         1,123,429  
       Class III                                             (112,148,597)       201,090,729  
                                                             ------------        -----------  
   Increase (decrease) in net assets resulting from net                                       
      share transactions                                     (113,157,521)       202,214,158  
                                                             ------------        -----------  

      Total increase (decrease) in net assets                (149,236,015)       233,979,364  

Net assets:                                                                                   
   Beginning of period                                        470,141,222        236,161,858  
                                                             ------------        -----------  

   End of period (including accumulated undistributed net                                     
      investment income and distributions in excess of net                                    
      investment income of $2,799,507 and $7,695,280,                                         
      respectively)                                          $320,905,207       $470,141,222  
                                                             ============       ============  

10            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                               Period from         
                                                    Period from              January 2, 1997       
                                                   March 1, 1997       (commencement of operations)
                                                 to January 9, 1998        to February 28, 1997    
                                                ---------------------  ----------------------------
                                                                                                   
Net asset value, beginning of period                   $12.16                     $11.75           
                                                       ------                     ------           

Income from investment operations:                                                                 
   Net investment income                                 0.69+                      0.11           
   Net realized and unrealized gain                      0.90                       0.30           
                                                       ------                     ------           

      Total from investment operations                   1.59                       0.41           
                                                       ------                     ------           

Less distributions to shareholders:                                                                
   From net investment income                           (0.87)                        --           
   From net realized gains                              (2.23)                        --           
                                                       ------                     ------           

      Total distributions                               (3.10)                        --           
                                                       ------                     ------           
Net asset value, end of period                         $10.65/(a)/                $12.16           
                                                       ======                     ======           

Total Return/(b)/                                       14.30%                      3.49%          

Ratios/Supplemental Data:                                                                          
   Net assets, end of period (000's)                       --                     $1,162           
   Net expenses to average daily net assets              0.53%*                     0.53%*         
   Net investment income to average daily net                                                      
      assets                                             6.60%*                     5.91%*         
   Portfolio turnover rate                                135%                        90%          
   Fees and expenses voluntarily waived or borne                                                   
      by the Manager consisted of the following                                                    
      per share amounts:                               $ 0.04                     $ 0.01           

*   Annualized.                                                               
+   Computed using average shares outstanding throughout the period.          
/(a)/All Class I shares of the Fund were exchanged for Class III shares on      
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                      
/(b)/Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  

              See accompanying notes to the financial statements.             11


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                        Year Ended February 28/29,            
                                               ---------------------------------------------  
                                                 1998         1997       1996       1995 *    
                                                ---------    --------   --------   ---------  
                                                                                              
Net asset value, beginning of period            $  12.16     $  10.92   $   9.99   $  10.00   
                                                --------     --------   --------   --------   

Income from investment operations:                                                            
   Net investment income                            0.88         0.66       1.05       0.24   
   Net realized and unrealized gain (loss)          0.73         2.07       1.62      (0.09)  
                                                --------     --------   --------   --------   

      Total from investment operations              1.61         2.73       2.67       0.15   
                                                --------     --------   --------   --------   

Less distributions to shareholders:                                                           
   From net investment income                      (0.88)       (0.60)     (1.04)     (0.16)  
   From net realized gains                         (2.23)       (0.45)     (0.42)        --   
   In excess of net realized gains                    --        (0.44)     (0.28)        --   
                                                --------     --------   --------   --------   

      Total distributions                          (3.11)       (1.49)     (1.74)     (0.16)  
                                                --------     --------   --------   --------   
Net asset value, end of period                  $  10.66     $  12.16   $  10.92   $   9.99   
                                                ========     ========   ========   ========   

Total Return/(a)/                                  14.44%       25.57%     27.36%      1.49%  

Ratios/Supplemental Data:                                                                     
   Net assets, end of period (000's)            $320,905     $468,979   $236,162   $238,664   
   Net expenses to average daily net assets         0.40%        0.40%      0.40%      0.40%**
   Net investment income to average daily net                                                 
      assets                                        6.50%        6.86%      8.54%      8.46%**
   Portfolio turnover rate                           135%          90%        85%        64%  
   Fees and expenses voluntarily waived or                                                    
      borne by the Manager consisted of the                                                   
      following per share amounts:              $   0.05     $   0.03   $   0.03   $   0.01   

 *   Period from September 30, 1994 (commencement of operations) to February 28,
1995.                                                                 
**  Annualized.                                                               
/(a)/Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  

12            See accompanying notes to the financial statements.               


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

     GMO Currency Hedged International Bond Fund (the "Fund") is a series of GMO
  Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management   
    investment company. The Fund is advised and managed by Grantham, Mayo, Van
     Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of    
Massachusetts on June 24, 1985. The Declaration of Trust permits the  
   Trustees to create an unlimited number of series ("Funds"), each of which
     issues a separate series of shares, and to subdivide a series into classes.

     The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and    
    multicurrency units, while generally attempting to hedge substantially all
   of its foreign currency risk. The Fund generally seeks to provide a total
return greater than that provided by the international fixed income   
securities market.                                                    

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
as those shares.                                                      

    Effective January 9, 1998, Class I shares ceased operations and all shares
were exchanged for Class III shares, and Class II shares ceased to be 
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

                                                                              13


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

    Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual   
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
 another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.                                   

   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 investments in securities held by the Fund were valued on the basis
    of a price provided by a principal market maker. At February 28, 1998, the
     total value of these securities represented 11% of net assets. These prices
  may differ from the value that would have been used had a broader market
 for the securities existed and the differences could be material to the
financial statements.                                                 

Foreign currency translation                                          
The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     
   The Fund may use futures contracts to manage its exposure to the bond and
   currency 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 obligations in accordance with the  
  initial margin requirements of the broker or exchange. 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. Gains or
losses are recognized but not considered realized until the contracts 
   expire or are closed. Futures contracts involve, to varying degrees, risk
 of loss in excess of the variation margin disclosed in the Statement of
   Assets and Liabilities. Losses may arise from the changes in the value of
     the underlying instrument, if there is an illiquid secondary market for the
  contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at                                       

14                                                                              


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

     the settlement price established each day by the board of trade or exchange
   on which they are traded. See Note 6 for all open futures contracts as of
February 28, 1998.                                                    

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
    the value of the currency changes unfavorably to the U.S. dollar. The U.S.
 dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has  
acquired or hedged through currency contracts as of February 28, 1998.

Options                                                               
The Fund may write call and put options on futures, securities or     
   currencies it owns or in which it may invest. 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 offset against the proceeds or amounts paid on the
     transaction to determine the realized gain or loss. The Fund as a writer of
     an option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an 
unfavorable change in the price of the security underlying the written
    option. There is the risk the Fund may not be able to enter into a closing
    transaction because of an illiquid market. See Note 6 for all open written
option contracts as of February 28, 1998.                             

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

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                                   

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

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. Direct
  indebtedness of emerging countries involves a risk that the governmental
entities responsible for the repayment of the debt may be unable or   
unwilling to pay the principal and interest when due.                 

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 invest in swap agreements. 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 swap agreements to manage its exposure
 to interest rates. The Fund entered into interest rate and total return
    swap agreements. 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 based on a notional amount. 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. In  
  connection with these agreements, cash may be set aside as collateral by
     the Fund's custodian in accordance with the terms of the swap agreement. At
    February 28, 1998, $2,027,623 in cash has been set aside. Swaps are marked
     to market daily based upon quotations from market makers and the change, if
     any, is recorded as unrealized gain or loss in the Statement of Operations.
     Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and 
    market risk in excess of the amounts recognized on the Statement of Assets
     and Liabilities. Such risks involve the possibility that there is no liquid
  market for these agreements, that the counterparty to the agreements may
default on its obligation to perform and that there may be unfavorable
   changes in the fluctuation of interest rates. See Note 6 for a summary of
open swap agreements as of February 28, 1998.                         

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

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower fail financially.
    The Fund receives compensation for lending its securities. At February 28,
1998, there were no securities on loan.                               

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
differing treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated              Accumulated                  
Undistributed Net        Undistributed Net                  
       Investment Income          Realized Gain            Paid-in Capital
         ---------------------  -------------------------   --------------------
     $8,629,490              $(8,629,490)                   --

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

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 accretion of   
     discounts. In determining the net gain or loss on securities sold, the cost
   of securities is determined on the identified cost basis. Interest income
  on the 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 income.                                                   

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 in such a manner as deemed equitable by the Trustees,
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 .15% of the amount    
    invested. The premium may be reduced by 50% with respect to any portion of
  a purchase that is offset by a corresponding redemption occurring on the
 same day. All purchase premiums 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. Purchase premiums are included as
 part of each class' "shares sold" as summarized in Note 5. For the year
   ended February 28, 1998, the Fund received $139,637 in purchase premiums.
There is no premium for cash redemptions, reinvested distributions or 
in-kind transactions.                                                 

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 and the
possible imposition of currency exchange blockages 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.                                                              

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .50% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .25% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .40%;
thus the net annual expense ratio after the waiver for a Class III    
shareholder is unchanged.                                             

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $3,610. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

   For the year ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                         Purchases          Proceeds
                                        ------------------- ----------------
  U.S. Government securities             $     51,551,152  $    54,671,192
  Investments (non-U.S. Government            398,499,455      494,819,518
securities)                                                           

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

              Gross Unrealized   Gross Unrealized   Net Unrealized
Aggregate Cost     Appreciation       Depreciation      Appreciation    
---------------- ------------------ ------------------ -----------------  
$306,892,190      $16,867,307         $10,992,381       $5,874,926    

4.   Principal shareholders                                                     

     At February 28, 1998, 62.2% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]


                                                                   Period from January 2, 1997    
                                  Period from March 1, 1997      (commencement of operations) to  
                                     to January 9, 1998                 February 28, 1997         
                               --------------------------------  ---------------------------------
Class I:                          Shares            Amount            Shares            Amount    
                               --------------    --------------  --------------    ---------------
                                                                                                  
Shares sold                           6,040      $      71,065         95,601      $    1,123,429 
Shares issued to shareholders                                                                     
    in reinvestment of               30,405            326,603          --                  --    
    distributions                                                                                 
Shares repurchased                 (132,046)        (1,406,592)         --                  --    
                               ==============    ==============  ==============    ===============
Net increase (decrease)             (95,601)     $  (1,008,924)        95,601      $    1,123,429 
                               ==============    ==============  ==============    ===============


                                         Year Ended                         Year Ended            
                                      February 28, 1998                 February 28, 1997         
                               --------------------------------  ---------------------------------
Class III:                          Shares            Amount          Shares            Amount    
                               --------------    --------------  --------------    ---------------
                                                                                                  
Shares sold                      12,690,672      $ 148,729,246     20,865,195      $  251,713,393 
Shares issued to shareholders                                                                     
    in reinvestment of            7,589,419         82,702,082      3,723,568          43,606,382 
    distributions                                                                                 
    Shares repurchased          (28,743,588)      (343,579,925)    (7,658,494)        (94,229,046)
                               ==============    ==============  ==============    ===============
Net increase (decrease)          (8,463,497)     $(112,148,597)    16,930,269      $  201,090,729 
                               ==============    ==============  ==============    ===============

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]

                                                                      Net Unrealized   
Settlement                                                             Appreciation    
   Date      Deliver/Receive   Units of Currency        Value         (Depreciation)   
------------ ---------------- --------------------- --------------- -------------------
                                                                                       
   Buys                                                                                

  5/07/98          AUD                7,400,000    $     5,048,450   $        69,360   
  3/27/98          CAD               61,800,000         43,452,620           376,749   
  4/09/98          DEM              149,700,000         82,695,212          (345,551)  
  4/17/98          GBP               13,500,000         22,170,398             9,252   
  3/20/98          ITL           70,110,850,000         39,168,696          (997,949)  
  4/03/98          JPY            7,400,000,000         58,877,977          (557,216)  
  3/06/98          SEK                6,639,900            829,509             3,633   
  3/23/98          THB              280,000,000          6,462,334          (910,938)  
  6/22/98          THB              140,000,000          3,161,262          (462,395)  
                                                                        -------------- 
                                                                     $    (2,815,055)  
                                                                        ============== 


   Sales                                                                               
                                                                                       
  5/07/98          AUD               23,800,000    $    16,236,908   $      (328,036)  
  3/27/98          CAD               47,500,000         33,398,049          (184,368)  
  3/06/98          DEM                1,500,000            826,894            (1,130)  
  3/20/98          DEM               71,200,000         39,283,735           882,909   
  4/09/98          DEM              205,600,000        113,574,720          (141,204)  
  4/17/98          GBP               32,300,000         53,044,731            33,263   
  4/03/98          JPY           12,980,000,000        103,275,154          (330,967)  
  3/20/98          MYR               11,896,500          3,233,294          (233,294)  
  4/17/98          MYR               26,183,500          7,101,365           (11,329)  
  3/12/98          NZD                9,200,000          5,391,540            78,872   
  3/23/98          THB              280,000,000          6,462,334         3,243,039   
  6/22/98          THB              140,000,000          3,161,262         1,608,755   
                                                                        -------------- 
                                                                     $     4,616,510   
                                                                        ============== 

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Forward cross currency contracts                                      

                                                        [Enlarge/Download Table]

                                                                        Net Unrealized    
Settlement                                                               Appreciation     
   Date     Deliver/Units of Currency    Receive/In Exchange For        (Depreciation)    
----------- -------------------------- --------------------------- -----------------------
                                                                                          
 7/10/98      BEF       2,100,224,400    DEM          101,600,000     $          (61,363) 
 5/14/98      CHF          13,756,608    DEM           17,100,000                 (2,592) 
 3/06/98      DEM          61,500,000    SEK          271,331,480                 (5,753) 
 3/20/98      DEM           4,600,000    ITL        4,526,265,000                 (9,314) 
 4/23/98      DEM          15,414,100    GBP            5,200,000                 14,990  
 4/24/98      DEM           4,400,000    ESP          373,802,000                 (1,829) 
 4/30/98      DEM         434,510,300    ECU          220,900,000                759,381  
 5/14/98      DEM           2,000,000    CHF            1,607,200                   (908) 
 7/10/98      DEM           2,200,000    BEF           45,378,124                 (1,339) 
 3/23/98      DKK         317,108,480    DEM           83,200,000                 19,843  
 4/30/98      ECU         131,600,000    DEM          259,176,907               (275,569) 
 5/22/98      FRF         502,117,616    DEM          149,800,000                 89,921  
 3/05/98      NLG          36,511,560    DEM           32,400,000                 15,493  
 3/06/98      SEK         443,222,612    DEM          100,700,000                141,234  
                                                                   -----------------------
                                                                      $          682,195  
                                                                   =======================

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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Futures contracts                                                     

                                                        [Enlarge/Download Table]


                                                                                       Net Unrealized  
 Number of                                          Expiration         Contract         Appreciation   
 Contracts                  Type                       Date              Value         (Depreciation)  
------------- ----------------------------------  -----------------  ---------------   ----------------
                                                                                                       
    Buys                                                                                               

    316       MATIF FRF Bond                         June 1998     $     26,821,572  $        (61,417) 
     6        Japanese Government Bond 10 yr.        June 1998            6,144,859            13,332  
    109       German Government Bond                 March 1998          16,155,100           659,884  
     90       German Government Bond                 June 1998           13,265,925           (13,233) 
    145       Australian Government Bond 3 yr.       March 1998          11,689,616           147,418  
     13       Australian Government Bond 10 yr.      March 1998           1,283,103            35,462  
                                                                                       ----------------
                                                                                     $        781,446  
                                                                                       ================



   Sales                                                                                               
                                                                                                       
    148       Spanish Government Bond 10 yr.         March 1998    $     10,450,281  $       (456,357) 
    111       Spanish Government Bond 10 yr.         June 1998            7,807,441            19,095  
    173       Swiss Government Bond                  March 1998          14,758,517          (837,364) 
    112       Swiss Government Bond                  June 1998            9,584,410            66,987  
    104       Canadian Government Bond               June 1998            9,100,000               (59) 
    158       MSE 3 mo. Bankers Acceptance           March 1998          26,372,189          (111,011) 
     66       Italian Government Bond 10 yr.         June 1998            8,713,202             5,307  
     93       U.K. Gilt                              June 1998            8,180,183            91,961  
    255       U.S. Treasury Bond                     June 1998           30,719,531           290,804  
                                                                                       ----------------
                                                                                    $        (930,637) 
                                                                                       ================

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any margin requirements on open futures contracts.              

                                                                          23


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Written option transactions                                           

                                                        [Enlarge/Download Table]

                                        Puts                                  Calls                

                                                                   Principal                       
                         Principal Amount                          Amount of                       
                           of Contracts                            Contracts                       
                          (000's omitted)       Premiums         (000's omitted)       Premiums    
                         ------------------  ---------------    -----------------   ---------------
                                                                                                   
 Outstanding, beginning                                                                            
      of period                    25,000  $     1,243,750          25,000        $   1,065,000    
 Options written                  271,425        6,303,030         392,352            7,113,429    
 Options exercised                (43,000)      (1,333,750)        (13,052)            (507,711)   
 Options closed                      (100)         (89,975)            --                  --      
 Options expired                   (4,225)        (376,350)       (265,200)          (1,811,368)   
                         ------------------  ---------------    -----------------   ---------------
 Outstanding, end                                                                                  
      of period                   249,100  $     5,746,705         139,100        $   5,859,350    
                         ==================  ===============    =================   ===============

Summary of written options outstanding                                                             



                             Principal                                                             
                             Amount of                                                             
                             Contracts         Exercise         Expiration                         
                           (000's omitted)       Price             Date               Value        
                          -----------------  --------------   -----------------  --------------    
 Calls                                                                                             
                                                                                                   
 Canadian Dollar                    41,600    1.4294 CAD          5/08/98      $       295,360     
 Japanese Yen                       97,500    113.65 JPY          9/17/98            8,121,750     

 Puts                                                                                              

 Canadian Dollar                    41,600    1.4294 CAD          5/08/98              470,080     
 Japanese Yen                      110,000    117.18 JPY          6/15/98              924,000     
 Japanese Yen                       97,500    113.65 JPY          9/17/98            1,189,500     
                                                                                 --------------    
                                                                               $    11,000,690     
                                                                                 ==============    


24                                                                              


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements - (continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements                                                         

                                                        [Enlarge/Download Table]


                                                                                        Net Unrealized
  Notional Amount      Expiration                                                        Appreciation 
  Fund/Counterparty       Date                         Description                      (Depreciation)
---------------------- ------------  -------------------------------------------------  --------------
                                                                                                      
11,250,000 USD/          5/04/98     Agreement with Morgan Guaranty Trust Company        $    225,296 
6,634,340 USD                        dated 2/10/98 to receive the notional amount                     
                                     multiplied by the change in market value                         
                                     (including accrued interest) on the Russia                       
                                     Principal Floating Rate Note due 12/15/20 and                    
                                     to pay the notional amount multiplied by 3                       
                                     month LIBOR adjusted by a specified spread.                      

3,697,979 USD/           5/14/99     Agreement with Bank of America dated 5/29/97 to       (1,430,073)
494,875,000,000 TRL                  receive the notional amount multiplied by the                    
                                     change in market value (including accrued                        
                                     interest) on the Turkey Index Linked Bond due                    
                                     5/14/99 and to pay the notional amount multiplied                
                                     by 3 month LIBOR adjusted by a specified spread.                 

1,448,524 USD/           6/04/99     Agreement with Bank of America dated 6/20/97 to          268,859 
316,183,601,428 TRL                  receive the notional amount multiplied by the                    
                                     change in market value (including accrued interest)              
                                     on the Turkey Index Linked Bond due 6/04/99 and to               
                                     pay the notional amount multiplied by 3 month                    
                                     LIBOR adjusted by a specified spread.                            

488,115 USD/             6/04/99     Agreement with Bank of America dated 11/13/97            345,631 
152,951,203,814 TRL                  to receive the notional amount multiplied by                     
                                     the change in market value (including accrued                    
                                     interest) on the Turkey Index Linked Bond due                    
                                     6/04/99 and to pay the notional amount multiplied                
                                     by 3 month LIBOR adjusted by a specified spread.                 

                                                                                        --------------
                                                          Net unrealized depreciation    $   (590,287)
                                                                                        ==============

See Notes to the Schedule of Investments for definitions of currency            
abbreviations.                                                                  

                                                                            25


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

Federal Tax Information - (Unaudited)                                           
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all the Fund's distributions are   
from investment company taxable income, except that the Fund has designated     
13.74% of distributions as net capital gain dividends.                          

26                                                                              


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GMO Currency Hedged International Bond Fund                                     
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

     Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. since 1993.                                                     

Management Discussion and Analysis of Fund Performance                          

The Class III shares of the Currency Hedged International Bond Fund   
 returned 14.4% for the fiscal year ended February 28, 1998, compared to
11.7% for the J.P. Morgan Non-U.S. Government Bond Index (Hedged).    
     Consistent with the Fund's investment objectives and policies, the Fund was
substantially invested in investment-grade, foreign and domestic fixed
income instruments throughout the period.                             

   Many of the strategies implemented in the Fund were successful during the
  fiscal year. It outperformed its benchmark by 2.7%. During the year bond
market and currency selection were positive. Although foreign interest
   rates generally declined during the year, the strength of the U.S. dollar
     meant that many foreign bond markets performed poorly when measured in U.S.
    dollar terms. Exceptions to this occurred in Italy and the U.K. whose bond
    markets had double-digit U.S. dollar returns. Strong returns were shown as
 well in Australia, Sweden and the U.K. The Canadian dollar was the only
 currency that produced a positive return versus the U.S. dollar for the
year ended February 28, 1998. Value was added during the year by      
   overweighting the Canadian, Swedish and U.K. bond markets, as well as the
 Italian lira, Spanish peseta and the ECU. Additionally, the Fund gained
  versus the benchmark as a result of underweighting the French, Japanese,
     and Swiss bond markets, as well as the Belgian franc and the Dutch guilder.
Because the fund hedged much of its non-U.S. dollar currency exposure 
 according to its investment policy, it benefited significantly from the
dollar's strength.                                                    

During the year the Fund held a position in emerging country sovereign
   debt, emphasizing undervalued issues. This market had a somewhat volatile
    year, buffeted by the financial problems in Asia. Returns came mainly from
     bond yields as prices changed little from beginning to end. Our decision to
    include emerging country debt exposure in the portfolio added value in all
but the third fiscal quarter.                                         

Outlook                                                                         

  The Fund is structured to benefit from outperformance in the Australian,
Danish, French, German, Swedish and emerging bond markets. We expect  
underperformance from the Italian, Japanese, Spanish and Swiss bond   
   markets. Our strategy maintains a market duration in each country. Strong
   relative performance is expected from the Canadian dollar, Deutsche mark,
Italian lira, Spanish peseta and U.K. pound. The Belgian franc, Danish
krone, French franc, Japanese yen and U.S. dollar are expected to     
underperform.                                                         

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Changes in Value of a $10,000 Investment in 
GMO Currency Hedged International Bond Fund Class III Shares and  
the JP Morgan Non-U.S. Governmental Bond Index (Hedged) 
As of February 28, 1998 

Average Annual Total Return 
      1 Year     Since Inception 9/30/94
Class III                    14.3%            19.8%                             

[LINE GRAPH APPEARS HERE] 

 GMO Currency Hedged          JP Morgan Non-U.S.
International Bond            Government Bond 
Date          Fund Class III Shares           Index (Hedged)                
----          ---------------------         -------------------             

9/30/94               $9,985                       $10,000                      
2/28/95              $10,134                       $10,408                      
2/29/96              $12,906                       $12,048                      
2/28/97              $16,207                       $13,772                      
2/28/98              $18,547                       $15,381                      

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Past performance is
not indicative of future performance. Information is unaudited.                 


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28 1998                                                                


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Report of Independent Accountants                                   

To the Trustees of GMO Trust and the Shareholders of                
GMO Domestic Bond Fund (A Series of GMO Trust)                      

 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 at February 28, 1998, the results of its operations for
the year then ended, the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally  
    accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
      responsibility of the Trust'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 generally
  accepted auditing standards 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 28, 1998 by correspondence
      with the custodian and brokers, provide a reasonable basis for the opinion
expressed above.                                                    

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 20, 1998                                                      


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Par Value        Description                                                                 Value ($)       
-------------------------------------------------------------------------------------------------------------------

                       DEBT OBLIGATIONS -- 89.5%                                                                   
                       Asset Backed Securities -- 31.6%                                                            
                                                                                                                   
     $13,000,000       Americredit Automobile Receivables Trust 97 Class A2,                                       
                           Variable Rate, 1 mo. LIBOR + .10%, 5.73%, due 3/05/01                    12,996,100     
       5,000,000       Anfield Road I Ltd.,                                                                        
                            Variable Rate, 6 mo. LIBOR + .25%, 5.88%, due 11/06/06                   4,986,000     
       5,000,000       Augusta Funding Series 96-F2,                                                               
                           Variable Rate, 3 mo. LIBOR + .30%, 144A, 6.06%, due 4/15/06               5,000,000     
      11,887,168       Augusta Funding VI Series 96-A3, 144A, 7.38%, due 4/15/13                    12,421,972     
       3,000,000       Bombardier Receivables Master Trust I 97-1 Class A,                                         
                           Variable Rate, 1 mo. LIBOR + .12%, 5.75%, due 4/15/04                     3,000,000     
       3,297,386       CS First Boston Mortgage Securities Corp, Series 96-1 Class A1,                             
                           Variable Rate, 3 mo. LIBOR + .23%, 5.98%, due 7/28/29                     3,299,364     
       4,167,900       Dilmun Capital Corp,                                                                        
                           Variable Rate, 6 mo. LIBOR + .88%, 6.79%, due 11/15/03                    4,167,900     
       5,000,000       Dreamworks Film Trust Series 1 Class A,                                                     
                           Variable Rate, 3 mo. LIBOR + .22%, 5.81%, due 10/15/06                    5,000,000     
       8,000,000       DVI Healthcare 1998-1A,                                                                     
                           Variable Rate, 1 mo. LIBOR + .35%, 5.98%, due 1/15/04                     7,997,600     
      10,050,000       Keycorp Student Loan Trust 94-B Certificates,                                               
                           Variable Rate, 1 mo. LIBOR + .73%, 6.38%, due 11/25/21                   10,050,000     
       6,000,000       National Premier Finance 95-2 Class A, 144A, 6.21%, due 6/01/99               6,000,000     
      14,000,000       National Premier Finance IX 96-1 Class A, 144A, 7.20%, due 7/01/00           14,294,000     
       6,500,000       Navistar Financial Dealer Note Master Trust 95-1 Class A,                                   
                           Variable Rate, 1 mo. LIBOR + .30%, 5.96%, due 8/25/07                     6,606,641     
       1,932,358       New York City Tax Lien Series 96-1 Class B, 144A, 6.91%, due 5/25/05          1,961,343     
       5,000,000       Northstar CBO Series 97-2 Class A2, 6.62%, due 7/15/09                        5,478,905     
       3,500,000       Premier Auto Trust 94-4 Certificates, 6.85%, due 5/02/99                      3,517,500     
       1,628,891       Resolution Trust Corp 94-C1 Class A1,                                                       
                           Variable Rate, 1 mo. LIBOR + .45%, 6.14%, due 6/25/26                     1,631,437     
       1,551,193       Resolution Trust Corp 94-C1 Class A3,                                                       
                           Variable Rate, 1 mo. LIBOR + .55%, 6.24%, due 6/25/26                     1,552,889     
      10,000,000       Rhyno CBO Series 97-1 Class A-2, 144A,                                                      
                           Variable Rate, Step Up, 0.00%, due 9/15/09                               10,645,313     
       2,637,000       SMS Student Loan Trust 94-B Certificates,                                                   
                           Variable Rate, 1 mo. LIBOR + .75%, 6.38%, due 10/25/23                    2,637,000     
       4,932,000       SMS Student Loan Trust 95-A Certificates,                                                   
                           Variable Rate, 1 mo. LIBOR + .65%, 6.28%, due 4/25/25                     4,925,835     
       5,888,000       Society Student Loan Trust 93-A Class B,                                                    
                           Variable Rate, 1 mo. LIBOR + .75%, 6.38%, due 7/25/03                     5,897,200     
       2,176,150       UCFC Home Equity Loan 95-B2 Class A8,                                                       
                           Variable Rate, 1 mo. LIBOR + .45%, 6.14%, due 10/10/26                    2,178,327     
                                                                                               ----------------    
                                                                                                   136,245,326     
                                                                                               ----------------    

               See accompanying notes to the financial statements.             1


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

      Par Value         Description                                                               Value ($)        
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
                       Foreign Government Obligations -- 3.5%                                                      
     $25,000,000       Bulgaria Discount Strips, due 7/28/24                                         4,812,500     
      39,794,675       Republic of Albania Par Bond, Zero Coupon, due 8/31/25                        6,857,816     
      20,000,000       Republic of Ecuador Discount Bond Series A Receipts, Zero Coupon,                           
                           due 2/28/25                                                               3,601,900     
                                                                                               ----------------    
                                                                                                    15,272,216     
                                                                                               ----------------    
                       Municipal Bonds -- 2.1%                                                                     
      15,000,000       Alameda County California Pension, Zero Coupon, due 12/01/05                  9,279,750     
                                                                                               ----------------    
                       U.S. Government -- 13.5%                                                                    
      28,000,000       U.S. Treasury Bond, 6.25%, due 8/15/23(a)                                    28,936,235     
      29,959,652       U.S. Treasury Inflation Indexed Note, 3.38%, due 1/15/07                     29,229,386     
                                                                                               ----------------    
                                                                                                    58,165,621     
                                                                                               ----------------    
                       U.S. Government Agency -- 38.8%                                                             

                       U.S. Government Agency Bonds/Notes -- 32.5%                                                 
      10,000,000       Agency for International Development Floater (Support of India),                            
                           Variable Rate, 3 mo. LIBOR + .10%, 5.73%, due 2/01/27                    10,035,938     
       8,500,000       Agency for International Development Floater (Support of Jamaica),                          
                           Variable Rate, 6 mo. LIBOR + .30%, 6.05%, due 12/01/14                    8,522,578     
       6,288,667       Agency for International Development Floater (Support of Jamaica),                          
                           Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 5.99%, due                6,287,685     
                            3/30/19                                                                                
      15,000,000       Agency for International Development Floater (Support of Morocco),                          
                           Variable Rate, 6 mo. LIBOR + .15%, 5.78%, due 10/29/26                   15,044,531     
      20,000,000       Agency for International Development Floater (Support of Morocco),                          
                           Variable Rate, 6 mo. LIBOR - .015%, 5.71%, due 2/01/25                   19,578,125     
      25,000,000       Agency for International Development Floater (Support of Portugal),                         
                           Variable Rate, 6 mo. LIBOR, 5.75%, due 1/01/21                           24,769,531     
      10,077,500       Agency for International Development Floater (Support of Sri Lanka),                        
                           Variable Rate, 6 mo. LIBOR + .20%, 5.95%, due 6/15/12                    10,116,865     
      10,266,668       Agency for International Development Floater (Support of Zimbabwe),                         
                           Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 5.88%, due               10,255,439     
                            1/01/12                                                                                
      15,000,000       Federal National Mortgage Association, 5.19%, due 7/20/98                    14,977,500     
      20,000,000       Small Business Administration Series 95-C, 6.88%, due 9/01/05                20,560,000     
                                                                                               ----------------    
                                                                                                   140,148,192     
                                                                                               ----------------    

2               See accompanying notes to the financial statements.             


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Par Value ($)/                                                                                                  
       Shares           Description                                                               Value ($)        
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
                       Structured Notes -- 6.3%                                                                    
     $ 3,550,000       Federal Home Loan Bank,                                                                     
                           Variable Rate, (10 YR CMT + 2.55% - 3 mo. LIBOR), 2.38%, due                            
                            7/28/98                                                                  3,535,800     
     $ 1,250,000       Federal National Mortgage Association,                                                      
                           Variable Rate, ((.50 * 2YR CMT) + 1.80%), 4.79%, due 3/10/98              1,246,875     
     $22,500,000       Student Loan Marketing Association,                                                         
                           Variable Rate, (10.25% - 5YR DM SWAP), 5.23%, due 3/23/98                22,455,000     
                                                                                               ----------------    
                                                                                                    27,237,675     
                                                                                               ----------------    
                                                                                                   167,385,867     
                                                                                               ----------------    

                       TOTAL DEBT OBLIGATIONS  (COST  $379,462,633)                                386,348,780     
                                                                                               ----------------    
                       PREFERRED STOCKS -- 6.9%                                                                    

                       Preferred Stocks -- 6.9%                                                                    
          10,000       Bear Stearns Managed Income Securities Plus Fund 13.27%                       9,975,700     
          20,000       Home Ownership Funding 2 Preferred 144A, 13.338%                             19,746,800     
                                                                                               ----------------    
                                                                                                    29,722,500     
                                                                                               ----------------    

                       TOTAL PREFERRED STOCKS  (COST  $29,706,360)                                  29,722,500     
                                                                                               ----------------    
                       SHORT-TERM INVESTMENTS -- 7.4%                                                              

                       Cash Equivalents -- 0.2%                                                                    
     $ 1,050,000       BankBoston Eurodollar Time Deposit, 5.7875% due 3/2/98                        1,050,000 (b) 
                                                                                               ----------------    
                       Commercial Paper -- 2.7%                                                                    
     $11,500,000       GE Capital Corp, 5.68% due 3/02/98                                           11,500,000     
                                                                                               ----------------    
                       Repurchase Agreements -- 4.5%                                                               
     $18,967,500       Morgan Stanley Repurchase Agreement dated 2/27/98, due                                      
                       3/2/98, with a maturity value of $18,976,648 and an                                         
                       effective yield of 5.7875%, collateralized by the                                           
                       following debt obligations having an aggregate market                                       
                       value of $24,502,875 (including accrued interest):                                          
                            Norwest Corp, 6.55% due 12/1/06                                                        
                            Morgan Stanley Group, Floating Rate Note due 5/1/01                                    
                            General Mills Food Corp, 5.82% due 2/5/03                                              
                            First Chicago NBD, 6.05% due 7/21/00                                                   
                            Citicorp, 6.62% due 10/15/07                                                           
                            Citicorp, Floating Rate Note due 5/24/01                                18,967,500 (b) 

               See accompanying notes to the financial statements.             3


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


       Par Value        Description                                                              Value ($)        
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
                       Repurchase Agreements -- continued                                                         
     $   364,084       Salomon Smith Barney Inc. Repurchase Agreement, dated 2/27/98, due                         
                       3/2/98, with a maturity value of $364,237 and an effective yield of                        
                       5.07%, collateralized by a U.S. Treasury Obligation with a rate of                         
                       8.875%, with a maturity date of 8/15/17 and with a market value of                         
                       $371,365.                                                                       364,084    
                                                                                               ----------------   
                                                                                                    19,331,584    
                                                                                               ----------------   
                       TOTAL SHORT-TERM INVESTMENTS                                                               
                       (COST  $31,881,584)                                                          31,881,584    
                                                                                               ----------------   

                       TOTAL INVESTMENTS -- 103.8%                                                                
                       (Cost $441,050,577)                                                         447,952,864    

                       Other Assets and Liabilities (net) -- (3.8)%                                (16,542,483)   
                                                                                               ----------------   

                       TOTAL NET ASSETS -- 100%                                                $   431,410,381    
                                                                                               ================   

Notes to the Schedule of Investments:       

CMT - Constant Maturity Treasury Index
                    DM SWAP - 5 Year Deutsche Mark Constant Maturity Swap Rate

                 Variable rates -- The rates shown on variable notes are
                the current interest rates at February 28, 1998, which
                   are subject to change based on the terms of the security,
including varying reset dates.        

               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 buyers.

              (a) All or a portion of this security has been segregated to
             cover margin requirements on open financial futures
contracts.                            

           (b) Represents investments of security lending collateral
(Note 1).                             

4              See accompanying notes to the financial statements.              


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                         
Assets:                                                                                  
  Investments, at value (cost $441,050,577) (Note 1)                         $447,952,864
  Dividends and interest receivable                                             3,708,975
  Receivable for variation margin on open futures contracts (Notes 1 and 6)       168,594
  Receivable for expenses waived or borne by Manager (Note 2)                      51,138
                                                                             ------------

      Total assets                                                            451,881,571
                                                                             ------------

Liabilities:                                                                             
  Payable upon return of securities loaned (Note 1)                            20,017,500
  Payable to affiliate for (Note 2):                                                     
     Management fee                                                                89,096
     Shareholder service fee                                                       53,458
  Payable for open swap contracts (Notes 1 and 6)                                 112,256
  Accrued expenses                                                                198,880
                                                                             ------------

      Total liabilities                                                        20,471,190
                                                                             ------------

Net assets                                                                   $431,410,381
                                                                             ============

Net assets consist of:                                                                   
  Paid-in capital                                                            $418,257,647
  Accumulated undistributed net investment income                               2,980,545
  Accumulated undistributed net realized gain                                   3,434,575
  Net unrealized appreciation                                                   6,737,614
                                                                             ------------
                                                                             $431,410,381
                                                                             ============

Net assets attributable to:                                                              
  Class III shares                                                           $431,410,381
                                                                             ============

Shares outstanding:                                                                      
  Class III                                                                    42,034,709
                                                                             ============

Net asset value per share:                                                               
  Class III                                                                  $      10.26
                                                                             ============

              See accompanying notes to the financial statements.              5


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
 Interest (including securities lending income of $33,834)         $30,219,243
 Dividends                                                           3,284,940
                                                                   -----------

     Total income                                                   33,504,183
                                                                   -----------

Expenses:                                                                       
 Management fee (Note 2)                                             1,311,252
 Custodian and transfer agent fees                                      78,733
 Audit fees                                                             35,999
 Legal fees                                                             11,740
 Registration fees                                                       9,946
 Trustees fees (Note 2)                                                  4,720
 Miscellaneous                                                           4,754
  Fees waived or borne by Manager (Note 2)                             (932,631)
                                                                   -----------
                                                                       524,513
Shareholder service fee (Note 2)                                            
    Class I                                                              7,627
    Class III                                                          782,627
                                                                   -----------
    Net expenses                                                     1,314,767
                                                                   -----------

        Net investment income                                       32,189,416
                                                                   -----------

Realized and unrealized gain (loss):                                            
Net realized gain on:                                                       
    Investments                                                      1,587,942
    Closed futures contracts                                         9,623,154
    Closed swap contracts                                            3,034,102
                                                                   -----------

        Net realized gain                                           14,245,198
                                                                   -----------

Change in net unrealized appreciation (depreciation) on:                    
    Investments                                                      7,228,892
    Open futures contracts                                           1,956,925
     Open swap contracts                                               (112,256)
     Written options                                                     (9,375)
                                                                   -----------

        Net unrealized gain                                          9,064,186
                                                                   -----------

    Net realized and unrealized gain                                23,309,384
                                                                   -----------

Net increase in net assets resulting from operations                $55,498,800 
                                                                   ===========

6              See accompanying notes to the financial statements.              


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                                       Year Ended        Year Ended     
                                                                    February 28, 1998  February 28, 1997
                                                                    -----------------  -----------------
                                                                                                        
Increase (decrease) in net assets:                                                                      
Operations:                                                                                             
  Net investment income                                               $  32,189,416       $  27,372,630 
  Net realized gain                                                      14,245,198             984,536 
  Change in net unrealized appreciation (depreciation)                    9,064,186          (3,180,642)
                                                                      -------------       ------------- 
  Net increase in net assets resulting from operations                   55,498,800          25,176,524 
                                                                      -------------       ------------- 

Distributions to shareholders from:                                                                     
  Net investment income                                                                                 
      Class I                                                              (206,797)            (17,070)
      Class III                                                         (34,705,546)        (25,071,527)
                                                                      -------------       ------------- 
      Total distributions from net investment income                    (34,912,343)        (25,088,597)
                                                                      -------------       ------------- 
  Net realized gains                                                                                    
      Class I                                                               (76,406)             (1,958)
      Class III                                                         (10,245,112)         (3,491,659)
                                                                      -------------       ------------- 
      Total distributions from net realized gains                       (10,321,518)         (3,493,617)
                                                                      -------------       ------------- 
  In excess of net realized gains                                                                       
      Class I                                                                    --                (878)
      Class III                                                                  --          (1,566,602)
                                                                      -------------       ------------- 
      Total distributions in excess of net realized gains                        --          (1,567,480)
                                                                      -------------       ------------- 

                                                                        (45,233,861)        (30,149,694)
                                                                      -------------       ------------- 
  Net share transactions: (Note 5)                                                                      
      Class I                                                            (3,679,073)          3,600,624 
      Class III                                                        (149,668,125)        264,915,841 
                                                                      -------------       ------------- 
  Increase (decrease) in net assets resulting from net share                                            
     transactions                                                      (153,347,198)        268,516,465 
                                                                      -------------       ------------- 

      Total increase (decrease) in net assets                          (143,082,259)        263,543,295 

Net assets:                                                                                             
  Beginning of period                                                   574,492,640         310,949,345 
                                                                      -------------       ------------- 

  End of period (including accumulated undistributed net                                                
     investment income of $2,980,545 and $5,703,472, respectively)    $ 431,410,381        $574,492,640 
                                                                      =============       ============= 

               See accompanying notes to the financial statements.             7


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                            Period from      Period from September 10, 1996
                                                           March 1, 1997      (commencement of operations) 
                                                         to January 9, 1998       to February 28, 1997     
                                                         ------------------   -----------------------------
                                                                                                           
Net asset value, beginning of period                         $10.16                    $10.01              
                                                             ------                    ------              

Income from investment operations:                                                                         
   Net investment income                                       0.56+                     0.36              
   Net realized and unrealized gain                            0.56                      0.13              
                                                             ------                    ------              

      Total from investment operations                         1.12                      0.49              
                                                             ------                    ------              

Less distributions to shareholders:                                                                        
   From net investment income                                 (0.68)                    (0.29)             
   From net realized gains                                    (0.27)                    (0.03)             
   In excess of net realized gains                              --                      (0.02)             
                                                             ------                    ------              

      Total distributions                                     (0.95)                    (0.34)             
                                                             ------                    ------              
Net asset value, end of period                               $10.33/(a)/               $10.16              
                                                             ======                    ======              

Total Return /(b)/                                            11.52 %                    4.93 %            

Ratios/Supplemental Data:                                                                                  

   Net assets, end of period (000's)                             --                    $3,630              
   Net expenses to average daily net assets                    0.38 %*                   0.38 %*           
   Net investment income to average daily net assets           6.31 %*                   5.83 %*           
   Portfolio turnover rate                                       59 %                      25 %            
   Fees and expenses voluntarily waived or borne by the                                                    
      Manager consisted of the following per share           $ 0.02                    $ 0.01              
      amounts:                                                                                             

*   Annualized.                                                                 

+   Computed using average shares outstanding throughout the period.            

(a) All Class I shares of the Fund were exchanged for Class III shares on       
January 9, 1998. Amount represents ending net asset value per share on  
January 9, 1998.                                                        

(b) The total returns would have been lower had certain expenses not been       
waived during the periods shown.                                        

8              See accompanying notes to the financial statements.              


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                 Year Ended February 28/29,               
                                                     --------------------------------------------------   
                                                       1998           1997         1996         1995*     
                                                     ---------      ---------    ---------    ---------   
                                                                                                          
Net asset value, beginning of period                 $   10.18      $   10.40    $   10.13    $   10.00   
                                                     ---------      ---------    ---------    ---------   

Income from investment operations:                                                                        
  Net investment income                                   0.67           0.58         0.66         0.24   
  Net realized and unrealized gain (loss)                 0.38          (0.09)        0.58         0.07   
                                                     ---------      ---------    ---------    ---------   

    Total from investment operations                      1.05           0.49         1.24         0.31   
                                                     ---------      ---------    ---------    ---------   

Less distributions to shareholders:                                                                       
  From net investment income                             (0.70)         (0.60)       (0.60)       (0.18)  
  From net realized gains                                (0.27)         (0.08)       (0.37)          --   
  In excess of net realized gains                           --          (0.03)          --           --   
                                                     ---------      ---------    ---------    ---------   

    Total distributions                                  (0.97)         (0.71)       (0.97)       (0.18)  
                                                     ---------      ---------    ---------    ---------   
Net asset value, end of period                       $   10.26      $   10.18    $   10.40    $   10.13   
                                                     =========      =========    =========    =========   

Total Return/(a)/                                        10.71%          4.93%       12.50%        3.16%  

Ratios/Supplemental Data:                                                                                 

  Net assets, end of period (000's)                  $ 431,410      $ 570,862    $ 310,949    $ 209,377   
  Net expenses to average daily net assets                0.25%          0.25%        0.25%        0.25%**
  Net investment income to average daily net assets       6.14%          6.15%        6.52%        6.96%**
  Portfolio turnover rate                                   59%            25%          70%          65%  
  Fees and expenses voluntarily waived or borne by                                                        
     the Manager consisted of the following per                                                           
     share amounts:                                  $    0.02      $    0.02    $    0.01    $    0.01   

*     For the period from August 18, 1994 (commencement of operations) to       
February 28, 1995.                                                  

**    Annualized.                                                               

/(a)/ The total returns would have been lower had certain expenses not been     
waived during the periods shown.                                    

               See accompanying notes to the financial statements.             9


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.    Significant accounting policies                                           

GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the   
      "Trust"). The Fund is registered under the Investment Company Act of 1940,
      as amended, as an open-end, non-diversified management investment company.
     The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
  (the "Manager" or "GMO"). The Trust was established as a Massachusetts
      Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
 unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.           

  The Fund seeks high total return through investment in U.S. government
   securities and other investment grade bonds denominated in U.S. dollars
     while generally maintaining a portfolio duration of approximately four to
six years (excluding short-term investments).                       

      On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the 
  classes of shares is the level of shareholder service fee 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 with GMO, as more fully described in the Trust's prospectus.
    Class III shares are the continuation of the Trust's shares that existed
    prior to June 1, 1996, and bear the same total operating expenses (after
the voluntary expense waiver) as those shares.                      

      Effective January 9, 1998, Class I shares ceased operations and all shares
 were exchanged for Class III shares, and Class II shares ceased to be
offered.                                                            

      The following is a summary of significant accounting policies which are in
  conformity with generally accepted accounting principles and which are
 consistently followed by the Fund in the preparation of its financial
  statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
  business day, or if there is no such reported sale, 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 market value. Other assets and
  securities for which no quotations are readily available are valued at
   fair value as determined in good faith by the Trustees or other persons
acting at their direction.                                          

      Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual 
  inactivity) in the prices supplied for a security and has the power to
  override any price supplied by a source (by taking a price supplied by

10                                                                              


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

   another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.                                 

     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 investments in securities held by the Fund were valued on the
  basis of a price provided by a principal market maker. At February 28,
    1998, the total value of these securities represented 15% of net assets.
  These prices may differ from the value that would have been used had a
  broader market for the securities existed and the differences could be
material to the financial statements.                               

Futures contracts                                                   
 The Fund may use futures contracts to manage its exposure to the bond
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 instruments 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 obligations in accordance
   with the initial margin requirements of the broker or exchange. Futures
contracts are marked to market daily and an appropriate payable or  
      receivable for the change in value ("variation margin") is recorded by the
   Fund. The payable or receivable is liquidated on the following business
     day. Gains or losses are recognized but not considered realized until the
 contracts expire or are closed. Futures contracts involve, to varying
    degrees, risk of loss in excess of the variation margin disclosed in the
     Statement of Assets and Liabilities. Losses may arise from changes in the
 value of the underlying instrument, if there is an illiquid secondary
   market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
    established each day by the board of trade or exchange on which they are
      traded. See Note 6 for all open futures contracts as of February 28, 1998.

Options                                                             
     The Fund may write call and put options on securities it owns or in which
     it may invest. 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
offset against the proceeds or amounts paid on the transaction to   
      determine the realized gain or loss. If a written put option is exercised,
 the premium reduces the cost basis of the securities purchased by the
   Fund. The Fund as a writer of an option has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
     result bears the market risk of an unfavorable change in the price of the
      security underlying the written option. There is the risk the Fund may not
      be able to enter into a closing transaction because of an illiquid market.
At February 28, 1998, the Fund had no written option contracts      
outstanding.                                                        

                                                                              11


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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, the value
      of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.    

Indexed securities                                                  
  The Fund may also 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.                                                

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 delay in
    recovery or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund receives compensation for 
    lending its securities. At February 28, 1998, the Fund loaned securities
      having a market value of $19,619,244, collateralized by cash in the amount
of $20,017,500 which was invested in short-term instruments.        

Swap agreements                                                     
      The Fund may invest in swap agreements. 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 swap agreements to manage its exposure
   to interest rates. The Fund entered into interest rate and total return
      swap agreements. 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 based on a notional amount. To the extent that 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. Swaps are marked to market daily based upon quotations from
   market makers and the change, if any, is recorded as unrealized gain or
     loss in the Statement of Operations. Payments received or made at the end
  of the measurement period are recorded as realized gain or loss in the
Statement of Operations. Entering into these agreements involves, to
varying degrees, elements of credit and market risk in excess of the
amounts recognized on the Statement of Assets and Liabilities.      

12                                                                              


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

 Such risks involve the possibility that there is no liquid market for
    these agreements, that the counterparty to the agreements may default on
      its obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap
agreements as of February 28, 1998.                                 

Taxes                                                               
   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
     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 federal income
     tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                          

Distributions to shareholders                                       
     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 will be paid in shares of the
   Fund, at net asset value, unless the shareholder elects to receive cash
   distributions. The Fund declares separate dividends from net investment
income on each class of shares.                                     

 Income distributions and capital gain distributions are determined in
  accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial  
statements as a return of capital. Differences in the recognition or
   classification of income for financial statement and tax purposes which
   result in temporary over-distributions for financial statement purposes
 are classified as distributions in excess of net investment income or
accumulated net realized gains.                                     

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 accretion of  
  discounts. 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 income.                                                 

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 in such a manner as deemed equitable by the Trustees,
 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.

                                                                              13


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

2.    Fees and other transactions with affiliates                               

 GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.                                          

      GMO has agreed to waive a portion of its fee and bear other expenses until
   further notice to the extent that the Fund's annual expenses (including
 the management fee but excluding brokerage commissions, certain other
      transaction costs (including transfer taxes), shareholder service fees and
     extraordinary expenses) exceed .10% of average daily net assets. Prior to
      June 1, 1996, a similar waiver existed for annual expenses exceeding .25%;
thus, the net annual expense ratio after the waiver for a Class III 
shareholder is unchanged.                                           

The Fund's portion of the fee paid by the Trust to the unaffiliated 
Trustees during the year ended February 28, 1998, was $4,720. No    
     remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                            

3.    Purchases and sales of securities                                         

     For the year ended February 28, 1998, cost of purchases and proceeds from
     sales of investments, other than short-term obligations, were as follows:

                                                                [Download Table]


                                                   Purchases           Proceeds    
                                               -----------------   ----------------
                                                                                   
U.S. Government securities                    $  125,653,058      $  228,583,505   
Investments (non-U.S. Government securities)     165,754,997         208,480,247   

    At February 28, 1998, the cost for Federal income tax purposes and gross
      unrealized appreciation and depreciation in value of investments held were
as follows:                                                         

                                                        [Enlarge/Download Table]


                            Gross Unrealized        Gross Unrealized        Net Unrealized   
    Aggregate Cost            Appreciation            Depreciation           Appreciation    
-----------------------  -----------------------  ----------------------  -------------------
                                                                                             
    $ 441,050,577             $ 7,668,137               $ 765,850            $ 6,902,287     

4.    Principal shareholders                                                    

  At February 28, 1998, 43.3% of the outstanding shares of the Fund were
 held by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.                                                 

14                                                                              


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

5.    Share transactions                                                        

      The Declaration of Trust permits the Trustees to issue an unlimited number
      of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:                                             

                                                        [Enlarge/Download Table]


                                                                         Period from September 10, 1996   
                                       Period from March 1, 1997        (commencement of operations) to   
                                           to January 9, 1998                  February 28, 1997          
                                   ----------------------------------  -----------------------------------
Class I:                               Shares             Amount          Shares             Amount       
                                   ---------------  -----------------  ---------------  ------------------
                                                                                                          
Shares sold                            46,389       $     476,298         385,608       $   3,888,618     
Shares issued to shareholders in                                                                          
    reinvestment of distributions      27,963             283,203           1,967              19,906     
Shares repurchased                   (431,611)         (4,438,574)        (30,316)           (307,900)    
                                   ---------------  -----------------  ---------------  ------------------
Net increase/(decrease)              (357,259)      $  (3,679,073)        357,259       $   3,600,624     
                                   ===============  =================  ===============  ==================



                                               Year Ended                          Year Ended             
                                           February 28, 1998                   February 28, 1997          
                                   ----------------------------------  -----------------------------------
Class III:                             Shares             Amount          Shares             Amount       
                                   ---------------  -----------------  ---------------  ------------------
                                                                                                          
Shares sold                         22,386,390      $  227,678,006      26,591,731      $  269,419,204    
Shares issued to shareholders in                                                                          
    reinvestment of distributions    3,685,870          37,365,549       2,531,335          25,549,376    
Shares repurchased                 (40,102,345)       (414,711,680)     (2,947,048)        (30,052,739)   
                                   ---------------  -----------------  ---------------  ------------------
Net increase/(decrease)            (14,030,085)     $ (149,668,125)     26,176,018      $  264,915,841    
                                   ===============  =================  ===============  ==================

6.    Financial instruments                                                     

     A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                            

Long futures contracts                                              

                                                        [Enlarge/Download Table]


                                                                                         Net Unrealized  
  Number of                                                                               Appreciation   
  Contracts                  Type              Expiration Date      Contract Value       (Depreciation)  
--------------- ---------------------------- -------------------  -------------------  ------------------
                                                                                                         
   146          U.S. Long Bond                   March 1998       $     17,634,062     $      221,832    
    67          U.S. Long Bond                    June 1998              8,071,406            (76,052)   
   187          U.S. Treasury Note 10 Yr         March 1998             21,072,563            226,503    
   241          U.S. Treasury Note 10 Yr          June 1998             27,142,625            (50,238)   
   446          U.S. Treasury Note 5 Yr           June 1998             48,641,875           (374,462)   
                                                                                       ------------------
                                                                                       $      (52,417)   
                                                                                       ==================

   At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.                 

                                                                              15


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Written put option transactions                                   

                                                                [Download Table]


                                   Principal Amount of                          
                                        Contracts                               
                                     (000's omitted)            Premiums        
                                  ----------------------  ----------------------
                                                                                
Outstanding, beginning of period        $30,000                 $126,563        
Options written                          30,000                  150,000        
Options exercised                       (60,000)                (276,563)       
Options expired                             -                       -           
                                  ----------------------  ----------------------
Outstanding, end of period                  -                       -           
                                  ======================  ======================

Swap agreement                                                    

                                                        [Enlarge/Download Table]


   Notional                                                                                 Net Unrealized  
    Amount       Expiration Date                        Description                          Depreciation   
---------------  ----------------  ------------------------------------------------------  -----------------
                                                                                                            
 $50,000,000         5/22/98       Agreement with Morgan Guaranty Trust Company dated         $(112,256)    
                                   4/22/97 to receive (pay) the notional amount                             
                                   multiplied by the return on the Lehman Brothers                          
                                   Treasury Index and to pay the notional amount                            
                                   multiplied by 3 month LIBOR adjusted by a specified                      
                                   spread.*                                                                 
                                                                                           -----------------
                                                                                           $   (112,256)    
                                                                                           -----------------

* Swap agreement valued by management (Note 1).                   

16                                                                              


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

Federal Income Tax Information -- (Unaudited)                                   
--------------------------------------------------------------------------------

     For the fiscal year ended February 28, 1998, all the Fund's distributions
are from investment company taxable income, except that the Fund has
designated 11.68% of distributions as net capital gain dividends.   

                                                                              17


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GMO Domestic Bond Fund                                                          
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily     
      responsible for the day-to-day management of the Fund's portfolio. Each of
   these individuals has been a portfolio manager with Grantham, Mayo, Van
Otterloo & Co. LLC since 1993.                                      

Management Discussion and Analysis of Fund Performance                          

 The Class III shares of the Domestic Bond Fund returned 10.7% for the
    fiscal year ended February 28, 1998, as compared to 10.7% for the Lehman
 Brothers Government Bond Index. Consistent with the Fund's investment
objectives and policies, the Fund was substantially invested in     
  high-quality, domestic fixed income instruments throughout the period.

The Fund matched the return of the benchmark as interest rates fell 
      significantly during the fiscal year. Because the policy of the Fund is to
     match approximately the duration, or maturity risk, of the benchmark, the
 shift in rates did not impact adversely its relative performance. The
   falling rate environment provided attractive total return for the fund,
well in excess of its yield.                                        

   During the year the majority of the Fund's assets were invested in U.S.
    agency and asset-backed securities. The additional yield provided by the
    Fund's holdings of asset-backed securities offset the fees, expenses and
  transaction costs associated with its management. Because these issues
tend to have short effective maturities, U.S. Treasury interest rate
     futures were used to maintain the Fund's interest rate exposure near that
of the benchmark.                                                   

At the fiscal year end approximately 32% of the Fund was invested in
highly-rated, floating rate, asset-backed securities. These included
  issues backed by auto, truck, credit card and health care receivables.
      Also, approximately 33% of the Fund was invested in U.S. government agency
  issues which offered higher yields than similar maturity U.S. Treasury
securities.                                                         

GMO believes that asset-backed securities will continue to offer    
   attractive opportunities to enhance the yield of the Fund. The maturity
    exposure of the fund is managed to approximate that of the U.S. treasury
      market. As such, the Fund will remain exposed to capital changes resulting
from shifts in U.S. interest rates.                                 

 The views expressed here are exclusively those of Grantham, Mayo, Van
   Otterloo & Co. LLC Management. They are not meant as investment advice.


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--------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investments in 
GMO Domestic Bond Fund Class III Shares and 
the Lehman Brothers Government Bond Index 
As of February 28, 1998 

-------------------------------------               
Average Annual Total Return                 
-------------------------------------               
             Since
             Inception
1 Year       5 Year         8/18/94               
Class     -------------------------------------                         
III       10.7%          n/a            8.8%                          
-------------------------------------               

[LINE GRAPH APPEARS HERE] 

 GMO Domestic Bond             Lehman Brothers
 Fund Class III                Government Bond
Date                Shares                         Index                    
----            -----------------             ---------------               

8/18/94               $10,000                       $10,000                     
2/28/95               $10,315                       $10,366                     
2/29/96               $11,604                       $11,620                     
2/28/97               $12,176                       $12,149                     
2/28/98               $13,481                       $13,443                     

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period. Class III shares are a
redesignation of the single class of shares that has been offered by the Fund   
since inception. Past performance is not indicative of future performance.      
Information is unaudited.                                                       
--------------------------------------------------------------------------------


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                   

     To the Trustees of GMO Trust and the Shareholders of GMO Emerging Country
Debt Fund (A Series of GMO Trust)                                   

 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 at February 28, 1998, the results of its 
     operations for the year then ended, the changes in its net assets and the
financial highlights for the periods presented, in conformity with  
    generally accepted accounting principles. These financial statements and
      financial highlights (hereafter referred to as "financial statements") are
  the responsibility of the Trust'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
generally accepted auditing standards 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 28, 1998
   by correspondence with the custodian and brokers and the application of
     alternative auditing procedures where confirmations from brokers were not
 received, provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 23, 1998                                                      


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

           Par Value        Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                            DEBT OBLIGATIONS -- 62.5%                                             
                                                                                                  
                            Argentina -- 15.4%                                                    
USD            575,000      Argentina Pro 4,                                                      
                               Variable Rate, 1 mo. LIBOR, 5.61%, due 12/28/10         513,188    
ARP         35,134,370      Argentina Pro-1 Co-Participation Rights,                              
                               Variable Rate, 1 mo. Peso Deposit Rate, 2.98%,                     
                               due 4/01/07                                          22,945,433    
ARP         32,323,800      Province of Buenos Aires,                                             
                               Variable Rate, 1 mo. Peso Deposit Rate, 2.98%,                     
                               due 4/01/07                                          27,569,824    
ARP          1,900,000      Provincia Corrientes,                                                 
                               Variable Rate, 1 mo. Peso Deposit Rate, 2.98%,                     
                               due 4/01/09                                             964,732    
ARP         13,000,000      Republic of Argentina, 8.75%, due 7/10/02               11,933,467    
ARP          2,000,000      Republic of Argentina Bocon Pro 1, PIK,                               
                               Variable Rate, 1 mo. Peso Deposit Rate, 2.98%,                     
                               due 4/01/07                                           1,865,933    
USD          9,600,000      Republic of Argentina Discount Bond,                                  
                               Variable Rate, 6 mo. LIBOR + .81%, 6.88%, due                      
                               3/31/23                                               8,172,000    
USD            900,000      Republic of Argentina Global Bond, 11.38%, due                        
                               1/30/17                                               1,023,750    
USD         57,600,000      Republic of Argentina Par Bond,                                       
                               Variable Rate, Step Up, 5.50%, due 3/31/23           43,668,000    
                                                                                 --------------   
                                                                                   118,656,327    
                                                                                 --------------   

                            Bosnia & Herzegovina -- 0.0%                                          
DEM          2,244,033      Bosnia & Herzegovina Series A, Step Up, 2.00%,                        
                               due 12/11/17                                            284,399    
DEM          3,446,721      Bosnia & Herzegovina Series B, Zero Coupon,                           
                               0.00%, due 12/11/17                                      83,091    
                                                                                 --------------   
                                                                                       367,490    
                                                                                 --------------   

                            Brazil -- 12.4%                                                       
USD        102,815,106      Brazil Capitalization Bond, PIK, 8.00%, due                           
                               4/15/14                                              83,537,276    
USD         15,000,000      Brazil Discount ZL Bond,                                              
                               Variable Rate, 6 Mo. LIBOR + .81%, 6.69%, due                      
                               4/15/24                                              12,412,500    
                                                                                 --------------   
                                                                                    95,949,776    
                                                                                 --------------   

                            Bulgaria -- 0.6%                                                      
USD         18,000,000      Bulgaria Discount Series B Strips, Basket 2,                          
                               0.00%, due 7/28/24                                    2,295,000    
USD          1,950,000      Bulgaria IAB,                                                         
                               Variable Rate, 6 mo. LIBOR + .81%, 6.56%, due                      
                               7/28/11                                               1,491,750    
USD          5,000,000      Bulgaria Par Bond, Series B Strips, Tranche B,                        
                               0.00%, due 7/28/24                                      727,500    
                                                                                 --------------   
                                                                                     4,514,250    
                                                                                 --------------   

              See accompanying notes to the financial statements.              1


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

           Par Value        Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                            Costa Rica -- 0.4%                                                    
USD          1,548,832      Central Bank of Costa Rica Interest Series A,                         
                               Variable Rate, 3 mo. LIBOR + .81%, 6.57%, due                      
                               5/21/05                                               1,378,460    
USD            881,232      Central Bank of Costa Rica Interest Series B,                         
                               Variable Rate, 3 mo. LIBOR + .81%, 6.57%, due                      
                               5/21/05                                                 775,484    
USD          1,000,000      Central Bank of Costa Rica Principal Bond Series                      
                               A, 6.25%, due 5/21/10                                   830,000    
                                                                                 --------------   
                                                                                     2,983,944    
                                                                                 --------------   

                            Dominican Republic -- 1.1%                                            
USD         10,957,000      Dominican Republic Discount Bond,                                     
                               Variable Rate, 6 mo. LIBOR + .81%, 6.88%, due                      
                               8/30/24                                               8,765,600    
                                                                                 --------------   

                            Ecuador -- 4.5%                                                       
USD         13,215,000      Republic of Ecuador Discount Bond (Global                             
                               Registered), Variable Rate, 6 mo. LIBOR +                          
                               .81%, 6.63%, due 2/28/25                              9,779,100    
USD         44,500,000      Republic of Ecuador Par Bond,                                         
                               Variable Rate, Step up, 3.50%, due 2/28/25           24,391,563    
USD            222,555      Republic of Ecuador PDI (Global Bearer                                
                               Capitalization Bond), PIK,                                         
                               Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due                      
                               2/27/15                                                 142,435    
USD            546,780      Republic of Ecuador PDI (Registered), PIK,                            
                               Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due                      
                               2/27/15                                                 349,939    
                                                                                 --------------   
                                                                                    34,663,037    
                                                                                 --------------   

                            Ivory Coast -- 1.2%                                                   
FRF        120,000,000      Ivory Coast, FLIRB,                                                   
                               Variable Rate, Step Up, 2.00%, due 10/31/00/(a)/      6,749,544    
USD          7,000,000      Ivory Coast, FLIRB,                                                   
                               Variable Rate, Step Up, 2.00%, due 10/31/00/(a)/      2,397,500    
                                                                                 --------------   
                                                                                     9,147,044    
                                                                                 --------------   

                            Jordan -- 3.3%                                                        
USD         21,250,000      Hashemite Kingdom of Jordan Par Bond,                                 
                               Variable Rate, Step up  144A, 5.00%, due                           
                               12/23/23                                             14,715,625    
USD         11,019,428      Hashemite Kingdom of Jordan PDI,                                      
                               Variable Rate, 6 mo. LIBOR + .81%, 6.88%, due                      
                               12/23/05                                             10,523,554    
                                                                                 --------------   
                                                                                    25,239,179    
                                                                                 --------------   

                            Macedonia -- 1.2%                                                     
USD         14,384,127      Macedonia Capitalization Bond, PIK,                                   
                               Variable Rate, 9 mo. and 10 mo. interpolated                       
                               LIBOR + .81%, 6.66%, due 7/02/12                      8,990,080    
                                                                                 --------------   

2                      See accompanying notes to the financial statements.      


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

           Par Value        Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                            Mexico -- 9.6%                                                        
USD         14,000,000      Mexico Discount Bond Series A,                                        
                               Variable Rate, 6 mo. LIBOR + .81%, 6.69%, due                      
                               12/31/19                                             13,098,750    
USD          5,000,000      Mexico Discount Bond Series B,                                        
                               Variable Rate, 6 mo. LIBOR + .81%, 6.62%, due                      
                               12/31/19                                              4,678,125    
FRF        335,250,000      Mexico Par Bond, 6.63%, due 12/31/19                    47,967,182    
CHF         10,000,000      Mexico Par Bond, 3.75%, due 12/31/19                     5,269,147    
USD          2,000,000      Mexico Par Bond, Series A, 6.25%, due 12/31/19           1,687,500    
USD          1,500,000      Mexico Par Bond, Series B, 6.25%, due 12/31/19           1,265,625    
                                                                                 --------------   
                                                                                    73,966,329    
                                                                                 --------------   

                            Nigeria -- 2.2%                                                       
USD         23,500,000      Central Bank of Nigeria Par Bond,                                     
                               Variable Rate, Step up, 6.25%, due 11/15/20          16,920,000    
                                                                                 --------------   

                            Panama -- 0.8%                                                        
USD          7,828,000      Panama Interest Reduction Bond,                                       
                               Variable Rate, Step up, 3.75%, due 7/17/14            6,115,625    
                                                                                 --------------   

                            Peru -- 0.5%                                                          
USD            975,000      Peru FLIRB,                                                           
                               Variable Rate, Step Up, 3.25%, due 3/07/17              591,094    
USD          5,000,000      Peru FLIRB,                                                           
                               Variable Rate, Step Up 144A, 3.25%, due 3/07/17       3,031,250    
                                                                                 --------------   
                                                                                     3,622,344    
                                                                                 --------------   

                            Supra National -- 1.1%                                                
ZAR        250,000,000      International Bank Recon and Development, 0.00%,                      
                               due 5/14/12                                           8,722,048    
                                                                                 --------------   

                            United States -- 1.8%                                                 

                            Asset Backed Securities -- 0.6%                                       
USD          5,000,000      Americredit Automobile Receivables Trust 97 Class                     
                               A2, Variable Rate, 1 mo. LIBOR + .10%, 5.73%,                      
                               due 3/05/01                                           4,998,500    
                                                                                 --------------   

                            U.S. Government -- 1.2%                                               
USD          9,065,160      U.S. Treasury Inflation Indexed Note, 3.63%, due                      
                               7/15/02/(b)/                                          9,016,997    
                                                                                 --------------   

                            Total United States                                     14,015,497    
                                                                                 --------------   

                       See accompanying notes to the financial statements.     3


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

           Par Value        Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                            Venezuela -- 6.4%                                                     
USD         21,025,000      Republic of Venezuela, 9.25%, due 9/15/27               18,848,913    
USD          2,062,857      Republic of Venezuela DCB Odd Lot,                                    
                               Variable Rate, 6 mo. LIBOR + .88%, 6.81%, due                      
                               12/18/07                                              1,841,100    
USD         16,040,953      Republic of Venezuela DCB,                                            
                               Variable Rate, 6 mo. LIBOR + .88%, 6.81%, due                      
                               12/18/08                                             13,915,525    
USD            360,000      Republic of Venezuela FLIRB Series B Odd Lot,                         
                               Variable Rate, 6 mo. LIBOR + .88%, 6.75%, due                      
                               3/31/07                                                 318,825    
USD         15,320,325      Republic of Venezuela New Money Bond Series A,                        
                               Variable Rate, 6 Mo. LIBOR + 1%, 6.94%, due                        
                               12/18/05                                             13,520,187    
USD            985,412      Republic of Venezuela New Money Bond Series B Odd                     
                               Lot, Variable Rate, 6 mo. LIBOR + .88%, 6.81%,                     
                               due 12/18/05                                            869,626    
                                                                                 --------------   
                                                                                    49,314,176    
                                                                                 --------------   

                            TOTAL DEBT OBLIGATIONS                                                
                             (COST  $428,382,939)                                  481,952,746    
                                                                                 --------------   

                            LOAN ASSIGNMENTS -- 25.2%                                             

                            Algeria -- 1.6%                                                       
JPY        376,793,704      Algeria Tranche 1, JPY LIBOR + .8125% (1.4375%)          1,819,395    
USD          3,818,182      Algeria Tranche 1, LIBOR + .8125% (6.6875%)              2,806,364    
JPY        500,000,000      Algeria Tranche 3 Loan, JPY 6 mo. LIBOR + .8125%                      
                               (1.53125%)                                            2,562,733    
USD            495,867      Algeria Tranche 3, LIBOR + .8125% (6.6875%)                345,867    
USD          3,181,818      Algeria Tranche A Loan,                                               
                               Variable Rate, 6 mo. LIBOR + 1.5% (7.375%)            2,982,955    
JPY        313,994,754      Algeria Tranche A, JPY LIBOR + 1.5% (2.125%)             2,187,251    
                                                                                 --------------   
                                                                                    12,704,565    
                                                                                 --------------   

                            Congo Republic -- 1.0%                                                
FRF        102,097,963      Republic of Congo Loan Agreement*                        4,359,363    
ECU          8,195,761      Republic of Congo Loan Agreement*                        2,320,122    
USD          4,179,127      Republic of Congo Loan Agreement*                        1,086,573    
                                                                                 --------------   
                                                                                     7,766,058    
                                                                                 --------------   

                            Ivory Coast -- 3.4%                                                   
USD          3,656,573      Ivory Coast Credit Agreement*                            1,417,110    
DEM            361,735      Ivory Coast Credit Agreement*                               73,750    
SDR          2,974,383      Ivory Coast Credit Agreement*                            1,480,202    
FRF        299,447,436      Ivory Coast Credit Agreement*                           21,883,321    
JPY        428,291,342      Ivory Coast Refinancing Agreement*                       1,254,396    

4                     See accompanying notes to the financial statements.       


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


           Par Value        Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                            Ivory Coast -- continued                                              
BEF         18,333,554      Ivory Coast Refinancing Agreement*                         181,084    
                                                                                 -------------    
                                                                                    26,289,863    
                                                                                 -------------    
                            Russia -- 19.0%                                                       

ECU          5,000,000      International Bank for Economic Cooperation Loan                      
                               Agreement*                                            2,912,540    
CHF          1,500,000      International Bank for Economic Cooperation Loan                      
                               Agreement*                                              546,811    
JPY        900,000,000      International Investment Bank Loan Agreement*            3,526,478    
USD         24,000,000      International Investment Bank Loan Agreement*           13,560,000    
DEM         10,000,000      International Investment Bank Loan Agreement*            3,113,291    
USD        199,488,310      Russia Vnesh Restructured Loan Agreements, LIBOR                      
                               + .8125% (3.2486%)                                  120,191,708    
DEM          5,208,190      Russia Vnesheconombank Foreign Trade Obligation*         2,295,874    
                                                                                 -------------    
                                                                                   146,146,702    
                                                                                 -------------    
                            Yugoslavia -- 0.2%                                                    
USD          1,400,368      Yugoslavia New Financing Agreement Tranche A*              630,166    
USD          1,852,004      Yugoslavia New Financing Agreement Tranche C*              833,396    
                                                                                 -------------    
                                                                                     1,463,562    
                                                                                 -------------    
                            TOTAL LOAN ASSIGNMENTS                                                
                            (COST $171,681,905)                                    194,370,750    
                                                                                 -------------    
                            LOAN PARTICIPATIONS -- 5.8%                                           

                            Algeria -- 1.6%                                                       
JPY        118,636,364      Algeria Tranche 1, JPY LIBOR + .8125% (1.4375%)                       
                               (Participation with Bank of America)                    572,850    
USD          2,000,000      Algeria Tranche 2, LIBOR + .8125% (7.00%)                             
                               (Participation with Salomon)                          1,617,500    
FRF         50,564,324      Algeria Tranche 3, FRF LIBOR + .8125% (4.3125%)                       
                               (Participation with Salomon)                          5,418,229    
FRF         40,000,000      Algeria Tranche 3, FRF LIBOR + .8125% (4.3125%)                       
                               (Participation with Salomon)                          4,286,207    
JPY         98,863,636      Algeria Tranche A, JPY LIBOR + 1.5% (2.125%)                          
                               (Participation with Bank of America)                    688,673    
                                                                                 -------------    
                                                                                    12,583,459    
                                                                                 -------------    

              See accompanying notes to the financial statements.              5


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


           Par Value        Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                            Cameroon -- 0.5%                                                      
NLG         28,052,902      Cameroon Loan Agreement (Participation with Bank                      
                               of America and Salomon)*                              3,837,419    
                                                                                 -------------    
                            Jamaica -- 0.7%                                                       
USD          5,812,500      Jamaica Refinancing Agreement Tranche B, LIBOR +                      
                               .81% (6.44%) (Participation with Chase                             
                               Manhattan Bank and Salomon)                           5,056,875    
                                                                                 -------------    

                            Morocco -- 2.7%                                                       
JPY        384,300,844      Morocco Restructuring and Consolidating Agreement                     
                               Tranche A, Japanese Long Term Fixed Prime +                        
                               .2175% (3.0175%) (Participation with J.P.             2,395,606    
                               Morgan)                                                            
JPY      2,971,603,837      Morocco Restructuring and Consolidating Agreement                     
                               Tranche A, Japanese Long Term Floating Prime +                     
                               .1175% (2.6175%) (Participation with Bankers                       
                               Trust Co. and J.P. Morgan)                           18,524,009    
                                                                                 -------------    
                                                                                    20,919,615    
                                                                                 -------------    
                            Russia -- 0.2%                                                        
USD          2,000,000      International Investment Bank Loan Agreement*            1,130,000    
                                                                                 -------------    
                            Yugoslavia -- 0.1%                                                    
USD          2,100,336      Yugoslavia New Financing Agreement Tranche B                          
                               (Participation with Chase Manhattan Bank)*              945,151    
                                                                                 -------------    
                            TOTAL LOAN PARTICIPATIONS                                             
                            (COST $40,802,330)                                      44,472,519    
                                                                                 -------------    
                            PROMISSORY NOTES -- 1.5%                                              

                            Nigeria -- 0.2%                                                       
USD          3,000,000      Nigeria Promissory Notes, 5.09%, due 1/05/10             1,560,000    
                                                                                 -------------    
                            Russia -- 1.3%                                                        
USD         17,500,000      Russia Vnesheconombank Foreign Trade Obligation                       
                               Promissory Notes, 0.00%, due 6/30/99/(a)/            10,062,500    
                                                                                 -------------    
                            TOTAL PROMISSORY NOTES                                                
                            (COST $10,862,889)                                      11,622,500    
                                                                                 -------------    

6             See accompanying notes to the financial statements.               


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

       Principal Amount     Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                            CALL OPTIONS PURCHASED -- 0.0%                                        

                            Options on Futures -- 0.0%                                            
USD            500,000      Eurodollar, Expires 3/16/98, Strike 94.25                   40,000    
                                                                                 --------------   

                            TOTAL CALL OPTIONS PURCHASED                                          
                             (COST  $31,300)                                            40,000    
                                                                                 --------------   

                            PUT OPTIONS PURCHASED -- 0.0%                                         

                            Cross Currency Options -- 0.0%                                        
USD          3,917,376      TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires                      
                            5/12/98, Strike 545,000                                     20,217    
USD          4,694,227      TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires                      
                            5/26/98, Strike 565,000                                     16,000    
                                                                                 --------------   
                                                                                        36,217    
                                                                                 --------------   

                            Options on Commodities -- 0.0%                                        
USD            200,000      NYMEX Crude Oil, Expires 6/05/98, Strike 16.2              170,000    
                                                                                 --------------   

                            Options on Futures -- 0.0%                                            
USD            500,000      Eurodollar, Expires 3/16/98, Strike 94                       2,500    
                                                                                 --------------   

                            TOTAL PUT OPTIONS PURCHASED                                           
                             (COST  $216,552)                                          208,717    
                                                                                 --------------   

            Shares                                                                                
-----------------------------                                                                     
                                                                                                  
                            RIGHTS AND WARRANTS -- 0.0%                                           

                            Mexico -- 0.0%                                                        
            75,017,000      United Mexican States Warrants, Expires                         --    
                            6/30/03**                                                             
                                                                                 --------------   

                            Nigeria -- 0.0%                                                       
                14,000      Central Bank of Nigeria Payment Adjusted                              
                            Warrants, Expires 11/15/20 **                                   --    
                                                                                 --------------   

                            Venezuela -- 0.0%                                                     
                72,125      Republic of Venezuela Recovery Warrants,                              
                            Expires 04/15/20 **                                             --    
                                                                                 --------------   

                            TOTAL RIGHTS AND WARRANTS  (COST  $0)                           --    
                                                                                 --------------   

                       See accompanying notes to the financial statements.     7


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

       Par Value/Shares     Description                                            Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                            SHORT-TERM INVESTMENTS -- 3.5%                                        

                            Cash Equivalents -- 0.1%                                              
USD            748,633      BankBoston Eurodollar Time Deposit, 5.7875% due                       
                            3/2/98/(c)/                                                748,633    
USD             51,860      First Union National Bank of North Carolina                           
                            Eurodollar Time Deposit, 5.6250% due 3/2/98/(c)/            51,860    
               293,007      Merrimac Cash Fund Premium Class/(c)/                      293,007    
                                                                                 --------------   
                                                                                     1,093,500    
                                                                                 --------------   

                            Commercial Paper -- 3.4%                                              
USD         26,000,000      GE Capital Corp, 5.68%, due 3/2/98                      26,000,000    
                                                                                 --------------   

                            TOTAL SHORT-TERM INVESTMENTS                                          
                             (COST  $27,093,500)                                    27,093,500    
                                                                                 --------------   

                            TOTAL INVESTMENTS -- 98.5%                                            
                            (Cost $679,071,415)                                    759,760,732    

                            Other Assets and Liabilities (net)-- 1.5%               11,205,735    
                                                                                 --------------   

                            TOTAL NET ASSETS -- 100%                             $ 770,966,467    
                                                                                 ==============   

                            Notes to the Schedule of Investments:                                 

                            DCB - Debt Conversion Bond                                            

                            FLIRB - Front Loaded Interest Reduction Bond                          

                            PIK - Payment In Kind                                                 

                            PDI - Past Due Interest                                               

                            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 buyers.                                              

                            Variable and Step up rates - The rates shown on                       
                               variable and step up rate notes are the current                    
                               interest rates at February 28, 1998, which are                     
                               subject to change based on the terms of the                        
                               security, including varying reset dates.                           

8                      See accompanying notes to the financial statements.      


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

   Notes to the Schedule of Investments -- continued

Currency Abbreviations:                       

                                                                [Download Table]
                                                                   
ARP - Argentinian Peso                 JPY - Japanese Yen          
BEF - Belgian Franc                    MYR - Malaysian Ringgit     
BRL - Brazilian Real                   NLG - Netherlands Guilder   
CHF - Swiss Franc                      SDR - Special Drawing Rights
DEM - German Mark                      THB - Thailand Baht         
ECU - European Currency Unit           TRL - Turkish Lira          
FRF - French Franc                     TWD - New Taiwan Dollar     
GBP - British Pound                    USD - United States Dollar  
IDR - Indonesian Rupiah                ZAR - South African Rand    

/(a)/ When-issued security.                     
               /(b)/ Security has been segregated to cover margin requirements
on open financial futures contracts.
           /(c)/ Represents investments of security lending collateral
(Note 1).                           
              *    Non-performing. Borrower not currently paying interest.
**   Non-income producing security.           

              See accompanying notes to the financial statements.              9


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                          
Assets:                                                                                   
   Investments, at value (cost $679,071,415) (Note 1)                         $759,760,732
   Interest receivable                                                          10,417,130
   Receivable for Fund shares sold                                              10,015,682
   Receivable for open swap contracts (Notes 1 and 6)                            8,217,026
   Cash (Note 1)                                                                 4,716,261
   Receivable for open forward foreign currency contracts (Notes 1 and 6)        3,794,391
   Receivable for expenses waived or borne by Manager (Note 2)                     129,385
   Receivable for variation margin on open futures contracts (Notes 1 and 6)         1,338
   Miscellaneous receivable                                                         44,870
                                                                              ------------

       Total assets                                                            797,096,815
                                                                              ------------
Liabilities:                                                                              
   Payable for investments purchased                                            19,107,269
   Payable upon return of securities loaned (Note 1)                             1,093,500
   Payable for open forward foreign currency contracts (Notes 1 and 6)           4,171,698
   Payable for Fund shares repurchased                                           1,173,565
   Payable to affiliate for (Note 2):                                                     
      Management fee                                                               284,448
      Shareholder service fee                                                       71,856
   Accrued expenses                                                                184,205
   Miscellaneous payable                                                            43,807
                                                                              ------------

       Total liabilities                                                        26,130,348
                                                                              ------------

Net assets                                                                    $770,966,467
                                                                              ============
Net assets consist of:                                                                    
   Paid-in capital                                                            $594,642,821
   Accumulated undistributed net investment income                              45,421,506
   Accumulated undistributed net realized gain                                  42,383,504
   Net unrealized appreciation                                                  88,518,636
                                                                              ------------
                                                                              $770,966,467
                                                                              ============
Net assets attributable to:                                                               
   Class III shares                                                           $460,386,606
                                                                              ============
   Class IV shares                                                            $310,579,861
                                                                              ============
Shares outstanding:                                                                       
   Class III                                                                    39,550,731
                                                                              ============
   Class IV                                                                     26,699,294
                                                                              ============
Net asset value per share:                                                                
   Class III                                                                  $      11.64
                                                                              ============
   Class IV                                                                   $      11.63
                                                                              ============

10            See accompanying notes to the financial statements.               


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                      
Investment Income:                                                                    
   Interest (including securities lending income of $26,470)             $ 51,257,391 
                                                                         -------------

       Total income                                                        51,257,391 
                                                                         -------------

Expenses:                                                                             
   Management fee (Note 2)                                                  2,823,080 
   Custodian fees                                                             186,100 
   Legal fees                                                                 123,001 
   Audit fees                                                                  70,509 
   Transfer agent and dividend disbursing agent fees                           40,123 
   Trustees fees (Note 2)                                                       4,567 
   Registration fees                                                            2,500 
   Miscellaneous                                                                7,772 
   Fees waived or borne by Manager (Note 2)                                (1,087,585)
                                                                         -------------
                                                                            2,170,067 
   Shareholder service fee (Note 2)                                                   
       Class I                                                                 15,103 
       Class II                                                                 4,453 
       Class III                                                              783,908 
       Class IV                                                                32,884 
                                                                         -------------
       Net expenses                                                         3,006,415 
                                                                         -------------

          Net investment income                                            48,250,976 
                                                                         -------------

Realized and unrealized gain (loss):                                                  
   Net realized gain (loss) on:                                                       
       Investments                                                         98,329,104 
       Closed futures contracts                                              (649,931)
       Closed swap contracts                                               18,246,291 
       Written options                                                      3,395,950 
       Foreign currency, forward contracts and foreign currency related               
         transactions                                                      23,534,700 
                                                                         -------------

          Net realized gain                                               142,856,114 
                                                                         -------------

   Change in net unrealized appreciation (depreciation) on:                           
       Investments                                                        (70,105,796)
       Open futures contracts                                                (806,571)
       Open swap contracts                                                  6,708,967 
       Foreign currency, forward contracts and foreign currency related               
       transactions                                                        (9,145,083)
                                                                         -------------

          Net unrealized loss                                             (73,348,483)
                                                                         -------------

       Net realized and unrealized gain                                    69,507,631 
                                                                         -------------

Net increase in net assets resulting from operations                     $117,758,607 
                                                                         =============

              See accompanying notes to the financial statements.             11


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                              Year Ended        Year Ended    
                                                          February 28, 1998  February 28, 1997
                                                          -----------------  -----------------
                                                                                              
Increase (decrease) in net assets:                                                            
Operations:                                                                                   
   Net investment income                                    $  48,250,976     $  53,277,149   
   Net realized gain                                          142,856,114       223,812,662   
   Change in net unrealized appreciation (depreciation)       (73,348,483)       74,007,909   
                                                            --------------    --------------  

   Net increase in net assets resulting from operations       117,758,607       351,097,720   
                                                            --------------    --------------  

Distributions to shareholders from:                                                           
   Net investment income                                                                      
       Class I                                                   (615,704)               --   
       Class II                                                  (162,060)               --   
       Class III                                              (37,765,550)      (60,410,173)  
                                                            --------------    --------------  
       Total distributions from net investment income         (38,543,314)      (60,410,173)  
                                                            --------------    --------------  
   Net realized gains                                                                         
       Class I                                                 (2,479,219)               --   
       Class II                                                  (728,281)               --   
       Class III                                             (156,588,472)     (149,956,551)  
                                                            --------------    --------------  
       Total distributions from net realized gains           (159,795,972)     (149,956,551)  
                                                            --------------    --------------  

                                                             (198,339,286)     (210,366,724)  
                                                            --------------    --------------  
   Net share transactions: (Note 5)                                                           
       Class I                                                  2,299,312            34,101   
       Class II                                                   494,022                --   
       Class III                                               (3,460,212)     (200,761,783)  
       Class IV                                               296,725,667                --   
                                                            --------------    --------------  
   Increase (decrease) in net assets resulting from net                                       
      share transactions                                      296,058,789      (200,727,682)  
                                                            --------------    --------------  

      Total increase (decrease) in net assets                 215,478,110       (59,996,686)  

Net assets:                                                                                   
   Beginning of period                                        555,488,357       615,485,043   
                                                            --------------    --------------  

   End of period (including accumulated undistributed net                                     
      investment income of $45,421,506 and $21,594,553,                                       
      respectively)                                         $ 770,966,467     $ 555,488,357   
                                                            ==============    ==============  

12            See accompanying notes to the financial statements.               


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                     Period from      Period from December 31, 1996
                                                    March 1, 1997      (commencement of operations)
                                                 to January 9, 1998        to February 28, 1997    
                                                 ------------------   -----------------------------
                                                                                                   
Net asset value, beginning of period                     $14.08                  $12.87            
                                                         ------                  ------            

Income from investment operations:                                                                 
   Net investment income                                   1.05+                   0.10            
   Net realized and unrealized gain                        0.94                    1.11            
                                                         ------                  ------            

      Total from investment operations                     1.99                    1.21            
                                                         ------                  ------            

Less distributions to shareholders:                                                                
   From net investment income                             (0.84)                     --            
   From net realized gains                                (4.25)                     --            
                                                         ------                  ------            

      Total distributions                                 (5.09)                     --            
                                                         ------                  ------            
Net asset value, end of period                           $10.98/(a)/             $14.08            
                                                         ======                  ======            

Total Return /(b)/                                        15.42%                   9.40%           

Ratios/Supplemental Data:                                                                          
   Net assets, end of period (000's)                         --                  $   36            
   Net expenses to average daily net assets                0.66%*                  0.71%*          
   Net investment income to average daily net                                                      
      assets                                               9.27%*                  6.06%*          
   Portfolio turnover rate                                  255%                    152%           
   Fees and expenses voluntarily waived or borne                                                   
      by the Manager consisted of the following          $ 0.02                      --/(c)/       
      per share amounts:                                                                           

*     Annualized.                                                               
+     Computed using average shares outstanding throughout the period.          
/(a)/ All Class I shares of the Fund were exchanged for Class III shares on     
  January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                    
/(b)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  
/(c)/ Fees and expenses waived or borne by the Manager were less than $0.01 per 
share.                                                              

  See accompanying notes to the financial statements.           13


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class II share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                             Period from March 21, 1997 
                                                            (commencement of operations)
                                                                to January 9, 1998      
                                                            --------------------------  
                                                                                        
 Net asset value, beginning of period                                 $ 13.74           
                                                                     --------           

Income from investment operations:                                                      
   Net investment income                                                 0.92+          
   Net realized and unrealized gain                                      1.42           
                                                                     --------           

      Total from investment operations                                   2.34           
                                                                     --------           

Less distributions to shareholders:                                                     
   From net investment income                                           (0.84)          
   From net realized gains                                              (4.25)          
                                                                     --------           

      Total distributions                                               (5.09)          
                                                                     --------           
Net asset value, end of period                                       $  10.99/(a)/      
                                                                     ========           

Total Return /(b)/                                                      18.34%          

Ratios/Supplemental Data:                                                               
   Net assets, end of period (000's)                                       --           
   Net expenses to average daily net assets                              0.60%*         
   Net investment income to average daily net assets                     8.61%*         
   Portfolio turnover rate                                                255%          
   Fees and expenses voluntarily waived or borne by the                                 
      Manager consisted of the following per share amount:           $   0.02           

*     Annualized.                                                               
+     Computed using average shares outstanding throughout the period.          
/(a)/ All Class II shares of the fund were exchanged for Class III shares on    
  January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                    
/(b)/ Calculation excludes purchase premiums and redemption fees. The total     
    return would have been lower had certain expenses not been waived during
the period shown.                                                   

14                See accompanying notes to the financial statements.         


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                        Year Ended February 28/29,           
                                               -------------------------------------------   
                                                 1998         1997       1996      1995*     
                                               --------     --------   --------   --------   
                                                                                             
Net asset value, beginning of period           $  14.09     $  11.76   $   8.39   $  10.00   
                                               --------     --------   --------   --------   

Income from investment operations:                                                           
   Net investment income                           1.13+        1.48       1.35       0.48   
   Net realized and unrealized gain (loss)         1.51         6.40       3.84      (1.59)  
                                               --------     --------   --------   --------   

      Total from investment operations             2.64         7.88       5.19      (1.11)  
                                               --------     --------   --------   --------   

Less distributions to shareholders:                                                          
   From net investment income                     (0.84)       (1.58)     (1.17)     (0.40)  
   From net realized gains                        (4.25)       (3.97)     (0.65)        --   
   In excess of net realized gains                   --           --         --      (0.10)  
                                               --------     --------   --------   --------   

      Total distributions                         (5.09)       (5.55)     (1.82)     (0.50)  
                                               --------     --------   --------   --------   
Net asset value, end of period                 $  11.64     $  14.09   $  11.76   $   8.39   
                                               ========     ========   ========   ========   

Total Return /(a)/                                22.27%       74.32%     63.78%    (11.65)% 

Ratios/Supplemental Data:                                                                    
   Net assets, end of period (000's)           $460,387     $555,452   $615,485   $243,451   
   Net expenses to average daily net assets        0.53%        0.57%      0.50%      0.50%**
   Net investment income to average daily net                                                
      assets                                       8.62%        8.35%     12.97%     10.57%**
   Portfolio turnover rate                          255%         152%       158%       104%  
   Fees and expenses voluntarily waived or                                                   
      borne by the Manager consisted of the                                                  
      following per share amounts:             $   0.03     $   0.03   $   0.02   $   0.01   

*     For the period from April 19, 1994 (commencement of operations) to        
February 28, 1995.                                                  
**    Annualized.                                                               
+     Computed using average shares outstanding throughout the period.          
/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  

                      See accompanying notes to the financial statements.   15


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class IV share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                       Period from January 9, 1998
                                                      (commencement of operations)
                                                          to February 28, 1998    
                                                      ----------------------------
                                                                                  
Net asset value, beginning of period                          $  10.99            
                                                              ---------           

Income from investment operations:                                                
   Net investment income                                          0.10+           
   Net realized and unrealized gain                               0.54            
                                                              ---------           

      Total from investment operations                            0.64            
                                                              ---------           
Net asset value, end of period                                $  11.63            
                                                              =========           

Total Return /(a)/                                                5.82%           

Ratios/Supplemental Data:                                                         
   Net assets, end of period (000's)                          $310,580            
   Net expenses to average daily net assets                       0.50%*          
   Net investment income to average daily net assets              7.17%*          
   Portfolio turnover rate                                         255%           

*     Annualized.                                                               
+     Computed using average shares outstanding throughout the period.          
/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  

16              See accompanying notes to the financial statements.             


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

   GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust (the
    "Trust"). The Fund is registered under the Investment Company Act of 1940,
    as amended, as an open-end, non-diversified management investment company.
   The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
    Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an  
unlimited number of series ("Funds"), each of which issues a separate 
series of shares, and to subdivide a series into classes.             

   The Fund seeks high total return by investing primarily in sovereign debt
of countries in Asia, Latin America, the Middle East, Southern Europe,
Eastern Europe and Africa.                                            

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
as those shares.                                                      

  Effective January 9, 1998, Class I and Class II shares ceased operations
    and all shares were exchanged for Class III shares. Additionally, Class IV
shares commenced operations on January 9, 1998.                       

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

    Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
    is informed of erratic or unusual movements (including unusual inactivity)
in the prices supplied for a                                          

                                                                              17


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

   security and has the power to override any price supplied by a source (by
  taking a price supplied by another source) because the Manager has other
reasons to suspect that a price supplied may not be reliable.         

   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 investments in securities held by the Fund were valued on the basis
  of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the 
   securities existed and the differences could be material to the financial
statements.                                                           

Foreign currency translation                                          
The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     
   The Fund may use futures contracts to manage its exposure to the bond and
   currency 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 obligations in accordance with the  
  initial margin requirements of the broker or exchange. 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. Gains or
losses are recognized but not considered realized until the contracts 
   expire or are closed. Futures contracts involve, to varying degrees, risk
 of loss in excess of the variation margin disclosed in the Statement of
   Assets and Liabilities. Losses may arise from changes in the value of the
 underlying instrument, if there is an illiquid secondary market for the
  contracts, or if counterparties do not perform under the contract terms.
   Futures contracts are valued at the settlement price established each day
    by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of February 28, 1998.                   

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Forward currency contracts                                            
The Fund may enter into forward 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 the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the  
    currencies the Fund has committed to buy or sell is shown under Note 6 and
  represents the currency exposure the Fund has acquired or hedged through
currency contracts as of February 28, 1998.                           

Options                                                               
The Fund may write call and put options on futures, securities or     
   currencies it owns or in which it may invest. 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 offset against the proceeds or amounts paid on the
     transaction to determine the realized gain or loss. The Fund as a writer of
     an option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an 
unfavorable change in the price of the security underlying the written
    option. There is the risk the Fund may not be able to enter into a closing
     transaction because of an illiquid market. At February 28, 1998, there were
no open written option contracts.                                     

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

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                    

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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. Direct indebtedness of
emerging countries involves a risk that the governmental entities     
     responsible for the repayment of the debt may be unable or unwilling to pay
the principal and interest when due.                                  

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 invest in swap agreements. 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 swap agreements to manage its exposure
  to interest rates. The Fund entered into interest rate, total return and
   credit default swap agreements. 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 based on a notional amount. 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. Credit
     default swaps involve the payment of a specified rate based on the notional
    amount. The Fund receives payment upon default of the underlying security.
     In connection with these agreements, cash may be set aside as collateral by
     the Fund's custodian in accordance with the terms of the swap agreement. At
    February 28, 1998, $4,460,100 in cash has been set aside. Swaps are marked
     to market daily based upon quotations from market makers and the change, if
     any, is recorded as unrealized gain or loss in the Statement of Operations.
     Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and 
    market risk in excess of the amounts recognized on the Statement of Assets
     and Liabilities. Such risks involve the possibility that there is no liquid
  market for these agreements, that the counterparty to the agreements may
default on its obligation to perform and that there may be unfavorable
   changes in the fluctuation of interest rates. See Note 6 for a summary of
open swap agreements as of February 28, 1998.                         

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain member firms of the New York
Stock Exchange. 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 delay in recovery or even loss of rights in the collateral
   should the borrower of the securities fail financially. The Fund receives
 compensation for lending its securities. At February 28, 1998, the Fund
 loaned securities having a market value of $1,031,500 collateralized by
cash in the amount of $1,093,500, which was invested in short-term    
instruments.                                                          

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency and swap transactions.      

   The following reclassification represents the cumulative amount necessary
 to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1998. This          
     reclassification has no impact on net investment income, realized gain/loss
  and net asset value of the Fund and is primarily attributable to certain
  differences in the computation of distributable income and capital gains
  under federal tax rules versus generally accepted accounting principles.
The                                                                   

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

    calculation of net investment income per share in the financial highlights
table excludes these adjustments.                                     

                                                                [Download Table]

    Accumulated              Accumulated                                
 Undistributed Net        Undistributed Net                             
 Investment Income          Realized Gain            Paid-in Capital    
---------------------  -------------------------   ---------------------
                                                                        
    $14,119,291             ($14,119,291)                  --           


Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

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 accretion of   
discounts. Income is not recognized and discounts are not amortized on
 securities for which collection is not expected. In determining the net
  gain or loss on securities sold, the cost of securities is determined on
   the identified cost basis. Interest income on the 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
these securities adjusted for inflation is recorded as income.        

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 in such manner as deemed equitable by the Trustees,
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. These fees may be reduced by 50% with respect to any portion of a
purchase or redemption that is offset by a corresponding redemption or
  purchase, respectively, occurring on the same day. 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. Purchase premiums are included as part of each
class' "shares sold" and redemption fees are included as part of each 
     class' "shares repurchased", respectively, as summarized in Note 5. For the
year ended February 28, 1998, the Fund received $1,503,863 in purchase
premiums and $306,964 in redemption fees. There is no premium for     
reinvested distributions or in-kind transactions.                     

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Investment risk                                                       
 Investments in emerging country debt present certain risks that are not
     inherent in many other securities. Many emerging countries present elements
  of political and/or economic instability, which may result in the fund's
    inability to collect on a timely basis, or in full, principal and interest
   payments. Further, countries may impose various types of foreign currency
   regulations or controls which may impede the fund's ability to repatriate
   amounts it receives. The fund may acquire interests in securities or bank
  loans which are in default at the time of acquisition in anticipation of
    improving conditions in the related countries. These factors may result in
significant volatility in the values of its holdings. The markets for 
  emerging country debt are relatively illiquid. Accordingly, the fund may
   not be able to realize in an actual sale amounts approximating those used
to value its holdings.                                                

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .50% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares, .15%
for Class III shares and .10% for Class IV shares.                    

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
   management fee but excluding custody fees, brokerage commissions, certain
 other transaction costs (including transfer taxes), shareholder service
   fees and extraordinary expenses) exceed .35% of average daily net assets.
Prior to June 1, 1996, a similar waiver existed for annual expenses   
  exceeding .50%; thus the net annual expense ratio after the waiver for a
Class III shareholder is unchanged.                                   

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $4,567. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

3.   Purchases and sales of securities                                          

   For the year ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                                        [Enlarge/Download Table]


                                                      Purchases              Proceeds      
                                                 -------------------    -------------------
                                                                                           
U.S. Government securities                    $        9,019,334     $         --          
Investments (non-U.S. Government securities)       1,560,237,208          1,347,685,526    

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                        [Enlarge/Download Table]

                          Gross Unrealized       Gross Unrealized         Net Unrealized    
   Aggregate Cost           Appreciation           Depreciation            Appreciation     
----------------------  ---------------------- ----------------------  ---------------------
                                                                                            
    $ 680,250,987           $ 84,889,882            $ 5,380,137            $ 79,509,745     

4.   Principal shareholders                                                     

     At February 28, 1998, 25.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's      
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:                           

                                                        [Enlarge/Download Table]


                                        Period from            Period from December 31, 1996  
                                      March 1, 1997 to        (commencement of operations) to 
                                      January 9, 1998                February 28, 1997        
                               ------------------------------ --------------------------------
Class I:                           Shares          Amount          Shares          Amount     
                               --------------- -------------- --------------- ----------------
                                                                                              
Shares sold                          665,873  $   9,485,099           2,566  $       34,101   
Shares issued to shareholders                                                                 
    in reinvestment of                                                                        
    distributions                    224,120      2,611,210              --              --   
Shares repurchased                  (892,559)    (9,796,997)             --              --   
                               --------------- -------------- ---------------  ---------------
Net increase (decrease)               (2,566) $   2,299,312           2,566  $       34,101   
                               =============== ============== ===============  ===============

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Share transactions -- continued                                       
                      Period from March 21, 1997
                      (commencement of operations)
                      to January 9, 1998
                      ------------------------------
Class II:                           Shares         Amount             
                      --------------- --------------
Shares sold                          159,652  $   2,197,620           
Shares issued to shareholders                                         
in reinvestment of                                            
distributions                     76,497        890,341       
Shares repurchased                  (236,149)    (2,593,939)          
                      --------------- --------------
Net increase                              --  $     494,022           
                      =============== ==============

                                                        [Enlarge/Download Table]

                                        Year Ended                      Year Ended           
                                     February 28, 1998               February 28, 1997       
                               ------------------------------  ------------------------------
Class III:                          Shares         Amount           Shares         Amount    
                               --------------- --------------  --------------- --------------
                                                                                             
Shares sold                       20,511,879  $ 265,135,023      11,310,056   $ 162,038,721  
Shares issued to shareholders                                                                
    in reinvestment of                                                                       
    distributions                 15,802,080    183,720,164      14,440,766     185,738,098  
Shares repurchased               (36,173,053)  (452,315,399)    (38,680,281)   (548,538,602) 
                               --------------- --------------  --------------- --------------
Net increase (decrease)              140,906  $  (3,460,212)    (12,929,459)  $(200,761,783) 
                               =============== ==============  =============== ==============



                                Period from January 9, 1998                                  
                                (commencement of operations)                                 
                                    to February 28, 1998                                     
                               -----------------------------                                 
Class IV:                           Shares        Amount                                     
                               --------------- -------------                                 
                                                                                             
Shares sold                       26,699,294  $ 296,725,667                                  
Shares issued to shareholders                                                                
    in reinvestment of                    --             --                                  
    distributions                                                                            
Shares repurchased                        --             --                                  
                               --------------- -------------                                 
Net increase                      26,699,294  $ 296,725,667                                  
                               =============== =============                                 

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]


                                                                        Net Unrealized  
 Settlement                                                              Appreciation   
    Date       Deliver/Receive   Units of Currency        Value         (Depreciation)  
------------  ----------------- -------------------- ---------------- ------------------
                                                                                        
   Buys                                                                                 
 12/14/98            IDR             25,000,000,000 $      2,460,361 $      (2,539,639) 
                                                                      ==================
   Sales                                                                                
  8/11/98            ARP                  7,000,000        6,911,476            22,650  
  3/16/98            BRL                  5,882,500        5,174,219          (174,219) 
  3/26/98            CHF                  9,000,000        6,155,109            (6,612) 
  4/09/98            DEM                 40,000,000       22,096,249           (42,128) 
  4/16/98            FRF                370,000,000       60,938,753           303,403  
  4/17/98            GBP                    600,000          985,351             2,771  
  4/03/98            JPY              3,675,000,000       29,240,076          (344,023) 
  3/20/98            MYR                 10,765,000        2,925,769          (425,769) 
  4/17/98            MYR                 18,702,500        5,072,403            (8,092) 
 12/14/98            MYR                 18,950,000        5,004,034            (4,034) 
  4/27/98            SGD                  8,728,000        5,379,530          (379,530) 
  3/23/98            THB                200,000,000        4,615,953         2,316,456  
  6/22/98            THB                100,000,000        2,258,044         1,149,111  
  6/15/98            TWD                168,000,000        5,231,363          (231,363) 
  5/18/98            ZAR                 37,395,000        7,427,109           (16,289) 
                                                                      ------------------
                                                                             2,162,332  
                                                                      ==================

Short futures contracts                                               

                                                        [Enlarge/Download Table]


  Number                                                                                  
   of                                                          Contract     Net Unrealized
Contracts               Type               Expiration Date       Value       Appreciation 
---------  ------------------------------- ---------------  -------------   --------------
                                                                                          
   100     MATIF FRF Bond                     June 1998    $   8,487,839  $        17,936 
    50     US Treasury Bond                   June 1998        6,023,438           57,097 
                                                                            --------------
                                                                          $        75,033 
                                                                            ==============

At February 28, 1998, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.                        

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Written option transactions                                           

                                      Puts
                    Principal Amount
                    of Contracts
                                     (000's omitted)        Premiums
                                        ------------------  ----------------

Outstanding, beginning of period   $            --     $          --
Options written                            148,900         5,924,975
Options exercised                               --                --
 Options expired                           (148,800)       (5,835,000)
 Options sold                                  (100)          (89,975)
                                          ------------------  ----------------
Outstanding, end of period         $            --     $          --
                                          ==================  ================

                                         Calls
                      Principal Amount
                      of Contracts
                                      (000's omitted)       Premiums
                                          ------------------  ----------------

 Outstanding, beginning of period   $            --     $           --
 Options written                            109,891          3,160,180
  Options exercised                          (59,691)        (1,829,180)
 Options expired                                 --                 --
  Options sold                               (50,200)        (1,331,000)
                                         ------------------   ----------------
 Outstanding, end of period         $            --     $           --
                                         ==================   ================

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements                                                       

                                                        [Enlarge/Download Table]


                                                                               Net Unrealized 
 Notional Amount   Expiration                                                   Appreciation  
Fund/Counterparty     Date                    Description                      (Depreciation) 
-----------------  ----------  ----------------------------------------------  ---------------
                                                                                              
Credit Default Swaps                                                                          

5,000,000 USD        2/09/99   Agreement with Union Bank of Switzerland            $(39,957)  
                               dated 2/04/98 to pay 2.45% per year times the                  
                               notional amount.  The Fund receives payment                    
                               only upon a default event in Argentina, the                    
                               notional amount times the difference between                   
                               the par value and the then-market value of                     
                               Argentina Floating Rate Note due 3/31/05.                      

54,278,259 USD       2/26/99   Agreement with Credit Suisse Financial             9,229,773   
(par value)                    Products dated 2/12/97 to purchase, for a set                  
                               price, a specified amount of Bulgaria FLIRB                    
                               Fixed/Floating Rate Note Series A due                          
                               7/28/12 and Bulgaria FLIRB Fixed/Floating                      
                               Rate Note Series B due 7/28/12. In the event                   
                               of default by Bulgaria, the agreement to                       
                               purchase the bonds is eliminated; in its                       
                               place, Credit Suisse Financial Products                        
                               acquires the option to sell the same amount                    
                               of bonds to the Fund for a lower set price.                    

15,000,000 USD      11/03/00   Agreement with Credit Suisse Financial              (414,449)  
                               Products dated 10/29/97 to pay 3.45% per year                  
                               times the notional amount.  The Fund receives                  
                               payment only upon a default event in                           
                               Bulgaria, the notional amount times the                        
                               difference between the purchase cost of 59.50                  
                               USD and the then-market value of Bulgaria                      
                               FLIRB Note Series A due 7/28/12.                               

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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]

                                                                                   Net        
                                                                                Unrealized    
 Notional Amount    Expiration                                                  Appreciation  
Fund/Counterparty      Date                  Description                       (Depreciation) 
------------------ ----------  ----------------------------------------------  ---------------
                                                                                              
10,000,000 USD      11/07/00   Agreement with Credit Suisse Financial             $(426,071)  
                               Products dated 11/04/97 to pay 3.50% per year                  
                               times the notional amount.  The Fund receives                  
                               payment only upon a default event in Brazil,                   
                               the notional amount times the difference                       
                               between the purchase cost of 74.75 USD and                     
                               the then-market value of Brazil Debt                           
                               Conversion "DCB" Bond due 4/15/12.                             

21,500,000 USD       5/29/01   Agreement with Credit Suisse Financial              (559,345)  
                               Products dated 5/21/97 to pay 4.78% per year                   
                               times the notional amount.  The Fund receives                  
                               payment only upon a default event in Ecuador,                  
                               the notional amount times the difference                       
                               between par value and the then-market value                    
                               of the Republic of Ecuador Past Due Interest                   
                               "PDI" Floating Rate Note due 2/27/15.                          

47,000,000 USD       5/29/01   Agreement with Credit Suisse Financial            (1,856,004)  
                               Products dated 5/23/97 to pay 3.30% per year                   
                               times the notional amount.  The Fund receives                  
                               payment only upon a default event in Ecuador,                  
                               the notional amount times the difference                       
                               between the purchase cost of 60.25 USD and                     
                               the then-market value of the Republic of                       
                               Ecuador Past Due Interest "PDI" Floating Rate                  
                               Note due 2/27/15.                                              

                                                                              29


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------
Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]

                                                                                    Net       
                                                                                 Unrealized   
 Notional Amount   Expiration                                                   Appreciation  
Fund/Counterparty     Date                      Description                    (Depreciation) 
-----------------  ----------  ----------------------------------------------  ---------------
                                                                                              
25,000,000 USD       9/10/01   Agreement with Credit Suisse Financial              $516,268   
                               Products dated 9/05/97 to pay 1.75% per year                   
                               times the notional amount.  The Fund receives                  
                               payment only upon a default event in Brazil,                   
                               the notional amount times the difference                       
                               between the purchase cost of 83.625 USD and                    
                               the then-market value of Brazil Debt                           
                               Conversion "DCB" Bond due 4/15/12.                             

Interest Rate Swap                                                                            

60,000,000 MYR      12/16/00   Agreement with Morgan Guaranty Trust Company        (243,533)  
                               dated 12/12/97 to pay the notional amount                      
                               multiplied by 10.60% and to receive Floating                   
                               Rate KLIBOR adjusted by a specified spread.                    

Total Return Swaps                                                                            

12,500,000 USD       3/16/98   Agreement with Chase Manhattan Bank dated           (337,590)  
                               2/10/98 to pay the notional amount multiplied                  
                               by the change in market value (including                       
                               accrued interest) of Russia Ministry of                        
                               Finance, 9.25% due 11/27/01 and to receive                     
                               the initial market value multiplied by 1                       
                               month LIBOR adjusted by a specified spread.                    

13,568,000 USD/      3/20/98   Agreement with Morgan Guaranty Trust Company         339,678   
7,933,470 USD                  dated 2/12/98 to receive the notional amount                   
                               multiplied by the change in market value                       
                               (including accrued interest) of Russia                         
                               Principal Floating Rate Note due 12/15/20,                     
                               and to pay initial market value multiplied                     
                               by 1 month LIBOR adjusted by a specific                        
                               spread.                                                        

30                                                                              


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]

                                                                                    Net       
                                                                                 Unrealized   
 Notional Amount   Expiration                                                   Appreciation  
Fund/Counterparty     Date                      Description                    (Depreciation) 
------------------ ----------  ----------------------------------------------  ---------------
                                                                                              
20,000,000 USD/      3/26/98   Agreement with Morgan Guaranty Trust Company      $1,127,127   
24,053,611 USD                 dated 1/21/98 to receive the notional amount                   
                               multiplied by the change in market value                       
                               (including accrued interest) of United                         
                               Mexican States, 11.50% due 5/15/26 and to                      
                               pay initial market value multiplied by 2                       
                               month LIBOR adjusted by a specific spread.                     

25,000,000 USD/      4/06/98   Agreement with Bank of America dated 2/02/98         608,860   
24,312,500 USD                 to receive the notional amount multiplied by                   
                               the change in market value (including                          
                               accrued interest) of Brazilian Republic                        
                               Bond, 10.125% due 5/15/27 and to pay initial                   
                               market value multiplied by a fixed rate of                     
                               3.625%.                                                        

5,000,000 ARP/       4/08/98   Agreement with Morgan Guaranty Trust Company         253,359   
5,013,264 USD                  dated 1/05/98 to receive the notional amount                   
                               multiplied by the change in market value                       
                               (including accrued interest) of Republic of                    
                               Argentina, 11.75% due 2/12/07 and to pay                       
                               initial market value multiplied by 3 month                     
                               LIBOR adjusted by a specific spread.                           

                                                                              31


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]


                                                                                     Net     
                                                                                 Unrealized  
 Notional Amount   Expiration                                                   Appreciation 
Fund/Counterparty     Date                      Description                    (Depreciation)
------------------ ----------  ----------------------------------------------- --------------
                                                                                             
11,878,906 USD/      4/13/98   Agreement with Morgan Guaranty Trust Company       $(476,862) 
12,500,000 USD                 dated 1/07/98 to pay the notional amount                      
                               multiplied by the change in market value                      
                               (including accrued interest) of Russia                        
                               Ministry of Finance, 9.25% due 11/27/01 and                   
                               to receive the initial market value                           
                               multiplied by 4 month LIBOR adjusted by a                     
                               specified spread.                                             

5,000,000 USD/       4/17/98   Agreement with Morgan Guaranty Trust Company          81,350  
4,674,260 USD                  dated 1/13/98 to receive the notional amount                  
                               multiplied by the change in market value                      
                               (including accrued interest) of Mexican                       
                               Discount Floating Rate Note Series B due                      
                               12/31/19 and to pay initial market value                      
                               multiplied by 3 month LIBOR adjusted by a                     
                               specific spread.                                              

5,000,000 USD/       4/17/98   Agreement with Morgan Guaranty Trust Company          80,591  
4,661,306 USD                  dated 1/13/98 to receive the notional amount                  
                               multiplied by the change in market value                      
                               (including accrued interest) of Mexican                       
                               Discount Floating Rate Note Series C due                      
                               12/31/19 and to pay initial market value                      
                               multiplied by 3 month LIBOR adjusted by a                     
                               specific spread.                                              

32                                                                              


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]


                                                                                     Net     
                                                                                 Unrealized  
 Notional Amount   Expiration                                                   Appreciation 
Fund/Counterparty     Date                      Description                    (Depreciation)
------------------ ----------  ----------------------------------------------- --------------
                                                                                             
25,000,000 USD/      4/17/98   Agreement with Morgan Guaranty Trust Company     $   408,279  
23,237,500 USD                 dated 1/13/98 to receive the notional amount                  
                               multiplied by the change in market value                      
                               (including accrued interest) of Mexican                       
                               Discount Floating Rate Note Series D due                      
                               12/31/19 and to pay initial market value                      
                               multiplied by 3 month LIBOR adjusted by a                     
                               specific spread.                                              

30,000,000 USD/      4/24/98   Agreement with Morgan Guaranty Trust Company      (1,510,590) 
30,000,000 USD                 dated 4/24/97 to pay the notional amount                      
                               multiplied by the J.P. Morgan Emerging                        
                               Markets Bond Index on 4/24/98, adjusted by a                  
                               specified spread, and to receive 4.78% times                  
                               the notional amount.                                          

15,000,000 USD/      5/05/98   Agreement with Credit Suisse Financial               622,459  
9,014,063 USD                  Products dated 10/29/97 to receive the                        
                               notional amount multiplied by the change in                   
                               market value (including accrued interest) of                  
                               Republic of Bulgaria FLIRB Series A                           
                               Fixed/Floating Rate Notes due 7/28/12 and to                  
                               pay initial market value multiplied by 6                      
                               month LIBOR adjusted by a specific spread.                    

                                                                              33


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]


                                                                                     Net     
                                                                                 Unrealized  
 Notional Amount   Expiration                                                   Appreciation 
Fund/Counterparty     Date                      Description                    (Depreciation)
------------------ ----------  ----------------------------------------------- --------------
                                                                                             
25,000,000 USD/      5/11/98   Agreement with Morgan Guaranty Trust Company     $   611,245  
25,367,188 USD                 dated 2/03/98 to receive the notional amount                  
                               multiplied by the change in market value                      
                               (including accrued interest) of Republic of                   
                               Argentina, 9.75% due 9/19/27 and to pay                       
                               initial market value multiplied by 3 month                    
                               LIBOR adjusted by a specific spread.                          

68,500,000 USD       5/28/98   Agreement with Credit Suisse Financial             1,801,848  
                               Products dated 11/25/97 to receive the                        
                               notional amount multiplied by the change in                   
                               market value (including accrued interest) of                  
                               Ecuador Past Due Interest "PDI" Bond due                      
                               2/28/15 and to pay initial market value                       
                               multiplied by 6 month LIBOR adjusted by a                     
                               specific spread.                                              

10,000,000 USD/      8/12/98   Agreement with Bear Stearns dated 2/10/98 to         (66,067) 
10,000,000 USD                 pay the notional amount multiplied by the                     
                               J.P. Morgan Emerging Markets Bond Index                       
                               (including accrued interest) and to receive                   
                               the notional amount multiplied by 6 month                     
                               LIBOR adjusted by a specified spread.                         

34                                                                              


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]


                                                                                       Net     
                                                                                   Unrealized  
 Notional Amount     Expiration                                                   Appreciation 
Fund/Counterparty       Date                      Description                    (Depreciation)
------------------   ----------  ----------------------------------------------- --------------
                                                                                               
3,917,376 USD/         6/04/99   Agreement with Bank of America dated              $(536,362)  
625,189,248,812 TRL              6/26/97 to receive the notional amount                        
                                 multiplied by the change in market value                      
                                 (including accrued interest) of Turkey                        
                                 Indexed Linked Bond due 6/04/99 and to                        
                                 pay initial market value multiplied by 3                      
                                 month LIBOR adjusted by a specific                            
                                 spread.                                                       

776,766 USD/           6/04/99   Agreement with Bank of America dated               (146,148)  
116,727,003,674 TRL              11/13/97 to receive the notional amount                       
                                 multiplied by the change in market value                      
                                 (including accrued interest) of Turkey                        
                                 Indexed Linked Bond due 6/04/99 and to                        
                                 pay initial market value multiplied by 3                      
                                 month LIBOR adjusted by a specific                            
                                 spread.                                                       

4,694,227 USD/        11/26/99   Agreement with Bank of America dated               (850,833)  
900,000,000,000 TRL              11/25/97 to receive the notional amount                       
                                 multiplied by the change in market value                      
                                 (including accrued interest) of Turkey                        
                                 Indexed Linked Bond due 11/26/99 and to                       
                                 pay initial market value multiplied by 3                      
                                 month LIBOR adjusted by a specific                            
                                 spread.                                                       

                                                                                ---------------
                                                 Net unrealized appreciation      $8,217,026   
                                                                                ===============

See Notes to the Schedule of Investments for definitions of currency            
abbreviations.                                                                  

                                                                              35


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's        
   distributions are from investment company taxable income, except that the
    Fund has designated 39.63% of distributions as net capital gain dividends.

36                                                                              


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GMO Emerging Country Debt Fund                                                  
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

     Mr. Thomas F. Cooper and Mr. William L. Nemerever are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. since 1993.                                                     

Management Discussion and Analysis of Fund Performance                          

   The Class III shares of the Emerging Country Debt Fund returned 22.5% for
 the fiscal year ended February 28, 1998, compared to 11.0% for the J.P.
Morgan Emerging Market Bond Index Plus. Consistent with the Fund's    
    investment objectives and policies, the Fund was substantially invested in
 sovereign debt instruments of emerging countries throughout the period.

  The past year was a volatile period for emerging country debt. Sovereign
   spreads declined steadily until mid-October when the Asian crisis finally
  affected emerging country debt around the world. Dramatic price declines
  continued into November before the market stabilized. Through the end of
  the fiscal year prices recovered somewhat as spreads declined to a point
about 150 basis points wider that the record low set in early October.

     The Fund performed well in this environment, outperforming its benchmark by
   11.5% for the fiscal year. The value was added through security selection
     primarily, with secondary emphasis placed on active country allocation. The
Fund remained fully invested throughout the period and declined       
significantly as spreads widened. The longer-dated, less-marketable   
 holdings we favor rose in price as liquidity premiums contracted in the
  first half of the year, but widened dramatically when the effects of the
     Asian problems spread. Losses during the market decline were limited by our
   use of options. Our performance was helped by overweighting Bulgarian and
   Ecuadorian debt and our decision to avoid exposure to the Philippines. On
the other hand, our large Russian debt position did poorly. Our       
   out-of-benchmark country positions in Costa Rica, the Ivory Coast, Jordan
and Turkey helped the Fund outperform. Our security selection was     
especially strong in Brazil and Russia. Also, options positions in    
 Argentina, Brazil and Venezuela, plus a short position in the Thai Baht
were important to performance.                                        

Outlook                                                                         

     The recent volatility in the emerging markets has created new opportunities
     for debt buyers. Issues we favor, such as those with limited marketability,
have cheapened as a result of the turmoil and an increased emphasis by
    investors on liquidity. The Fund has significant overweighted positions in
 Bulgarian, Ecuadorian, Ivory Coast and Russian debt. It holds issues of
 many countries not in the benchmark including: Algeria, Costa Rica, the
  Dominican Republic, Jamaica, Jordan, Macedonia, South Africa, Turkey and
  Yugoslavia. The outlook for these markets is generally good. Spreads are
 significantly above their lows and opportunities to acquire undervalued
   securities are relatively frequent, however it is unlikely the returns of
the Fund will match those of the past three years.                    

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,00 Investment in   
GMO Emerging Country Debt Fund Class III Shares and the JP Morgan Emerging  
Market Bond Index Plus  
As of February 28, 1998 

-------------------------------                               
Average Annual Total Return                               
-------------------------------                               
Since                 
1 Year        Inception                               
-------------------------------                               
Class                       4/19/94                                             
III         21.4%            33.6%                                            
-------------------------------                               
1/9/98                
Class                                                                           
IV           n/a              5.0%                                            
-------------------------------                               

[LINE GRAPH APPEARS HERE] 

    GMO Emerging Country        JP Morgan Emerging
         Debt Fund               Bond Index Plus
    --------------------        ------------------

4/19/94                    $9,950                     $10,000                   
2/28/95                    $8,792                      $9,220                   
2/29/96                   $14,364                     $13,000                   
2/28/97                   $25,040                     $18,625                   
2/28/98                   $30,616                     $20,666                   

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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 paid to the Fund to cover trading costs. Class III shares  
are a redesignation of the single class of shares that has been offered by the  
Fund since inception. Performance for Class IV shares may be different due to   
lower shareholder service fees. Past performance is not indicative of future    
performance. Information is unaudited.                                          


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GMO Global Balanced Allocation Fund                                   
(A Series of GMO Trust)                                               
Annual Report                                                         
February 28, 1998                                                     


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of                            
GMO Global Balanced Allocation Fund (A Series of GMO Trust)                     

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 Allocation Fund
at February 28, 1998, the results of its operations for the year then ended, the
changes in its net assets and the financial highlights for the periods          
presented, in conformity with generally accepted accounting principles. These   
financial statements and financial highlights (hereafter referred to as         
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian, provide a reasonable    
basis for the opinion expressed above.                                          

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

Par Value($)/                                                                              
   Shares      Description                                                     Value($)    
-------------------------------------------------------------------------------------------
                                                                                           
               MUTUAL FUNDS -- 100.0%                                                      
  894,975      GMO Core Fund (Class III Shares)                                 17,890,558 
   52,515      GMO Currency Hedged International Bond Fund (Class III                      
               Shares)                                                             559,808 
  777,661      GMO Currency Hedged International Core Fund (Class III                      
               Shares)                                                           9,269,719 
1,441,136      GMO Domestic Bond Fund (Class III Shares)                        14,786,051 
  399,457      GMO Emerging Country Debt Fund (Class III Shares)                 4,649,674 
  412,532      GMO Emerging Markets Fund (Class III Shares)                      3,943,805 
  454,741      GMO Evolving Countries Fund (Class III Shares)                    3,915,324 
  175,790      GMO Growth Fund (Class III Shares)                                  769,959 
  284,628      GMO Inflation Indexed Bond Fund (Class III Shares)                2,857,668 
  216,642      GMO International Bond Fund (Class III Shares)                    2,263,907 
  364,593      GMO International Core Fund (Class III Shares)                    8,458,558 
   85,569      GMO International Small Companies Fund (Class III Shares)         1,045,659 
  467,544      GMO REIT Fund (Class III Shares)                                  6,040,668 
  400,368      GMO Small Cap Growth Fund (Class III Shares)                      4,916,516 
  268,470      GMO Small Cap Value Fund (Class III Shares)                       4,907,628 
2,461,992      GMO U.S. Bond/Global Alpha A Fund (Class III Shares)             26,097,119 
  203,006      GMO Value Fund (Class III Shares)                                 2,909,076 
                                                                             --------------

               TOTAL MUTUAL FUNDS (COST $115,747,483)                          115,281,697 
                                                                             --------------
               SHORT-TERM INVESTMENT -- 0.0%                                               

               Repurchase Agreement -- 0.0%                                                
$  10,195      Salomon Smith Barney Inc. Repurchase Agreement, dated                       
               2/27/98, due 3/2/98, with a maturity value of $10,199 and                   
               an effective yield of 5.07%, collateralized by a U.S.                       
               Treasury Obligation with a rate of 8.875%, with a maturity                  
               date of 8/15/17 and with a market value of $10,399.                  10,195 
                                                                             --------------

               TOTAL SHORT-TERM INVESTMENT (COST $10,195)                           10,195 
                                                                             --------------

               TOTAL INVESTMENTS -- 100.0%                                                 
               (Cost $115,757,678)                                             115,291,892 

               Other Assets and Liabilities (net) -- 0.0%                          (12,326)
                                                                             --------------

               TOTAL NET ASSETS -- 100%                                      $ 115,279,566 
                                                                             ==============

              See accompanying notes to the financial statements.              1


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
------------------------------------------------------------------------------- 

Assets:                                                                         
 Investments, at value (cost $115,757,678) (Note 1)            $ 115,291,892
 Receivable for expenses waived or borne by Manager (Note 2)           5,201
                                                               -------------

     Total assets                                                115,297,093
                                                               -------------

Liabilities:                                                                    
 Accrued expenses                                                     17,527
                                                               -------------

     Total liabilities                                                17,527
                                                               -------------

Net assets                                                       $ 115,279,566  
                                                               =============

Net assets consist of:                                                          
 Paid-in capital                                               $ 112,448,328
 Accumulated undistributed net realized gain                       3,297,024
  Net unrealized depreciation                                        (465,786)
                                                               -------------
                                                               $ 115,279,566
                                                               =============

Net assets attributable to:                                                     
 Class III shares                                              $ 115,279,566
                                                               =============

Shares outstanding:                                                             
 Class III                                                         9,707,961
                                                               =============

Net asset value per share:                                                      
 Class III                                                     $       11.87
                                                               =============

2             See accompanying notes to the financial statements.               


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

Investment Income:                                                              
 Dividends from investment company shares                         $  2,722,142
 Interest                                                                5,156
                                                                  ------------

      Total income                                                   2,727,298
                                                                  ------------

Expenses:                                                                       
 Custodian and transfer agent fees                                      27,247
 Audit fees                                                             14,398
 Registration fees                                                       8,214
 Legal fees                                                              1,452
 Trustees fees (Note 2)                                                    535
 Miscellaneous                                                             363
  Fees waived or borne by Manager (Note 2)                              (52,209)
                                                                  ------------
                                                                            --
Shareholder service fee (Note 2)                                            
      Class I                                                           14,890
      Class II                                                          21,509
                                                                  ------------
      Net expenses                                                      36,399
                                                                  ------------

         Net investment income                                       2,690,899
                                                                  ------------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                                
      Investments                                                      251,382
      Realized gain distributions from investment company shares     9,737,963
                                                                  ------------

         Net realized gain                                           9,989,345
                                                                  ------------

Change in net unrealized appreciation (depreciation) on                     
    investments                                                      (1,239,876)
                                                                  ------------

      Net realized and unrealized gain                               8,749,469
                                                                  ------------

Net increase in net assets resulting from operations               $ 11,440,368 
                                                                  ============

             See accompanying notes to the financial statements.             3


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]

                                                              Period from July 29, 1996  
                                             Year Ended      (commencement of operations)
                                          February 28, 1998        February 28, 1997     
                                          -----------------  ----------------------------
                                                                                         
Increase (decrease) in net assets:                                                       
Operations:                                                                              
   Net investment income                    $  2,690,899           $    64,042           
   Net realized gain                           9,989,345               206,668           
   Change in net unrealized appreciation                                                 
      (depreciation)                          (1,239,876)              774,090           
                                            -------------          ------------          
   Net increase in net assets resulting                                                  
      from operations                         11,440,368             1,044,800           
                                            -------------          ------------          

Distributions to shareholders from:                                                      
   Net investment income                                                                 
       Class I                                  (612,518)              (64,042)          
       Class II                               (1,668,937)                   --           
       Class III                                (409,444)                   --           
                                            -------------          ------------          
       Total distributions from net                                                      
       investment income                      (2,690,899)              (64,042)          
                                            -------------          ------------          
   In excess of net investment income                                                    
       Class I                                    (2,044)               (1,958)          
       Class II                                   (5,570)                   --           
       Class III                                  (1,366)                   --           
                                            -------------          ------------          
       Total distributions in excess of                                                  
       net investment income                      (8,980)               (1,958)          
                                            -------------          ------------          
   Net realized gains                                                                    
       Class I                                (1,560,218)              (48,900)          
       Class II                               (4,205,151)                   --           
       Class III                              (1,039,983)                   --           
                                            -------------          ------------          
       Total distributions from net                                                      
       realized gains                         (6,805,352)              (48,900)          
                                            -------------          ------------          

                                              (9,505,231)             (114,900)          
                                            -------------          ------------          
   Net share transactions: (Note 5)                                                      
       Class I                                (5,680,394)            6,386,281           
       Class II                              (12,119,329)           13,891,398           
       Class III                             109,936,573                    --           
                                            -------------          ------------          
   Increase in net assets resulting from                                                 
      net share transactions                  92,136,850            20,277,679           
                                            -------------          ------------          

      Total increase in net assets            94,071,987            21,207,579           

Net assets:                                                                              
   Beginning of period                        21,207,579                    --           
                                            -------------          ------------          

   End of period (including accumulated                                                  
      undistributed net investment                                                       
      income of $0 and $0, respectively)    $115,279,566           $21,207,579           
                                            =============          ============          

4            See accompanying notes to the financial statements.                


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

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

                                                                [Download Table]
                                                                               
Net asset value, beginning of period                     $11.19        $10.00  
                                                         -------       ------- 

Income from investment operations:                                             
   Net investment income /(b)/                             0.55+         0.22  
   Net realized and unrealized gain                        0.65          1.35  
                                                         -------       ------- 

      Total from investment operations                     1.20          1.57  
                                                         -------       ------- 

Less distributions to shareholders:                                            
   From net investment income                             (0.32)        (0.22) 
   In excess of net investment income                        --/(d)/       --  
   From net realized gains                                (0.83)        (0.16) 
                                                         -------       ------- 

      Total distributions                                 (1.15)        (0.38) 
                                                         -------       ------- 
Net asset value, end of period                           $11.24/(c)/   $11.19  
                                                         =======       ======= 

Total Return /(a)/                                        10.70%        15.85% 

Ratios/Supplemental Data:                                                      
   Net assets, end of period (000's)                         --        $6,848  
   Net expenses to average daily net assets                0.13%*        0.15%*
   Net investment income to average daily net                                  
    assets /(b)/                                           5.27%*        2.75%*
   Portfolio turnover rate                                   18%           33% 
   Fees and expenses voluntarily waived or borne                               
      by the Manager consisted of the following                                
      per share amounts:                                 $ 0.01        $ 0.03  

/(a)/  Calculation excludes purchase premiums and redemption fees. The total    
       returns would have been lower had certain expenses not been waived during
the periods shown.                                                

/(b)/  Recognition of net investment income is affected by the timing of the    
declaration of dividends by the underlying funds in which the fund
invests.                                                          

/(c)/  All Class I shares of the Fund were exchanged for Class III shares on    
    January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                  

/(d)/  The per share distribution in excess of net investment income was $0.001.

+    Computed using average shares outstanding throughout the period.           

*    Annualized.                                                                

              See accompanying notes to the financial statements.              5


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                     Period from      Period from December 31, 1996
                                                    March 1, 1997     (commencement of operations) 
                                                  to January 9, 1998     to February 28, 1997      
                                                  ------------------  -----------------------------
                                                                                                   
Net asset value, beginning of period                    $11.19                $ 10.86              
                                                        -------               --------             

Income from investment operations:                                                                 
   Net investment income /(b)/                            0.55+                    --              
   Net realized and unrealized gain                       0.66                   0.33              
                                                        -------               --------             

      Total from investment operations                    1.21                   0.33              
                                                        -------               --------             

Less distributions to shareholders:                                                                
   From net investment income                            (0.33)                    --              
   In excess of net investment income                       --/(d)/                --              
   From net realized gains                               (0.83)                    --              
                                                        -------               --------             

      Total distributions                                (1.16)                    --              
                                                        -------               --------             
Net asset value, end of period                          $11.24/(c)/           $ 11.19              
                                                        =======               ========             

Total Return /(a)/                                       10.73%                  3.04%             

Ratios/Supplemental Data:                                                                          
   Net assets, end of period (000's)                        --                $14,359              
   Net expenses to average daily net assets               0.07%*                 0.07%*            
   Net investment income to average daily net             5.31%*                (0.07)%*           
      assets /(b)/                                                                                 
   Portfolio turnover rate                                  18%                    33%             
   Fees and expenses voluntarily waived or borne                                                   
      by the Manager consisted of the following         $ 0.01                $  0.01              
      per share amounts:                                                                           

/(a)/  Calculation excludes purchase premiums and redemption fees. The total    
       returns would have been lower had certain expenses not been waived during
the periods shown.                                                

/(b)/  Recognition of net investment income is affected by the timing of the    
declaration of dividends by the underlying funds in which the fund
invests.                                                          

/(c)/  All Class II shares of the fund were exchanged for Class III shares on   
    January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                  

/(d)/  The per share distribution in excess of net investment income was $0.001.

+      Computed using average shares outstanding throughout the period.         

*      Annualized.                                                              

6             See accompanying notes to the financial statements.               


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

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

                                                                [Download Table]


                                                     Period from June 2, 1997   
                                                    (commencement of operations)
                                                       to February 28, 1998     
                                                    --------------------------- 
                                                                                
Net asset value, beginning of period                         $  11.56           
                                                             ---------          

Income from investment operations:                                              
   Net investment income /(b)/                                   0.17+          
   Net realized and unrealized gain                              1.30           
                                                             ---------          

      Total from investment operations                           1.47           
                                                             ---------          

Less distributions to shareholders:                                             
   From net investment income                                   (0.33)          
   In excess of net investment income                              --(c)        
   From net realized gains                                      (0.83)          
                                                             ---------          

      Total distributions                                       (1.16)          
                                                             ---------          
Net asset value, end of period                               $  11.87           
                                                             =========          

Total Return /(a)/                                              13.31%          

Ratios/Supplemental Data:                                                       
   Net assets, end of period (000's)                         $115,280           
   Net expenses to average daily net assets                      0.00%*         
   Net investment income to average daily                                       
      net assets /(b)/                                           1.91%*         
   Portfolio turnover rate                                         18%          
   Fees and expenses voluntarily waived or                                      
      borne by the Manager consisted of the                                     
      following per share amount:                            $   0.01           

/(a)/  Calculation excludes purchase premiums and redemption fees. The total    
       returns would have been lower had certain expenses not been waived during
the periods shown.                                                

/(b)/  Recognition of net investment income is affected by the timing of the    
declaration of dividends by the underlying funds in which the fund
invests.                                                          

/(c)/  The per share distribution in excess of net investment income was $0.001.

+      Computed using average shares outstanding throughout the period.         

*      Annualized.                                                              

              See accompanying notes to the financial statements.              7


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
------------------------------------------------------------------------------- 

1.   Significant accounting policies                                            

GMO Global Balanced Allocation Fund (the "Fund"), which commenced     
  operations on July 29, 1996, is a series of GMO Trust (the "Trust"). The
     Fund is registered under the Investment Company Act of 1940, as amended, as
     an open-end, diversified management investment company. The Fund is advised
 and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
   "GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The   
    Declaration of Trust permits the Trustees to create an unlimited number of
    series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.                            

The Fund operates as a "fund-of-funds" in that, pursuant to management
   provided by the Manager, it makes investments in other funds of the Trust
  ("underlying funds"). The Fund seeks a total return greater than that of
  the GMO Global Balanced Index, a benchmark developed by the Manager. The
   Fund will pursue its objective by investing primarily in Class III shares
 of domestic equity, international equity, and fixed income funds of the
Trust.                                                                

At the beginning of the fiscal year, the Fund offered three classes of
    shares: Class I, Class II and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  

Effective January 9, 1998, Class I shares and Class II shares ceased  
operations, and all shares were exchanged for Class III shares.       

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make  
    estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those   
estimates.                                                            

Portfolio valuation                                                   
    Shares of underlying funds are valued at their net asset value as reported
   on each business day. Short-term investments with a remaining maturity of
    sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the 
Trustees.                                                             

8                                                                               


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Repurchase agreements                                                 
The Fund may enter into repurchase agreements with certain bankers 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,
realization of collateral by the Fund may be delayed or limited.      

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
classification of distributions from underlying funds.                

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated              Accumulated                      
Undistributed Net        Undistributed Net                      
   Investment Income          Realized Gain            Paid-in Capital
    -------------------    -----------------------     -------------------
     $8,980                 ($42,779)                  $33,799

                                                                               9


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
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.        

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 in such manner as deemed equitable by the Trustees,
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.
 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                              
The premium on cash purchases of Fund shares is .35% of the amount    
  invested. In the case of cash redemptions, the fee is .11% of the amount
  redeemed. Prior to June 30, 1997, the premium on cash purchases was .31%
and the fee on cash redemptions was .03%. 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. Purchase premiums are included as part of each class'
"shares sold" and redemption fees are included as part of each class' 
   "shares repurchased", respectively, as summarized in Note 5. For the year
     ended February 28, 1998 the Fund received $241,798 in purchase premiums and
   $786 in redemption fees. There is no premium for reinvested distributions
or in-kind transactions.                                              

2.   Fees and other transactions with affiliates                                

The Manager determines the allocation of the assets of the Fund among 
  designated underlying funds. The Manager does not charge an advisory fee
 for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Service Plan under which the Fund pays GMO a    
shareholder service fee for client and                                

10                                                                              


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

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 .13%
     for Class I shares and .07% for Class II shares. No shareholder service fee
is charged for Class III shares.                                      

  GMO has agreed to reimburse all expenses until further notice (excluding
    brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
     November 25, 1996, GMO had agreed to reimburse these expenses to the extent
    that the Fund's annual expenses exceeded .05% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated   
    Trustees during the year ended February 28, 1998 was $535. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$106,749,664 and $11,697,750 respectively.                            

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                  Gross Unrealized  Gross Unrealized  Net Unrealized
 Aggregate Cost    Appreciation      Depreciation     Depreciation
  --------------  ----------------  ----------------  --------------
$ 115,795,661     $1,617,258        $2,121,027        $503,769

4.   Principal shareholders                                                     

     At February 28, 1998, 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.                                                   

                                                                              11


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:                           

                                                        [Enlarge/Download Table]


                                                                     Period from July 29, 1996     
                                  Period from March 1, 1997        (commencement of operations)    
Class I:                             to January 9, 1998                to February 28, 1997        
                               --------------------------------   -------------------------------- 
                                   Shares           Amount            Shares            Amount     
                               ---------------  ---------------   --------------   --------------- 
                                                                                                   
Shares sold                       1,325,598     $  16,081,830         601,548       $   6,271,381  
Shares issued to shareholders                                                                      
 in reinvestment of                                                                                
 distributions                      185,366         2,100,511          10,580             114,900  
Shares repurchased               (2,123,092)      (23,862,735)          --                 --      
                               ---------------  ---------------   --------------   --------------- 
Net increase/(decrease)            (612,128)    $  (5,680,394)        612,128       $   6,386,281  
                               ===============  ===============   ==============   =============== 



                                                                    Period from December 31, 1996  
                                   Period from March 1, 1997        (commencement of operations)   
Class II:                              to January 9, 1998               to February 28, 1997       
                                 -------------------------------   --------------------------------
                                    Shares           Amount           Shares            Amount     
                                 --------------   --------------   --------------   ---------------
                                                                                                   
Shares sold                        3,870,787      $  45,813,645      1,283,396      $   13,891,398 
Shares issued to shareholders                                                                      
 in reinvestment of                                                                                
 distributions                       471,399          5,347,162         --                  --     
Shares repurchased                (5,625,582)       (63,280,136)        --                  --     
                                 --------------   --------------   --------------   ---------------
Net increase/(decrease)           (1,283,396)     $ (12,119,329)     1,283,396      $   13,891,398 
                                 ==============   ==============   ==============   ===============


                              Period from June 2, 1997
                              (commencement of operations)
Class III:                               to February 28, 1998           
                              --------------------------------
                            Shares            Amount
                              --------------   ---------------
Shares sold                          9,599,238      $  108,707,411      
Shares issued to shareholders                                           
in reinvestment of                                                    
distributions                         127,806           1,450,793     
Shares repurchased                                                      
                                  (19,083)           (221,631)
                              --------------   ---------------
Net increase                         9,707,961      $  109,936,573      
                              ==============   ===============

12                                                                              


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          

------------------------------------------------------------------------------- 

   For the fiscal year ended February 28, 1998, all the Fund's distributions
are from investment company taxable income, except that the Fund has  
designated 23.96% of distributions as net capital gain dividends.     

                                                                              13


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GMO Global Balanced Allocation Fund                                             
(A Series of GMO Trust)                                                         

------------------------------------------------------------------------------- 

Portfolio Managers                                                              

    Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
   portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
twenty years. Mr. Inker has been with the firm for six years.         

Management Discussion and Analysis of Fund Performance                          

    The Class III shares of the Global Balanced Allocation Fund returned 13.3%
for the twelve months ended February 28, 1998. During that period the 
benchmark (48.75% S&P 500/16.25% GMO EAFE-Lite Extended/35% Lehman    
Aggregate) returned 23.0%.                                            

We use GMO's long-term asset class forecasts to allocate the Global   
   Balanced Allocation Fund among various GMO mutual funds. In our view, the
    U.S. stock market is significantly overvalued. It is notoriously difficult
    to call the top of a major stock market bubble like the one that exists in
the U.S. today. We believe, however, that our key analysis has been   
  correct, having done a far more complete analysis of bullish competitive
    data on the U.S. market and "new era" thinking than we have ever done. Our
research suggests that from the market's current valuation level      
   prospective returns for large capitalization U.S. stocks over the next 10
years will be very disappointing.                                     

During the fiscal year, the Fund was underweight in U.S. stocks by 16%
relative to the benchmark. This allocation hurt the Fund's overall    
performance due to the continuing rally of U.S. equities. Within U.S. 
stocks, we tilted the portfolio towards the most attractively valued  
sectors including small stocks, where we were 8% overweight, and real 
estate investment trusts (REITs), where we were 6% overweight. For the
     fiscal year, the allocation to REITs hurt performance, as the GMO REIT Fund
    underperformed the S&P 500 Index by 21%. Although small stocks as measured
by the Russell 2000 underperformed the S&P 500, performance of the GMO
Small Cap Growth Fund and the GMO Small Cap Value Fund was strong,    
  providing returns comparable to that of the S&P 500. In addition, return
from our holding of the U.S. Core Fund exceeded that of the S&P 500   
benchmark.                                                            

  Our overweight of international stocks was unsuccessful in adding value.
Performance of the International Core Fund lagged the benchmark as the
 rally in expensive multinationals continued. The GMO International Core
Fund returned 11.7%, underperforming the GMO EAFE-Lite Index by 7.2%. 
  Returns to the Fund were also hurt by our 5% relative weight in emerging
markets. The emerging markets as measured by the IFC Investable Index 
performed poorly, down 21.8%, due to the crisis in Asian economies.   
     However, performance of the GMO Emerging Markets Fund was better at -12.9%.

The fund is overweight by approximately 9% in fixed income, with      
allocations to international and emerging bonds along with U.S. fixed 
income. Performance of most of our bond portfolios exceeded their     
benchmarks.                                                           

   Until we see a significant correction in U.S. equities, it is likely that
    the Fund will maintain its bearish stance. The diversification of the Fund
  into global bonds and emerging markets should benefit performance in the
  current fiscal year. We also expect our U.S. portfolio to perform better
    this year. Small stocks are poised to outperform, and REITs should do well
 in the current market environment, providing more attractive yields and
valuations than those available from large cap U.S. equities.         

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Global Balanced Allocation Fund "GBAF" Class III Shares 
and the Lehman Index (50%)/MSCI World Index*(50%) 
As of February 28, 1998 

---------------------------                       
Average Annual Total Return                       
---------------------------                       
Since         
1 Year         Inception                        
---------------------------                       
7/29/96*        
16.5%            20.8%                          
---------------------------                       

[LINE GRAPH APPEARS HERE] 

          Lehman Index
              "GBAF" Class       (50%)/MSCI World  GMO Global Balanced
Date              III Shares         Index*(50%)             Index          
----             -------------      ---------------   -------------------   

7/29/96                $9,965             $10,000            $10,000            
2/28/97               $11,532             $10,973            $11,627            
2/28/98               $13,499             $12,863            $14,295            

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 35 bp on the purchase and 11 bp on the redemption.           
Transaction fees are paid to the Fund to cover trading costs. Past performance  
is not indicative of future performance. Information is unaudited.              

* Performance is linked to Class I shares (originating share class) and is      
converted to Class III shares on June 2, 1997 (commencement date of Class III   
shares).                                                                        


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                   

   To the Trustees of GMO Trust and the Shareholders of GMO Global (U.S.+)
Equity Allocation Fund (A Series of GMO Trust)                      

 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 at February 28, 1998, the results of
     its operations for the year then ended, the changes in its net assets and
  the financial highlights for the periods presented, in conformity with
    generally accepted accounting principles. These financial statements and
      financial highlights (hereafter referred to as "financial statements") are
  the responsibility of the Trust'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
generally accepted auditing standards 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 28, 1998
    by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.                                            

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 23, 1998                                                      


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Par Value                                                                                      
     ($)/                                                                                         
    Shares        Description                                                       Value ($)     
--------------------------------------------------------------------------------------------------
                                                                                                  
                  MUTUAL FUNDS -- 100.0%                                                          
    724,106       GMO Core Fund (Class III Shares)                                 14,474,871     
    220,151       GMO Currency Hedged International Core Fund (Class III Shares)    2,624,203     
    152,830       GMO Emerging Country Debt Fund (Class III Shares)                 1,778,937     
    272,766       GMO Emerging Markets Fund (Class III Shares)                      2,607,640     
    180,132       GMO Evolving Countries Fund (Class III Shares)                    1,550,936     
    125,546       GMO Growth Fund (Class III Shares)                                  549,893     
     76,575       GMO Inflation Indexed Bond Fund (Class III Shares)                  768,817     
     56,603       GMO International Bond Fund (Class III Shares)                      591,501     
    290,691       GMO International Core Fund (Class III Shares)                    6,744,033     
     47,197       GMO International Small Companies Fund (Class III Shares)           576,743     
    243,416       GMO REIT Fund (Class III Shares)                                  3,144,931     
    248,726       GMO Small Cap Growth Fund (Class III Shares)                      3,054,357     
    163,775       GMO Small Cap Value Fund (Class III Shares)                       2,993,802     
    147,170       GMO U.S. Bond/Global Alpha A Fund (Class III Shares)              1,560,003     
    145,291       GMO Value Fund (Class III Shares)                                 2,082,015     
                                                                                  -----------     

                  TOTAL MUTUAL FUNDS  (COST $44,322,244)                           45,102,682     
                                                                                  -----------     

                  SHORT-TERM INVESTMENT -- 0.0%                                                   

                  Repurchase Agreement -- 0.0%                                                    
    $ 9,322       Salomon Smith Barney Inc. Repurchase Agreement, dated                           
                  2/27/98, due 3/2/98, with a maturity value of $9,326 and an                     
                  effective yield of 5.07%, collateralized by a U.S. Treasury                     
                  Obligation with a rate of 8.875%, with a maturity date of                       
                  8/15/17 and with a market value of $9,509.                            9,322     
                                                                                  -----------     

                  TOTAL SHORT-TERM INVESTMENT  (COST $9,322)                            9,322     
                                                                                  -----------     

                  TOTAL INVESTMENTS -- 100.0%                                                     
                  (Cost $44,331,566)                                               45,112,004     

                  Other Assets and Liabilities (net) -- 0.0%                          (11,004)    
                                                                                  -----------     

                  TOTAL NET ASSETS -- 100%                                        $45,101,000     
                                                                                  ===========     

             See accompanying notes to the financial statements.             1


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
------------------------------------------------------------------------------- 

Assets:                                                                         
  Investments, at value (cost $44,331,566) (Note 1)                $45,112,004
  Receivable for expenses waived or borne by Manager (Note 2)            4,689
                                                                   -----------

      Total assets                                                  45,116,693
                                                                   -----------

Liabilities:                                                                    
  Accrued expenses                                                      15,693
                                                                   -----------

      Total liabilities                                                 15,693
                                                                   -----------

Net assets                                                          $45,101,000 
                                                                   ===========

Net assets consist of:                                                          
  Paid-in capital                                                  $43,203,821
  Accumulated undistributed net realized gain                        1,116,741
  Net unrealized appreciation                                          780,438
                                                                   -----------
                                                                   $45,101,000
                                                                   ===========

Net assets attributable to:                                                     
  Class III shares                                                 $45,101,000
                                                                   ===========

Shares outstanding:                                                             
  Class III                                                          4,301,488
                                                                   ===========

Net asset value per share:                                                      
  Class III                                                        $     10.48
                                                                   ===========

2              See accompanying notes to the financial statements.              


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
------------------------------------------------------------------------------- 

                                                                [Download Table]

                                                                                   
Investment Income:                                                                 
   Dividends from investment company shares                             $  935,681 
   Interest                                                                  1,240 
                                                                        ---------- 

       Total income                                                        936,921 
                                                                        ---------- 
Expenses:                                                                          
   Custodian and transfer agent fees                                        17,959 
   Audit fees                                                               13,384 
   Registration fees                                                         9,818 
   Legal fees                                                                1,112 
   Trustees fees (Note 2)                                                      354 
   Miscellaneous                                                               168 
   Fees waived or borne by Manager (Note 2)                                (42,795)
                                                                        ---------- 
   Shareholder service fee (Note 2)                                             -- 
       Class I                                                               1,009 
                                                                        ---------- 
       Net expenses                                                          1,009 
                                                                        ---------- 

          Net investment income                                            935,912 
                                                                        ---------- 

Realized and unrealized gain (loss):                                               
   Net realized gain (loss) on:                                                    
       Investments                                                        (518,339)
       Realized gain distributions from investment company shares        6,983,109 
                                                                        ---------- 

          Net realized gain                                              6,464,770 
                                                                        ---------- 

   Change in net unrealized appreciation (depreciation) on investments     402,806 
                                                                        ---------- 

       Net realized and unrealized gain                                  6,867,576 
                                                                        ---------- 

Net increase in net assets resulting from operations                    $7,803,488 
                                                                        ========== 

              See accompanying notes to the financial statements.              3


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]


                                                                     Period from         
                                                                  November 26, 1996      
                                             Year Ended      (commencement of operations)
                                          February 28, 1998      to February 28, 1997    
                                          -----------------  ----------------------------
                                                                                         
Increase (decrease) in net assets:                                                       
Operations:                                                                              
   Net investment income                     $   935,912            $   202,369          
   Net realized gain                           6,464,770                672,205          
   Change in net unrealized appreciation                                                 
      (depreciation)                             402,806                377,632          
                                             -----------            -----------          

   Net increase in net assets resulting                                                  
      from operations                          7,803,488              1,252,206          
                                             -----------            -----------          

Distributions to shareholders from:                                                      
   Net investment income                                                                 
       Class I                                   (27,511)                    --          
       Class III                                (908,401)              (202,377)         
                                             -----------            -----------          
       Total distributions from net                                                      
       investment income                        (935,912)              (202,377)         
                                             -----------            -----------          
   In excess of net investment income                                                    
       Class I                                       (92)                    --          
       Class III                                  (3,044)                    --          
                                             -----------            -----------          
       Total distributions in excess of                                                  
       net investment income                      (3,136)                    --          
                                             -----------            -----------          
   Net realized gains                                                                    
       Class I                                  (175,698)                    --          
       Class III                              (5,674,854)              (134,918)         
                                             -----------            -----------          
       Total distributions from net                                                      
       realized gains                         (5,850,552)              (134,918)         
                                             -----------            -----------          

                                              (6,789,600)              (337,295)         
                                             -----------            -----------          
   Net share transactions: (Note 5)                                                      
       Class I                                   138,452                     --          
       Class III                              13,162,081             29,871,668          
                                             -----------            -----------          
   Increase in net assets resulting from                                                 
      net share transactions                  13,300,533             29,871,668          
                                             -----------            -----------          

   Total increase in net assets               14,314,421             30,786,579          

Net assets:                                                                              
   Beginning of period                        30,786,579                     --          
                                             -----------            -----------          

   End of period (including accumulated                                                  
      undistributed net investment loss                                                  
      of $0 and $8, respectively)            $45,101,000            $30,786,579          
                                             ===========            ===========          

4             See accompanying notes to the financial statements.               


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class I share outstanding throughout the period)                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                             Period from April 30, 1997
                                                                  (commencement of     
                                                                  operations) to       
                                                                  January 9, 1998      
                                                             --------------------------
                                                                                       
Net asset value, beginning of period                                 $10.24            
                                                                     ------            

Income from investment operations:                                                     
   Net investment income/(b)/                                          0.25+           
   Net realized and unrealized gain                                    0.93            
                                                                     ------            

      Total from investment operations                                 1.18            
                                                                     ------            

Less distributions to shareholders:                                                    
   From net investment income                                         (0.26)           
   In excess of net investment income                                    --/(d)/       
   From net realized gains                                            (1.65)           
                                                                     ------            

      Total distributions                                             (1.91)           
                                                                     ------            
Net asset value, end of period                                       $ 9.51/(c)/       
                                                                     ======            

Total Return/(a)/                                                     11.04%           

Ratios/Supplemental Data:                                                              
   Net assets, end of period (000's)                                      -            
   Net expenses to average daily net assets                            0.13%*          
   Net investment income to average daily net assets/(b)/              3.18%*          
   Portfolio turnover rate                                               32%           
   Fees and expenses voluntarily waived or borne by the Manager                        
      consisted of the following per share amount:                   $ 0.01            

/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
    return would have been lower had certain expenses not been waived during
the period shown.                                                   

/(b)/ Recognition of net investment income is affected by the timing of the     
declaration of dividends by the underlying funds in which the fund  
invests.                                                            

/(c)/ All Class I shares of the Fund were exchanged for Class III shares on     
  January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                    

/(d)/ The per share distribution in excess of net investment income was $0.0008.

+     Computed using average shares outstanding throughout the period.          

*     Annualized.                                                               

              See accompanying notes to the financial statements.              5


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                          Period from          
                                                    Year Ended          November 26, 1996      
                                                   February 28,    (commencement of operations)
                                                       1998           to February 28, 1997     
                                                  ---------------   ---------------------------
                                                                                               
Net asset value, beginning of period                  $ 10.30               $  10.00           
                                                      -------               --------           

Income from investment operations:                                                             
   Net investment income /(b)/                           0.26+                  0.12           
   Net realized and unrealized gain                      1.83                   0.38           
                                                      -------               --------           

      Total from investment operations                   2.09                   0.50           
                                                      -------               --------           

Less distributions to shareholders:                                                            
   From net investment income                           (0.26)                 (0.12)          
   In excess of net investment income                      --/(c)/                --           
   From net realized gains                              (1.65)                 (0.08)          
                                                      -------               --------           

      Total distributions                               (1.91)                 (0.20)          
                                                      -------               --------           
Net asset value, end of period                        $ 10.48               $  10.30           
                                                      =======               ========           

Total Return /(a)/                                      21.86%                  5.09%          

Ratios/Supplemental Data:                                                                      
   Net assets, end of period (000's)                  $45,101               $ 30,787           
   Net expenses to average daily net assets              0.00%                  0.00%*         
   Net investment income to average daily net                                                  
      assets /(b)/                                       2.39%                  3.21%*         
   Portfolio turnover rate                                 32%                    10%          
   Fees and expenses voluntarily waived or borne                                               
      by the Manager consisted of the following       $  0.01               $   0.01           
      per share amounts:                                                                       

/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  
/(b)/ Recognition of net investment income is affected by the timing of the     
declaration of dividends by the underlying funds in which the fund  
invests.                                                            
/(c)/ The per share distribution in excess of net investment income was $0.0009.
+   Computed using average shares outstanding throughout the period.        
*   Annualized.                                                             

6              See accompanying notes to the financial statements.              


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
------------------------------------------------------------------------------- 

1.   Significant accounting policies                                            

 GMO Global (U.S.+) Equity Allocation Fund (the "Fund"), which commenced
  operations on November 26, 1996, is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as   
 amended, as an open-end, diversified management investment company. The
    Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
    "Manager" or "GMO"). The Trust was established as a Massachusetts Business
     Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
     The Declaration of Trust permits the Trustees to create an unlimited number
    of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.                         

The Fund operates as a "fund-of-funds" in that, pursuant to management
   provided by the Manager, it makes investments in other funds of the Trust
  ("underlying funds"). The Fund seeks a total return greater than that of
    the GMO Global (U.S.+) Equity Index, a benchmark developed by the Manager.
The Fund will pursue its objective by investing primarily in Class III
    shares of domestic equity, international equity, and fixed income funds of
the Trust.                                                            

At the beginning of the fiscal year, the Fund offered three classes of
    shares: Class I, Class II and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  

    Effective January 9, 1998, Class I shares ceased operations and all shares
were exchanged for Class III shares, and Class II shares ceased to be 
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make  
    estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those   
estimates.                                                            

Portfolio valuation                                                   
    Shares of underlying funds are valued at their net asset value as reported
   on each business day. Short-term investments with a remaining maturity of
    sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the 
Trustees.                                                             

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.                                                

                                                                               7


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

   Collateral for certain tri-party 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, realization of collateral by the Fund
may be delayed or limited.                                            

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
classification of distributions received from underlying funds.       

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated       Accumulated Undistributed             
Undistributed Net           Net Realized                      
     Investment Income               Gain                Paid-in Capital
       -----------------    -------------------------    -------------------
       $3,144                 $(34,764)                  $31,620

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

8                                                                               


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
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.        

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 in such manner as deemed equitable by the Trustees,
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.
 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                              
The premium on cash purchases of Fund shares is .47% of the amount    
  invested. In the case of cash redemptions, the fee is .15% of the amount
  redeemed. Prior to June 30, 1997, the premium on cash purchases was .42%
and the fee on cash redemptions was .05%. 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. Purchase premiums are included as part of each class'
"shares sold" and redemption fees are included as part of each class' 
  "share repurchased", respectively, as summarized in Note 5. For the year
     ended February 28, 1998, the Fund received $62,159 in purchase premiums and
     $4,107 in redemption fees. There is no premium for reinvested distributions
or in-kind transactions.                                              

2.   Fees and other transactions with affiliates                                

The Manager determines the allocation of the assets of the Fund among 
  designated underlying funds. The Manager does not charge an advisory fee
 for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. 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 .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.   

  GMO has agreed to reimburse all expenses until further notice (excluding
    brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses).         

The Fund's portion of the fee paid by the Trust to the unaffiliated   
    Trustees during the year ended February 28, 1998 was $354. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

                                                                               9


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$26,850,766 and $12,424,264, respectively.                            

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                    Gross Unrealized    Gross Unrealized    Net Unrealized
 Aggregate Cost      Appreciation        Depreciation       Appreciation
  --------------    ----------------    ----------------    --------------
$ 45,039,580        $ 1,243,426        $ 1,171,002          $ 72,424

4.   Principal shareholders                                                     

     At February 28, 1998, 37.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's      
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:                           

                                          Period from April 30, 1997
                                          (commencement of operations)
Class I:                                        to January 9, 1998      
                                          ----------------------------------
                                        Shares            Amount
                                          ----------------  ----------------
Shares sold                                107,248        $   1,151,341 
Shares issued to shareholders in                                        
 reinvestment of distributions             20,607              203,301
Shares repurchased                        (127,855)          (1,216,190)
                                          ----------------  ----------------
Net increase                                     0        $     138,452 
                                          ================  ================

10                                                                              


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Share transactions -- continued                                                 

                                                        [Enlarge/Download Table]

                                                                Period from November 26, 1996 
                                           Year Ended           (commencement of operations)  
Class III:                             February 28, 1998            to February 28, 1997      
                              --------------------------------  ------------------------------
                                  Shares          Amount          Shares           Amount     
                              -------------- -----------------  -------------  ---------------
                                                                                              
Shares sold                       1,472,906  $   15,143,599      3,086,368     $  30,859,765  
Shares issued to shareholders                                                                 
  in reinvestment of                                                                          
  distributions                     192,315       1,900,758             --                --  
Shares repurchased                 (352,601)     (3,882,276)       (97,500)         (988,097) 
                              -------------- -----------------  -------------  ---------------
Net increase                      1,312,620  $   13,162,081      2,988,868     $  29,871,668  
                              ============== =================  =============  ===============

                                                                              11


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated     
48.02% of distributions as net capital gain dividends.                          

12                                                                              


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GMO Global (U.S.+) Equity Allocation Fund                                       
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

    Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
   portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
twenty years. Mr. Inker has been with the firm for six years.         

Management Discussion and Analysis of Fund Performance                          

    The Class III shares of the Global (U.S.+) Equity Allocation Fund returned
   21.9% for the fiscal year ended February 28, 1998. During that period the
   Fund's benchmark (75% S&P 500/25% GMO EAFE-Lite Extended) returned 30.0%.

     We use GMO's long-term asset class forecasts to allocate the Global (U.S.+)
 Equity Allocation Fund among various GMO mutual funds. In our view, the
    U.S. stock market is significantly overvalued. It is notoriously difficult
    to call the top of a major stock market bubble like the one that exists in
the U.S. today. We believe, however, that our key analysis has been   
  correct, having done a far more complete analysis of bullish competitive
    data on the U.S. market and "new era" thinking than we have ever done. Our
research suggests that from the market's current valuation level      
   prospective returns for large capitalization U.S. stocks over the next 10
years will be very disappointing.                                     

During the fiscal year, the Fund was underweight in U.S. stocks by 17%
relative to the benchmark. This allocation hurt the Fund's overall    
performance due to the continuing rally of U.S. equities. Within U.S. 
stocks, we tilted the portfolio towards the most attractively valued  
sectors including small stocks, where we were 12% overweight, and real
estate investment trusts (REITs), where we were 8% overweight. For the
     fiscal year, the allocation to REITs hurt performance, as the GMO REIT Fund
    underperformed the S&P 500 Index by 21%. Although small stocks as measured
by the Russell 2000 underperformed the S&P 500, performance of the GMO
Small Cap Growth Fund and the GMO Small Cap Value Fund was strong,    
  providing returns comparable to that of the S&P 500. In addition, return
from our holding of the U.S. Core Fund exceeded that of the S&P 500   
benchmark.                                                            

  Our overweight of international stocks was unsuccessful in adding value.
Performance of the International Core Fund lagged the benchmark as the
 rally in expensive multinationals continued. The GMO International Core
  Fund returned 11.7%, underperforming the GMO EAFE-Lite Index by 7.2%. We
 also diversified into emerging markets, which did not perform well. The
    emerging markets as measured by the IFC Investable Index performed poorly,
   down 21.8%, due to the crisis in Asian economies. However, performance of
the GMO Emerging Markets Fund was better at -12.9%.                   

    The portfolio also maintained a 10% weight in fixed income. Because of our
     very bearish view of the U.S. equity market, we believe a position in fixed
   income will provide excellent protection in a potentially difficult year.

   Until we see a significant correction in U.S. equities, it is likely that
    the Fund will maintain its bearish stance. The diversification of the Fund
  into fixed income and emerging markets should benefit performance in the
  current fiscal year. We also expect our U.S. portfolio to perform better
    this year. Small stocks are poised to outperform, and REITs should do well
 in the current market environment, providing more attractive yields and
valuations than those available from large cap U.S. equities.         

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Global (U.S.+) Equity Allocation Fund "GEAF" Class III Shares and 
the MSCI World Index  
As of February 28, 1998 

-------------------------------                     
Average Annual Total Return                     
-------------------------------                     
Since     
1 Year         Inception                    
-------------------------------                     
Class                   11/26/96                              
III     21.1%            21.2%                              
-------------------------------                     

[LINE GRAPH APPEARS HERE] 

              GMO Global (U.S.+)
                      GEAF            Equity Index        MSCI World Index
                      ----         ------------------     ----------------

11/26/96                $9,953              $10,000               $10,000       
2/28/97               $10,444              $10,388               $10,047      
2/28/98               $12,727              $13,494               $12,467      

Performance shown is net of all fees after reimbursement from the manager.      
Returns and net asset value 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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the state period and reflects a          
transaction fee of 47 bp on the purchase and 15 bp on the redemption.           
Transaction fees are paid to the Fund to cover trading costs. Past performance  
is not indicative of future performance. Information is unaudited.              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of GMO Global Bond Fund       
(A Series of GMO Trust)                                                         

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 at February   
28, 1998, the results of its operations for the year then ended, the changes in 
its net assets and the financial highlights for the periods presented, in       
conformity with generally accepted accounting principles. These financial       
statements and financial highlights (hereafter referred to as "financial        
statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian and brokers, provide a   
reasonable basis for the opinion expressed above.                               

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Par Value          Description                                             Value ($)     
---------------------------------------------------------------------------------------------- 
                                                                                               
                         DEBT OBLIGATIONS -- 96.8%                                             

                         Brazil -- 2.4%                                                        
USD       2,021,645      Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14         1,642,587 
USD       1,000,000      Brazil Discount ZL Bond,                                              
                            Variable Rate, 6 Mo. LIBOR + .81%, 6.69%, due                      
                            4/15/24                                                    827,500 
                                                                                 --------------
                                                                                     2,470,087 
                                                                                 --------------
                         Bulgaria -- 0.6%                                                      
USD       2,000,000      Bulgaria Discount Series B Strips, Basket 2, 0.00%,                   
                            due 7/28/24                                                255,000 
USD         500,000      Bulgaria FLIRB Series B,                                              
                            Variable Rate, Step up, 2.75%, due 7/28/12                 322,500 
                                                                                 --------------
                                                                                       577,500 
                                                                                 --------------
                         Canada -- 1.5%                                                        
CAD       2,000,000      Government of Canada Real Return, 4.25%, due 12/1/21        1,573,665 
                                                                                 --------------
                         Denmark -- 3.2%                                                       
DKK      20,800,000      Kingdom of Denmark Bullet, 7.00%, due 11/15/07              3,398,870 
                                                                                 --------------
                         Ecuador -- 0.3%                                                       
USD         500,000      Republic of Ecuador Par Bond,                                         
                            Variable Rate, Step up, 3.50%, due 2/28/25                 274,063 
                                                                                 --------------
                         France -- 5.4%                                                        
FRF      23,650,000      Credit Foncier, 6.50%, due 10/13/08                         4,202,339 
ECU       1,000,000      Government of France, 8.25%, due 4/25/22                    1,477,502 
                                                                                 --------------
                                                                                     5,679,841 
                                                                                 --------------
                         Germany -- 0.7%                                                       
ESP      100,000,000     Deutsche Ausgleichsbank, 8.60%, due 5/22/03                   757,394 
                                                                                 --------------
                         Greece -- 0.8%                                                        
GRD      250,000,000     Hellenic Republic,                                                    
                            Variable Rate, 12 mo. GTB + 1.50%, 11.00%, due                     
                            9/30/03                                                    819,487 
                                                                                 --------------
                         Jordan -- 0.3%                                                        
USD         500,000      Hashemite Kingdom of Jordan Par Bond,                                 
                            Variable Rate, Step up  144A, 5.00%, due 12/23/23          346,250 
                                                                                 --------------
                         Mexico -- 0.7%                                                        
FRF       5,000,000      Mexico Par Bond, 6.63%, due 12/31/19                          715,394 
                                                                                 --------------

              See accompanying notes to the financial statements.              1


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Par Value          Description                                             Value ($)     
-----------------------------------------------------------------------------------------------
                                                                                               
                         New Zealand -- 2.4%                                                   
NZD       4,500,000      New Zealand Index Linked Bond, 4.50%, due 2/15/16           2,506,558 
                                                                                 --------------
                         Nigeria -- 0.3%                                                       
USD         500,000      Central Bank of Nigeria Par Bond,                                     
                            Variable Rate, Step up, 6.25%, due 11/15/20                360,000 
                                                                                 --------------
                         Supra National -- 3.4%                                                
JPY      85,000,000      Asian Development Bank, 5.00%, due 2/5/03                     794,962 
AUD       6,900,000      European Bank Recon and Development, Zero Coupon,                     
                            due 2/10/28                                                707,966 
GBP       1,000,000      International Bank Recon and Development, 11.50%,                     
                            due 11/9/03                                              2,026,842 
                                                                                 --------------
                                                                                     3,529,770 
                                                                                 --------------
                         Sweden -- 2.6%                                                        
SEK       5,000,000      Government of Sweden Index Linked Bond, 4.00%, due                    
                            12/1/20                                                    692,696 
SEK      16,100,000      Kingdom of Sweden, 6.00%, due 2/9/05                        2,088,914 
                                                                                 --------------
                                                                                     2,781,610 
                                                                                 --------------
                         United States -- 71.8%                                                

                         Asset Backed Securities -- 57.5%                                      
USD         763,677      AFC Home Equity Loan Trust Series 97-1 Class A,                       
                            Variable Rate, 1 mo. LIBOR + .22%, 5.85%, due                      
                            3/25/27                                                    760,575 
USD       5,000,000      Augusta Funding Series 96-F2,                                         
                            Variable Rate, 3 mo. LIBOR + .30%, 144A, 6.06%,                    
                            due 4/15/06                                              5,000,000 
USD         219,987      BCI Home Equity Loan 94-1 Class A1,                                   
                            Variable Rate, 1 mo. LIBOR + .24%, 5.93%, due                      
                            3/29/44                                                    219,987 
USD      16,045,000      Discover Card Master Trust I 94-2 Class A,                            
                            Variable Rate, 1 mo. LIBOR + .35%, 5.98%, due                      
                            10/16/04                                                16,185,393 
USD       3,000,000      Eagle Pier Corp BV,                                                   
                            Variable Rate, 6 mo. LIBOR + .25%, 6.09%, due                      
                            10/03/01                                                 3,010,500 
USD       2,000,000      First Chicago Master Trust II 95-0 Class A,                           
                            Variable Rate, 1 mo. LIBOR + .23%, 5.86%, due                      
                            2/15/04                                                  2,007,500 
USD       5,000,000      First Deposit Master Trust Series 96-1 Class A,                       
                            Variable Rate, 1 mo. LIBOR +.17%, 5.76%, due                       
                            8/15/07                                                  5,012,500 
USD       4,000,000      National Premier Finance 95-2 Class A, 144A, 6.21%,                   
                            due 6/01/99                                              4,000,000 
USD       2,000,000      National Premier Finance IX 96-1 Class A, 144A,                       
                            7.20%, due 7/01/00                                       2,042,000 
USD      10,000,000      Pacific Life CBO 98-1 Class A2A,                                      
                            Variable Rate, Step Up, 0.00%, due 1/15/10               9,782,812 

2              See accompanying notes to the financial statements.              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Par Value          Description                                             Value ($)     
-----------------------------------------------------------------------------------------------
                                                                                               
                         Asset Backed Securities -- continued                                  
USD       5,000,000      Rhyno CBO Series 97-1 Class A-2, 144A,                                
                            Variable Rate, Step Up, 0.00%, due 9/15/09               5,322,655 
USD       4,078,750      SMS Student Loan Trust 94-B Class A2,                                 
                            Variable Rate, 1 mo. LIBOR + .30%, 5.93%, due                      
                            4/25/16                                                  4,082,828 
USD       3,000,000      Starvest CBO-1 Class A,                                               
                            Variable Rate, 6 mo. LIBOR + .19% 144A, 5.81%,                     
                            due 7/30/11                                              2,964,000 
                                                                                 --------------
                                                                                    60,390,750 
                                                                                 --------------
                         U.S. Government -- 1.9%                                               
USD       2,014,480      U.S. Treasury Inflation Indexed Note, 3.63%, due                      
                            7/15/02/(a)/                                             2,003,777 
                                                                                 --------------
                         U.S. Government Agency -- 12.4%                                       

                         U.S. Government Agency Bonds/Notes -- 5.4%                            
USD       4,000,000      Agency for International Development Floater                          
                            (Support of India),                                                
                           Variable Rate, 3 mo. LIBOR + .10%, 5.73%, due                       
                           2/01/27                                                   4,014,375 
USD       1,639,000      Ship Co 668, Series A, 8.50%, due 5/11/02                   1,639,820 
                                                                                 --------------
                                                                                     5,654,195 
                                                                                 --------------
                         Structured Notes -- 7.0%                                              
USD       2,750,000      Federal Home Loan Bank,                                               
                            Variable Rate, ((.50 x 10YR CMT) + 1.25%), 4.42%,                  
                            due 3/16/98                                              2,745,875 
USD       5,000,000      Federal Home Loan Bank,                                               
                            Variable Rate, (10.00% - 6 mo. LIBOR), 4.19%, due                  
                            9/22/03                                                  4,600,000 
                                                                                 --------------
                                                                                     7,345,875 
                                                                                 --------------
                                                                                    13,000,070 
                                                                                 --------------

                         Total United States                                        75,394,597 
                                                                                 --------------
                         Venezuela -- 0.4%                                                     
USD         500,000      Republic of Venezuela Discount Bond Series A,                         
                            Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due                      
                            3/31/20                                                    437,500 
                                                                                 --------------

                         TOTAL DEBT OBLIGATIONS (COST $101,256,330)                101,622,586 
                                                                                 --------------

             See accompanying notes to the financial statements.             3


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Principal Amount      Description                                             Value ($)     
-----------------------------------------------------------------------------------------------
                                                                                               
                         CALL OPTIONS PURCHASED -- 1.9%                                        

                         Cross Currency Options -- 0.2%                                        
DEM      62,400,000      DEM Call/BEF Put, Expires 7/8/98, Strike 20.6                  72,206 
DEM      28,300,000      DEM Call/ITL Put, Expires 9/22/98, Strike 993                 115,396 
                                                                                 --------------
                                                                                       187,602 
                                                                                 --------------
                         Options on Bonds -- 0.4%                                              
SEK     113,000,000      Sweden Government Bond, Expires 4/30/98, Strike                       
                         100.677                                                       434,702 
                                                                                 --------------
                         Options on Currency -- 1.3%                                           
USD      25,100,000      German Mark, Expires 9/17/98, Strike 1.725                  1,307,710 
USD      30,000,000      Japanese Yen, Expires 6/15/98, Strike 140                      51,000 
                                                                                 --------------
                                                                                     1,358,710 
                                                                                 --------------
                         Options on Futures -- 0.0%                                            
USD         250,000      Eurodollar, Expires 3/16/98, Strike 94.25                      20,000 
                                                                                 --------------
                         TOTAL CALL OPTIONS PURCHASED                                          
                         (COST  $2,051,319)                                          2,001,014 
                                                                                 --------------
                         PUT OPTIONS PURCHASED -- 0.4%                                         

                         Cross Currency Options -- 0.1%                                        
DEM      28,300,000      DEM Put/ITL Call, Expires 9/22/98, Strike 993                  71,732 
USD         973,663      TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires                      
                         5/12/98, Strike 545,000                                         5,025 
                                                                                 --------------
                                                                                        76,757 
                                                                                 --------------
                         Options on Currency -- 0.3%                                           
USD      25,100,000      German Mark, Expires 9/17/98, Strike 1.725                    351,400 
                                                                                 --------------
                         Options on Futures -- 0.0%                                            
USD         250,000      Eurodollar, Expires 3/16/98, Strike 94.00                       1,250 
                                                                                 --------------

                         TOTAL PUT OPTIONS PURCHASED                                           
                         (COST  $1,142,585)                                            429,407 
                                                                                 --------------


      Shares             RIGHTS AND WARRANTS -- 0.0%                                           
------------------                                                                             
                                                                                               
                         Mexico -- 0.0%                                                        
            870,000      United Mexican States Warrants, Expires 6/30/03*                   -- 
                                                                                 --------------

                         TOTAL RIGHTS AND WARRANTS (COST  $0)                               -- 
                                                                                 --------------

4              See accompanying notes to the financial statements.              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Par Value          Description                                             Value ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                         SHORT-TERM INVESTMENTS -- 4.7%                                           

                         Cash Equivalents -- 2.9%                                                 
USD       3,090,000      BankBoston Eurodollar Time Deposit, 5.7875% due                          
                         3/2/98/(b)/                                                 3,090,000    
                                                                                 --------------   
                         Repurchase Agreements -- 1.8%                                            
USD       1,868,787      Salomon Smith Barney Inc. Repurchase Agreement,                          
                         dated 2/27/98, due 3/2/98, with a maturity value of                      
                         $1,869,576 and an effective yield of 5.07%,                              
                         collateralized by a U.S. Treasury Obligation with a                      
                         rate of 8.875%, with a maturity date of 8/15/17 and                      
                         with a market value of $1,906,163.                          1,868,787    
                                                                                 --------------   
                         TOTAL SHORT-TERM INVESTMENTS                                             
                         (COST $4,958,787)                                           4,958,787    
                                                                                 --------------   

                         TOTAL INVESTMENTS -- 103.8%                                              
                         (Cost $109,409,021)                                       109,011,794    

                         Other Assets and Liabilities (net) -- (3.8)%               (3,959,718)   
                                                                                 --------------   

                         TOTAL NET ASSETS -- 100%                                $ 105,052,076    
                                                                                 ==============   

                         Notes to the Schedule of Investments:                                    

                         FLIRB - Front Loaded Interest Reduction Bond                             

                         GTB - Greek Treasury Bill                                                

                         PIK - Payment In Kind                                                    

                         CMT - Constant Maturity Treasury Index                                   

                         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 buyers.                                                 

              See accompanying notes to the financial statements.              5


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Notes to the Schedule of Investments -- continued       
Variable and Step up rates - The rates shown on         
variable and step up rate notes are the current   
interest rates at February 28, 1998, which are    
subject to change based on the terms of the       
security, including varying reset dates.          

Currency Abbreviations                                  
AUD - Australian Dollar              GRD - Greek Drachma
BEF - Belgian Franc                  ITL - Italian Lira 
CAD - Canadian Dollar                JPY - Japanese Yen 
    CHF - Swiss Franc                    MYR - Malaysian Ringgit
      DEM - German Mark                    NLG - Netherlands Guilder
     DKK - Danish Krone                   NZD - New Zealand Dollar
ECU - European Currency Unit         SEK - Swedish Krona
ESP - Spanish Peseta                 THB - Thailand Baht
FRF - French Franc                   TRL - Turkish Lira 
       GBP - British Pound                  USD - United States Dollar

(a) Security has been segregated to cover margin        
 requirements on open financial futures contracts.
(b) Represents investments of security lending          
collateral (Note 1).                            
*   Non-income producing security.                      

6               See accompanying notes to the financial statements.             


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]
                                                                                                
Assets:                                                                                         
      Investments, at value (cost $109,409,021) (Note 1)                           $109,011,794 
      Cash (Note 1)                                                                     383,469 
      Interest receivable                                                             1,031,109 
      Receivable for variation margin on open futures contracts (Notes 1 and 6)           3,801 
      Receivable for open forward foreign currency contracts (Notes 1 and 6)          2,124,139 
      Receivable for expenses waived or borne by Manager (Note 2)                        26,422 
                                                                                   ------------ 

       Total assets                                                                 112,580,734 
                                                                                   ------------ 

Liabilities:                                                                                    
      Payable upon return of securities loaned (Note 1)                               3,090,000 
      Written options outstanding, at value (premiums $3,069,325) (Notes 1 and 6)     2,899,290 
      Payable for open forward foreign currency contracts (Notes 1 and 6)             1,343,640 
      Payable to affiliate for (Note 2):                                                        
         Management fee                                                                  28,178 
         Shareholder service fee                                                         12,040 
      Payable for open swap contracts (Notes 1 and 6)                                    89,797 
      Accrued expenses                                                                   65,713 
                                                                                   ------------ 

       Total liabilities                                                              7,528,658 
                                                                                   ------------ 

Net assets                                                                         $105,052,076 
                                                                                   ============ 
Net assets consist of:                                                                          
      Paid-in capital                                                              $104,956,998 
      Distributions in excess of net investment income                                 (549,020)
      Accumulated undistributed net realized gain                                       318,404 
      Net unrealized appreciation                                                       325,694 
                                                                                   ============ 
                                                                                   $105,052,076 
                                                                                   ============ 
Net assets attributable to:                                                                     
      Class III shares                                                             $105,052,076 
                                                                                   ============ 
Shares outstanding:                                                                             
      Class III                                                                      10,349,491 
                                                                                   ============ 
Net asset value per share:                                                                      
      Class III                                                                    $      10.15 
                                                                                   ============ 

             See accompanying notes to the financial statements.             7


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
------------------------------------------------------------------------------- 

Investment Income:                                                              
     Interest (including securities lending income of $180)          5,567,990
                                                                     -----------

      Total income                                                   5,567,990
                                                                     -----------

Expenses:                                                                       
     Management fee (Note 2)                                           297,447
     Custodian and transfer agent fees                                 102,228
     Audit fees                                                         53,766
     Legal fees                                                          8,308
     Registration fees                                                   6,447
     Trustees fees (Note 2)                                                721
     Miscellaneous                                                       2,675
      Fees waived or borne by Manager (Note 2)                         (310,242)
                                                                     -----------
                                                                       161,350
Shareholder service fee (Note 2)                                    
      Class I                                                           13,476
      Class III                                                        120,157
                                                                     -----------
      Net expenses                                                     294,983
                                                                     -----------

         Net investment income                                       5,273,007
                                                                     -----------

Realized and unrealized gain (loss):                                            
Net realized gain (loss) on:                                        
       Investments                                                     (718,532)
      Closed futures contracts                                       2,841,656
      Closed swap contracts                                            205,858
      Written options                                                  492,346
Foreign currency, forward contracts and foreign                   
       currency related transactions                                   (246,590)
                                                                     -----------

         Net realized gain                                           2,574,738
                                                                     -----------

Change in net unrealized appreciation (depreciation) on:            
       Investments                                                   (1,176,239)
      Open futures contracts                                           214,709
       Open swap contracts                                              (89,797)
      Written options                                                  131,035
Foreign currency, forward contracts and foreign                   
      currency related transactions                                  1,226,694
                                                                     -----------

         Net unrealized gain                                           306,402
                                                                     -----------

      Net realized and unrealized gain                               2,881,140
                                                                     -----------

Net increase in net assets resulting from operations                 $8,154,147 
                                                                     ===========

8              See accompanying notes to the financial statements.              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                               Year Ended         Year Ended  
                                                              February 28,        February 28,
                                                                  1998               1997     
                                                            ----------------  ----------------
                                                                                              
Increase (decrease) in net assets:                                                            
Operations:                                                                                   
      Net investment income                                   $ 5,273,007        $3,974,892   
      Net realized gain                                         2,574,738         3,056,295   
      Change in net unrealized appreciation (depreciation)        306,402           364,425   
                                                              ------------       -----------  
      Net increase in net assets resulting from operations      8,154,147         7,395,612   
                                                              ------------       -----------  

Distributions to shareholders from:                                                           
      Net investment income                                                                   
       Class I                                                   (308,025)               --   
       Class III                                               (4,712,549)       (3,484,400)  
                                                              ------------       -----------  
       Total distributions from net investment income          (5,020,574)       (3,484,400)  
                                                              ------------       -----------  
      Net realized gains                                                                      
       Class I                                                   (157,383)               --   
       Class III                                               (2,433,530)       (2,181,543)  
                                                              ------------       -----------  
       Total distributions from net realized gains             (2,590,913)       (2,181,543)  
                                                              ------------       -----------  
      In excess of net realized gains                                                         
       Class I                                                   (104,612)               --   
       Class III                                               (1,617,556)               --   
                                                              ------------       -----------  
       Total distributions in excess of net realized gains     (1,722,168)               --   
                                                              ------------       -----------  

                                                               (9,333,655)       (5,665,943)  
                                                              ------------       -----------  
      Net share transactions: (Note 5)                                                        
       Class I                                                   (684,405)          654,817   
       Class III                                               35,501,679        37,957,406   
                                                              ------------       -----------  
      Increase in net assets resulting from net share          34,817,274        38,612,223   
      transactions                                            ------------       -----------  

      Total increase in net assets                             33,637,766        40,341,892   

Net assets:                                                                                   
      Beginning of period                                      71,414,310        31,072,418   
                                                              ------------       -----------  

      End of period (including distributions in excess of                                     
      net investment income of $549,020 and accumulated                                       
      undistributed net investment income of $1,195,168,      $105,052,076       $71,414,310  
      respectively)                                           ============       ===========  


              See accompanying notes to the financial statements.              9


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                         Period from     Period from January 6, 1997 
                                                        March 1, 1997    (commencement of operations)
                                                     to January 9, 1998    to February 28, 1997      
                                                     ------------------  ----------------------------
                                                                                                     
Net asset value, beginning of period                        $10.15                  $10.29           
                                                            -------                 -------          

Income from investment operations:                                                                   
      Net investment income                                   0.55+                   0.09           
      Net realized and unrealized gain (loss)                 0.44                   (0.23)          
                                                            -------                 -------          

      Total from investment operations                        0.99                   (0.14)          
                                                            -------                 -------          

Less distributions to shareholders:                                                                  
      From net investment income                             (0.55)                     --           
      From net realized gains                                (0.28)                     --           
      In excess of net realized gains                        (0.18)                     --           
                                                            -------                 -------          

      Total distributions                                    (1.01)                     --           
                                                            -------                 -------          
Net asset value, end of period                              $10.13/(a)/             $10.15           
                                                            =======                 =======          

Total Return /(b)/                                            9.98%                  (1.36)%         

Ratios/Supplemental Data:                                                                            
      Net assets, end of period (000's)                         --                  $  646           
      Net expenses to average daily net assets                0.47%*                  0.47%*         
      Net investment income to average daily net assets       6.12%*                  6.05%*         
      Portfolio turnover rate                                  103%                     72%          
      Fees and expenses voluntarily waived or borne by                                               
         the Manager consisted of the following per                                                  
                      share amounts:                        $ 0.03                  $ 0.01           

*     Annualized.                                                               
+     Computed using average shares outstanding throughout the period.          
/(a)/ All Class I shares of the Fund were exchanged for Class III shares on     
  January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                    
/(b)/ Calculation excludes purchase premiums. The total returns would have been 
lower had certain expenses not been waived during the periods shown.

10              See accompanying notes to the financial statements              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                    Year Ended              
                                                                 February 28/29,            
                                                         ---------------------------------  
                                                           1998        1997       1996 *    
                                                         ---------    --------    --------  
                                                                                            
Net asset value, beginning of period                     $  10.16     $  9.89     $ 10.00   
                                                         ---------    --------    --------  

Income from investment operations:                                                          
      Net investment income                                  0.65 +      0.61        0.05   
      Net realized and unrealized gain (loss)                0.36        0.59       (0.16)  
                                                         ---------    --------    --------  

      Total from investment operations                       1.01        1.20       (0.11)  
                                                         ---------    --------    --------  

Less distributions to shareholders:                                                         
      From net investment income                            (0.56)      (0.57)         --   
      From net realized gains                               (0.28)      (0.36)         --   
      In excess of net realized gains                       (0.18)         --          --   
                                                         ---------    --------    --------  

      Total distributions                                   (1.02)      (0.93)         --   
                                                         ---------    --------    --------  
Net asset value, end of period                           $  10.15     $ 10.16     $  9.89   
                                                         =========    ========    ========  

Total Return (a)                                            10.19%      12.01%      (1.10)% 

Ratios/Supplemental Data:                                                                   
      Net assets, end of period (000's)                  $105,052     $70,768     $31,072   
      Net expenses to average daily net assets               0.34%       0.34%       0.34%**
      Net investment income to average daily net assets      6.21%       6.31%       6.16%**
      Portfolio turnover rate                                 103%         72%          0%  
      Fees and expenses voluntarily waived or borne by                                      
         the Manager consisted of the following per                                         
         share amounts:                                  $   0.04     $  0.04     $  0.01   

*    Period from December 28, 1995 (commencement of operations) to February 29, 
1996.                                                                 
**   Annualized.                                                                
+    Computed using average shares outstanding throughout the period.           
(a)  Calculation excludes purchase premiums. The total returns would have been  
lower had certain expenses not been waived during the periods shown.  

              See accompanying notes to the financial statements.             11


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
------------------------------------------------------------------------------- 

1.   Significant accounting policies                                            

   GMO Global Bond Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as   
     amended, as an open-end, non-diversified management investment company. The
    Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
    "Manager" or "GMO"). The Trust was established as a Massachusetts Business
     Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
     The Declaration of Trust permits the Trustees to create an unlimited number
    of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.                                   

     The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and    
 multicurrency units. The Fund generally seeks to provide a total return
  greater than that provided by the global fixed income securities market.

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
as those shares.                                                      

     Effective January 9, 1998, Class I shares ceased operations, and all shares
were exchanged for Class III shares, and Class II shares ceased to be 
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

    Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
is                                                                    

12                                                                              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

kept informed of erratic or unusual movements (including unusual      
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
 another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.                                   

   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 investments in securities held by the Fund were valued on the basis
    of a price provided by a principal market maker. At February 28, 1998, the
     total value of these securities represented 18% of net assets. These prices
  may differ from the value that would have been used had a broader market
for securities existed and the differences could be material to the   
financial statements.                                                 

Foreign currency translation                                          

The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     

   The Fund may use futures contracts to manage its exposure to the bond and
   currency 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 obligations in accordance with the  
  initial margin requirements of the broker or exchange. 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. Gains or
losses are recognized but not considered realized until the contracts 
   expire or are closed. Futures contracts involve, to varying degrees, risk
 of loss in excess of the variation margin disclosed in the Statement of
   Assets and Liabilities. Losses may arise from the changes in the value of
     the underlying instrument, if there is an illiquid secondary market for the
  contracts, or if counterparties do not perform under the contract terms.
   Futures contracts are valued at the settlement price established each day
    by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of February 28, 1998.                   

                                                                              13


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

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
    the value of the currency changes unfavorably to the U.S. dollar. The U.S.
 dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has  
acquired or hedged through currency contracts as of February 28, 1998.

Options                                                               

The Fund may write call and put options on futures, securities or     
   currencies it owns or in which it may invest. 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 offset against the proceeds or amounts paid on the
     transaction to determine the realized gain or loss. The Fund as a writer of
     an option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an 
unfavorable change in the price of the security underlying the written
    option. There is the risk the Fund may not be able to enter into a closing
    transaction because of an illiquid market. See Note 6 for all open written
option contracts as of February 28, 1998.                             

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

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.                                                           

14                                                                              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Swap agreements                                                       

    The Fund may invest in swap agreements. 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 swap agreements to manage its exposure
 to interest rates. The Fund entered into interest rate and total return
    swap agreements. 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 based on a notional amount. To the extent the total
     return of the security an index underlying the transaction exceeds or falls
   short or 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 may be set aside as collateral by
     the Fund's custodian in accordance with the terms of the swap agreement. At
     February 28, 1998, $383,469 in cash has been set aside. Swaps are marked to
  market daily based upon quotations from market makers and the change, if
     any, is recorded as unrealized gain or loss in the Statement of Operations.
     Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and 
    market risk in excess of the amounts recognized on the Statement of Assets
     and Liabilities. Such risks involve the possibility that there is no liquid
  market for these agreements, that the counterparty to the agreements may
default on its obligation to perform and that there may be unfavorable
   changes in the fluctuation of interest rates. See Note 6 for a summary of
open swap agreements as of February 28, 1998.                         

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      

  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower fail financially.
    The Fund receives compensation for lending its securities. At February 28,
1998, the Fund loaned securities having a market value of $3,014,783, 
   collateralized by cash in the amount of $3,090,000, which was invested in
short-term instruments.                                               

                                                                              15


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Taxes                                                                 

 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         

   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
differing treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Distributions in                                        
Excess of Net     Accumulated Undistributed         
       Investment Income       Net Realized Gain       Paid-in Capital
         ------------------  -------------------------  ------------------
    $(1,996,621)              $1,996,621                  $-

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

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 accretion of   
     discounts. In determining the net gain or loss on securities sold, the cost
   of securities is determined on the identified cost basis. Interest income
  on the 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 income.                                                   

16                                                                              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

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 in such a manner as deemed equitable by the Trustees,
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 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 .15% of the amount    
    invested. The premium may be reduced by 50% with respect to any portion of
  a purchase that is offset by a corresponding redemption occurring on the
 same day. All purchase premiums are paid to and recorded by the Fund as
   paid-in capital. This fee is allocated relative to each class' net assets
  on the share transaction date. Purchase premiums are included as part of
each class' "shares sold", as summarized in Note 5. For the year ended
     February 28, 1998, the Fund received $50,316 in purchase premiums. There is
no premium for cash redemptions, reinvested distributions or in-kind  
transactions.                                                         

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 and the
possible imposition of currency exchange blockages 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.                                                              

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .35% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .19% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .34%;
thus the net annual expense ratio after the waiver for a Class III    
shareholder is unchanged.                                             

                                                                              17


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

The Fund's portion of the fee paid by the Trust to the unaffiliated   
     Trustees during the year ended February 28, 1998, was $721. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

3.   Purchases and sales of securities                                          

   For the year ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                              Purchases       Proceeds
                                               ------------    -----------
      U.S. Government securities               $  5,972,530    $ 6,133,193
Investments (non-U.S. Government                              
      securities)                               109,019,592     71,382,445

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                    Gross Unrealized    Gross Unrealized  Net Unrealized
  Aggregate Cost     Appreciation        Depreciation     Depreciation
   --------------   ----------------    ----------------  --------------
 $109,449,332       $1,601,404          $2,038,942        $437,538

4.   Principal shareholders                                                     

     At February 28, 1998, 76.2% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   

18                                                                              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
     shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:                                                

                                                        [Enlarge/Download Table]


                                                                 Period from January 6, 1997  
                                Period from March 1, 1997 to   (commencement of operations) to
                                       January 9, 1998               February 28, 1997        
                               ------------------------------ --------------------------------
Class I:                            Shares         Amount          Shares          Amount     
                               ------------- ---------------- ---------------- ---------------
                                                                                              
Shares sold                         498,433  $     5,013,156            63,643 $       654,817
Shares issued to shareholders                                                                 
 in reinvestment of                                                                           
 distributions                       56,872          570,020             -               -    
Shares repurchased                 (618,948)      (6,267,581)            -               -    
                               ============= ================ ================ ===============
Net increase/(decrease)             (63,643) $      (684,405)           63,643         654,817
                               ============= ================ ================ ===============



                                        Year Ended                      Year Ended            
                                     February 28, 1998              February 28, 1997         
                               ------------------------------ ------------------------------- 
Class III:                          Shares         Amount          Shares          Amount     
                               -------------- ---------------- --------------- ---------------
                                                                                              
Shares sold                        3,289,637  $    34,819,662       4,047,314  $   40,339,699 
Shares issued to shareholders                                                                 
 in reinvestment of                                                                           
 distributions                       724,057        7,256,147         435,009       4,467,251 
Shares repurchased                  (627,568)      (6,574,130)       (662,011)     (6,849,544)
                               ============== ================ =============== ===============
Net increase                       3,386,126  $    35,501,679       3,820,312  $   37,957,406 
                               ============== ================ =============== ===============

                                                                              19


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                                [Download Table]


                                                                    Net Unrealized  
Settlement                         Units of                          Appreciation   
   Date      Deliver/Receive       Currency            Value        (Depreciation)  
-----------  -----------------  ----------------    ------------    ----------------
                                                                                    
Buys                                                                                

5/07/98            AUD                2,500,000  $    1,705,558   $         23,433  
3/27/98            CAD               19,300,000      13,570,155            117,790  
3/05/98            DEM                6,900,000       3,803,476           (109,069) 
4/09/98            DEM               81,300,000      44,910,626           (109,747) 
4/30/98            DEM                6,121,415       3,385,736             11,365  
7/10/98            DEM               13,000,000       7,219,535             33,582  
4/17/98            GBP                8,600,000      14,123,365            (16,327) 
3/20/98            ITL           24,712,205,000      13,805,921           (351,408) 
4/03/98            JPY            4,030,000,000      32,064,628             97,815  
3/23/98            THB               60,000,000       1,384,786           (195,201) 
6/22/98            THB               30,000,000         677,413            (99,085) 
                                                                    ================
                                                                  $       (596,852) 
                                                                    ================

Sales                                                                               

5/07/98            AUD                5,700,000  $    3,888,671   $        (78,563) 
7/10/98            BEF              268,143,460       7,211,626            (25,672) 
3/27/98            CAD                1,200,000         843,740             (6,155) 
3/20/98            DEM               25,100,000      13,848,620            308,709  
4/09/98            DEM                7,700,000       4,253,528              2,863  
4/30/98            ECU                3,100,000       3,383,276             (8,905) 
4/17/98            GBP                1,600,000       2,627,603            (37,843) 
4/03/98            JPY            3,720,000,000      29,598,118           (120,714) 
3/20/98            MYR                3,965,500       1,077,765            (77,765) 
4/17/97            MYR                7,481,000       2,028,961             (3,237) 
3/05/98            NLG                7,775,610       3,800,177            112,369  
3/12/98            NZD                4,500,000       2,637,167             38,579  
3/23/98            THB               60,000,000       1,384,786            694,937  
6/22/98            THB               30,000,000         677,413            344,733  
                                                                    ================
                                                                  $      1,143,336  
                                                                    ================

20                                                                              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Forward cross currency contracts                                      

                                                        [Enlarge/Download Table]

                                                                                  Net         
                                                                               Unrealized     
  Settlement                                                                  Appreciation    
     Date         Deliver/Units of Currency      Receive/In Exchange For     (Depreciation)   
  ------------    ---------------------------   --------------------------   ---------------  
                                                                                              
  7/10/98            BEF         477,511,650       DEM         23,100,000  $        (13,952)  
  5/14/98            CHF           4,665,984       DEM          5,800,000              (879)  
  4/30/98            DEM         140,640,500       ECU         71,500,000           245,793   
  4/24/98            DEM          12,000,000       ESP      1,019,460,000            (4,989)  
  4/23/98            DEM           5,039,225       GBP          1,700,000             4,901   
  3/20/98            DEM          10,200,000       ITL     10,053,960,000           (10,900)  
  3/06/98            DEM          23,300,000       SEK        102,874,896             7,531   
  3/23/98            DKK          83,850,800       DEM         22,000,000             5,247   
  4/30/98            ECU          34,200,000       DEM         67,351,564           (73,229)  
  5/22/98            FRF         122,009,888       DEM         36,400,000            21,850   
  3/06/98            SEK          96,215,507       DEM         21,900,000            52,642   
                                                                             ---------------  
                                                                           $        234,015   
                                                                             ===============  



Futures contracts                                                                             

                                                                              Net Unrealized  
 Number of                                       Expiration      Contract      Appreciation   
 Contracts                Type                      Date          Value       (Depreciation)  
 ---------  ----------------------------------  -------------- ------------- -----------------
                                                                                              
    Buys                                                                                      

     25     Australian Government Bond 3 YR      March 1998    $  2,015,451  $        25,667  
     7      Australian Government Bond 10 YR     March 1998         690,902            8,569  
     55     FRF MATIF Bond                       June 1998        4,668,312          (10,362) 
     8      German Government Bond               March 1998       1,185,695           48,432  
     50     German Government Bond               June 1998        7,369,958           (7,456) 
    108     U.S. Treasury Bond 30 YR             March 1998      13,044,375          197,861  
     61     U.S. Treasury Bond 30 YR             June 1998        7,348,594          (66,545) 
     48     U.K Gilt                             June 1998        4,222,030          (48,461) 
                                                                             -----------------
                                                                             $       147,705  
                                                                             =================

                                                                              21


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Futures contracts -- continued                                        

                                                        [Enlarge/Download Table]


                                                                           Net Unrealized  
Number of                                      Expiration     Contract      Appreciation   
Contracts                Type                     Date         Value       (Depreciation)  
---------  ----------------------------------  ------------  ------------ -----------------
                                                                                           
  Sales                                                                                    

    48     MSE 3 mo. Bankers Acceptance        March 1998    $ 8,011,804  $       (33,725) 
    3      Canadian Government Bond            June 1998         262,500               (2) 
    4      Italian Government Bond 10 YR       June 1998         528,073              322  
    6      Japanese Government Bond 10 YR      June 1998       6,144,859          (14,352) 
    10     Spanish Government Bond 10 YR       March 1998        706,100          (31,657) 
    57     Swiss Government Bond               March 1998      4,862,633         (275,022) 
    40     Swiss Government Bond               June 1998       3,423,004           24,288  
   118     U.S. Treasury Bond 10 YR            June 1998      13,289,750           99,733  
                                                                          -----------------
                                                                          $      (230,415) 
                                                                          =================

At February 28, 1998, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.                        

Written option transactions                                           

                                                        [Enlarge/Download Table]


                                     Puts                               Calls               

                          Principal                           Principal                     
                          Amount of                           Amount of                     
                          Contracts                           Contracts                     
                        (000's omitted)      Premiums       (000's omitted)     Premiums    
                       -----------------  ---------------  ----------------- ---------------
                                                                                            
Outstanding, beginning                                                                      
     of period                   4,000    $     199,000              4,000   $     170,400  
Options written                 73,805        1,689,153            102,932       1,873,438  
Options closed                     (30)         (26,993)                --              --  
Options exercised               (8,000)        (219,000)            (2,832)       (139,235) 
Options expired                 (1,075)        (115,450)           (65,400)       (361,988) 
                       -----------------  ---------------  ----------------- ---------------
Outstanding, end                                                                            
     of period                  68,700    $   1,526,710             38,700   $   1,542,615  
                       =================  ===============  ================= ===============

22                                                                              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Summary of written options outstanding                                

                                                        [Enlarge/Download Table]


                       Principal Amount                                                       
                         of Contracts                        Expiration                       
                        (000's omitted)   Exercise Price        Date              Value       
                       ------------------ --------------- ------------------ ---------------- 
                                                                                              
Calls                                                                                         
Canadian Dollar             13,600           1.4294 CAD        5/08/98      $       96,560    
Japanese Yen                25,100           113.65 JPY        9/17/98           2,090,830    

Puts                                                                                          
Canadian Dollar             13,600           1.4294 CAD        5/08/98             153,680    
Japanese Yen                25,100           113.65 JPY        9/17/98             252,000    
Japanese Yen                30,000           117.18 JPY        6/15/98             306,220    
                                                                             ================ 
                                                                            $    2,899,290    
                                                                             ================ 



Swap agreements                                                                               

                                                                                     Net      
                                                                                  Unrealized  
 Notional Amount    Expiration                                                   Appreciation 
Fund/Counterparty      Date                      Description                    (Depreciation)
-----------------  -----------  --------------------------------------------    --------------
                                                                                              
2,000,000 USD/       5/04/98    Agreement with Morgan Guaranty Trust Company    $      40,053 
1,179,438 USD                   dated 2/10/98 to receive the notional amount                  
                                multiplied by the change in market value                      
                                (including accrued interest) on the Russia                    
                                Principal Floating Rate Note due 12/15/20                     
                                and to pay the notional amount multiplied                     
                                by 3 month LIBOR adjusted by a specified                      
                                spread.                                                       

1,000,000 USD/       5/11/98    Agreement with Morgan Guaranty Trust Company           24,450 
1,014,687 USD                   dated 2/03/98 to receive the notional amount                  
                                multiplied by the change in market value                      
                                (including accrued interest) on the                           
                                Republic of Argentina 9.75%, due 9/19/27                      
                                and to pay the notional amount multiplied                     
                                by 3 month LIBOR adjusted by a specified                      
                                spread.                                                       

                                                                              23


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
------------------------------------------------------------------------------- 

Swap agreements -- continued                                          

                                                        [Enlarge/Download Table]


                                                                                     Net        
                                                                                  Unrealized    
 Notional Amount    Expiration                                                   Appreciation   
Fund/Counterparty      Date                    Description                      (Depreciation)  
-----------------  -------------  --------------------------------------------  --------------  
                                                                                                
699,618 USD/             5/14/99  Agreement with Bank of America dated 5/29/97   $    (270,555) 
93,625,000,000 TRL                to receive the notional amount multiplied by                  
                                  the change in market value (including                         
                                  accrued interest) on the Turkey Index                         
                                  Linked Bond due 5/14/99 and to pay the                        
                                  notional amount multiplied by 3 month                         
                                  LIBOR adjusted by a specified spread.                         

274,045 USD/             6/04/99  Agreement with Bank of America dated 6/20/97           50,865 
59,818,517,884 TRL                to receive the notional amount multiplied by                  
                                  the change in market value (including                         
                                  accrued interest) on the Turkey Index                         
                                  Linked Bond due 6/4/99 and to pay the                         
                                  notional amount multiplied by 3 month                         
                                  LIBOR adjusted by a specified spread.                         

92,346 USD/              6/04/99  Agreement with Bank of America dated 11/13/97          65,390 
28,936,660,891 TRL                to receive the notional amount multiplied by                  
                                  the change in market value (including                         
                                  accrued interest) on the Turkey Index                         
                                  Linked Bond due 6/4/99 and to pay the                         
                                  notional amount multiplied by 3 month                         
                                  LIBOR adjusted by a specified spread.                         

                                                                                  --------------
                                                 Net unrealized depreciation       $    (89,797)
                                                                                  ==============

See Notes to the Schedule of Investments for definitions of currency  
abbreviations.                                                        

24                                                                              


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
------------------------------------------------------------------------------- 

For the fiscal year ended February 28, 1998, all of the Fund's        
   distributions are from investment company taxable income, except that the
    Fund has designated 14.57% of distributions as net capital gain dividends.
The Fund has elected to defer to March 1, 1998 post-October losses of 
$ 942,519.                                                            

                                                                              25


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GMO Global Bond Fund                                                            
(A Series of GMO Trust)                                                         

------------------------------------------------------------------------------- 

Portfolio Managers                                                              

     Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. since 1993.                                                     

Management Discussion and Analysis of Fund Performance                          

    The Class III shares of the Global Bond Fund returned 10.2% for the fiscal
   year ended February 28, 1998, compared to 6.6% for the J.P. Morgan Global
     Government Bond Index. Consistent with the Fund's investment objectives and
    policies, the Fund was substantially invested in investment-grade, foreign
and domestic fixed income instruments throughout the period.          

   Many of the strategies implemented in the Fund were successful during the
     fiscal year. It outperformed its benchmark by 3.6%, though absolute returns
  were reduced somewhat due to the strength of the U.S. dollar. During the
 year bond market and currency selection were positive. Although foreign
     interest rates generally declined during the year, the strength of the U.S.
    dollar meant that many foreign bond markets performed poorly when measured
 in U.S. dollar terms. Exceptions to this occurred in Italy and the U.K.
 whose bond markets had double-digit U.S. dollar returns. Strong returns
  were shown as well in Australia, Sweden and the U.K. The Canadian dollar
was the only currency that produced a positive return versus the U.S. 
 dollar for the year ended February 28, 1998. Value was added during the
    year by overweighting the Canadian, Swedish and U.K. bond markets, as well
 as the Italian lira, Spanish peseta and the ECU. Additionally, the Fund
gained versus the benchmark as a result of underweighting the French, 
Japanese, and Swiss bond markets, as well as the Belgian franc and the
Dutch guilder.                                                        

During the year the Fund held a position in emerging country sovereign
   debt, emphasizing undervalued issues. This market had a somewhat volatile
    year, buffeted by the financial problems in Asia. Returns came mainly from
     bond yields as prices changed little from beginning to end. Our decision to
    include emerging country debt exposure in the portfolio added value in all
but the third fiscal quarter.                                         

Outlook                                                                         

  The Fund is structured to benefit from outperformance in the Australian,
Danish, French, German, Swedish and emerging bond markets. We expect  
underperformance from the Italian, Japanese, Spanish and Swiss bond   
   markets. Our strategy maintains a market duration in each country. Strong
   relative performance is expected from the Canadian dollar, Deutsche mark,
Italian lira, Spanish peseta and U.K. pound. The Belgian franc, Danish
krone, French franc, Japanese yen and U.S. dollar are expected to     
underperform.                                                         

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Global Bond Fund Class III Shares and the JP Morgan Global  
Government Bond Index 
As of February 28, 1998 

--------------------------------                        
Average Annual Total Return                         
--------------------------------                        
Since       
1 Year          Inception                       
--------------------------------                        
Class                           12/28/95                                        
III             10.0%            9.6%                                         
--------------------------------                        

[LINE GRAPH APPEARS HERE] 

                                      JP Morgan Global
      GMO Global Bond Fund            Gov't Bond Index
      --------------------            ----------------

12/28/95                  $9,985                        $10,000                 
2/29/96                  $9,875                         $9,971                
2/28/97                 $11,061                        $10,243                
2/28/98                 $12,188                        $10,915                

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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. Transaction fees are paid to the Fund 
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Past performance is
not indicative of future performance. Information is unaudited.                 


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                   

      To the Trustees of GMO Trust and the Shareholders of GMO Inflation Indexed
Bond Fund (A Series of GMO Trust)                                   

 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
    Inflation Indexed Bond Fund at February 28, 1998, and the results of its
      operations, the changes in its net assets and the financial highlights for
the period from March 31, 1997 (commencement of operations) through 
February 28, 1998, in conformity with generally accepted accounting 
      principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
    Trust'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 generally accepted auditing 
standards 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 28, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion  
expressed above.                                                    

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 20, 1998                                                      


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


         Par Value      Description                                                         Value ($)     
----------------------------------------------------------------------------------------------------------
                                                                                                          
                        DEBT OBLIGATIONS -- 98.8%                                                         

                        New Zealand -- 2.2%                                                               
NZD      1,000,000      New Zealand Index Linked Bond 4.50%, due 2/15/16                      557,013     
                                                                                          -----------     

                        United States -- 96.6%                                                            

                        U.S. Government -- 96.6%                                                          
USD     20,200,493      U.S. Treasury Inflation Indexed Note, 3.38%, due 1/15/07           19,708,106     
USD      5,111,743      U.S. Treasury Inflation Indexed Note, 3.63%, due 7/15/02            5,084,584     
                                                                                          -----------     
                                                                                           24,792,690     
                                                                                          -----------     

                        TOTAL DEBT OBLIGATIONS (COST $25,578,548)                          25,349,703     
                                                                                          -----------     

                        SHORT-TERM INVESTMENT -- 1.0%                                                     

                        Repurchase Agreement -- 1.0%                                                      
USD        254,438      Salomon Smith Barney Inc. Repurchase Agreement, dated                             
                        2/27/98, due 3/2/98, with a maturity value of $254,545                            
                        and an effective yield of 5.07%, collateralized by a                              
                        U.S. Treasury Obligation with a rate of 8.875%, with a                            
                        maturity date of 8/15/17 and with a market value of                               
                        $259,526.                                                             254,438     
                                                                                          -----------     

                        TOTAL SHORT-TERM INVESTMENT (COST $254,438)                           254,438     
                                                                                          -----------     

                        TOTAL INVESTMENTS -- 99.8%                                                        
                        (Cost $25,832,986)                                                 25,604,141     

                        Other Assets and Liabilities (net) -- 0.2%                             55,936     
                                                                                          -----------     

                        TOTAL NET ASSETS -- 100%                                          $25,660,077     
                                                                                          ===========     

                        Currency Abbreviations                                                            
                        NZD - New Zealand Dollar                                                          
                        USD - United States Dollar                                                        

            See accompanying notes to the financial statements.                1


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                        
Assets:                                                                                 
   Investments, at value (cost $25,832,986) (Note 1)                       $ 25,604,141 
   Dividends and interest receivable                                            108,834 
   Receivable for open forward foreign currency contracts (Notes 1 and 6)         8,573 
                                                                           ------------ 

       Total assets                                                          25,721,548 
                                                                           ------------ 
Liabilities:                                                                            
   Payable to affiliate for (Note 2):                                                   
      Management fee                                                             39,284 
      Shareholder service fee                                                     2,664 
   Accrued expenses                                                              19,523 
                                                                           ------------ 

       Total liabilities                                                         61,471 
                                                                           ------------ 

Net assets                                                                 $ 25,660,077 
                                                                           ============ 
Net assets consist of:                                                                  
   Paid-in capital                                                         $ 25,889,022 
   Distributions in excess of net investment income                              (8,573)
   Net unrealized depreciation                                                 (220,372)
                                                                           ------------ 
                                                                           $ 25,660,077 
                                                                           ============ 
Net assets attributable to:                                                             
   Class III shares                                                        $ 25,660,077 
                                                                           ============ 
Shares outstanding:                                                                     
   Class III                                                                  2,556,935 
                                                                           ============ 
Net asset value per share:                                                              
   Class III                                                               $      10.04 
                                                                           ============ 

2                      See accompanying notes to the financial statements.    


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Statement of Operations --                                                      
Period from March 31, 1997 (commencement of operations) to February 28, 1998  
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                                
Investment Income:                                                                              
   Interest                                                                             684,863 
                                                                                      --------- 

       Total income                                                                     684,863 
                                                                                      --------- 

Expenses:                                                                                       
   Management fee (Note 2)                                                               36,237 
   Audit fees                                                                            24,959 
   Custodian and transfer agent fees                                                      7,712 
   Registration fees                                                                      1,511 
   Legal fees                                                                               268 
   Trustees fees (Note 2)                                                                   236 
   Miscellaneous                                                                            837 
   Fees waived or borne by Manager (Note 2)                                             (57,239)
                                                                                      --------- 
                                                                                         14,521 
   Shareholder service fee (Note 2)                                                             
       Class III                                                                         21,641 
                                                                                      --------- 
       Net expenses                                                                      36,162 
                                                                                      --------- 

          Net investment income                                                         648,701 
                                                                                      --------- 

Realized and unrealized gain (loss):                                                            
  Net realized gain (loss) on:                                                                  
      Investments                                                                        (5,729)
       Foreign currency, forward contracts and foreign currency related transactions     39,033 
                                                                                      --------- 

          Net realized gain                                                              33,304 
                                                                                      --------- 

   Change in net unrealized appreciation (depreciation) on:                                     
       Investments                                                                     (228,845)
       Foreign currency, forward contracts and foreign currency related transactions      8,473 
                                                                                      --------- 

          Net unrealized loss                                                          (220,372)
                                                                                      --------- 

       Net realized and unrealized loss                                                (187,068)
                                                                                      --------- 

Net increase in net assets resulting from operations                                  $ 461,633 
                                                                                      ========= 

              See accompanying notes to the financial statements.              3


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                           Period from March 31, 1997 
                                                          (commencement of operations)
                                                             to February 28, 1998     
                                                          ----------------------------
                                                                                      
Increase (decrease) in net assets:                                                    
Operations:                                                                           
   Net investment income                                            $  648,701        
   Net realized gain                                                    33,304        
   Change in net unrealized appreciation (depreciation)               (220,372)       
                                                                    -----------       

   Net increase in net assets resulting from operations                461,633        
                                                                    -----------       

Distributions to shareholders from:                                                   
   Net investment income                                                              
       Class III                                                      (648,701)       
                                                                    -----------       
   In excess of net investment income                                                 
       Class III                                                       (47,606)       
                                                                    -----------       
   Net realized gains                                                                 
       Class III                                                        (4,126)       
                                                                    -----------       
   Return of Capital                                                                  
       Class III                                                       (46,228)       
                                                                    -----------       

                                                                      (746,661)       
                                                                    -----------       
   Net share transactions: (Note 5)                                                   
       Class III                                                    25,945,105        
                                                                    -----------       
   Increase in net assets resulting from net share                                    
      transactions                                                  25,945,105        
                                                                    -----------       

      Total increase in net assets                                  25,660,077        

Net assets:                                                                           
   Beginning of period                                                       --       
                                                                    -----------       

   End of period (including accumulated distributions in                              
      excess of net investment income of $8,573)                    $25,660,077       
                                                                    ===========       

4               See accompanying notes to the financial statements.             


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]
                                                             Period from March 31, 1997 
                                                            (commencement of operations)
                                                               to February 28, 1998     
                                                            --------------------------- 

                                                                                        
Net asset value, beginning of period                                $ 10.00             
                                                                    --------            

Income from investment operations:                                                      
   Net investment income                                               0.42+            
   Net realized and unrealized loss                                   (0.04)            
                                                                    --------            

      Total from investment operations                                 0.38             
                                                                    --------            

Less distributions to shareholders:                                                     
   From net investment income                                         (0.30)            
   In excess of net investment income                                 (0.02)            
   From net realized gains                                                --/(a)/       
   From tax return of capital                                         (0.02)            
                                                                    --------            

      Total distributions                                             (0.34)            
                                                                    --------            
Net asset value, end of period                                      $ 10.04             
                                                                    ========            

Total Return/(b)/                                                      3.77%            

Ratios/Supplemental Data:                                                               
   Net assets, end of period (000's)                                $25,660             
   Net expenses to average daily net assets                            0.25%*           
   Net investment income to average daily net assets                   4.48%*           
   Portfolio turnover rate                                                9%            
   Fees and expenses voluntarily waived or borne by the                                 
      Manager consisted of the following per share amount:          $  0.04             

+   Computed using average shares outstanding throughout the period.        
/(a)/ The per share distribution in excess of net investment income was $0.002. 
/(b)/ Calculation excludes purchase premiums and redemption fees. The total     
    return would have been lower had certain expenses not been waived during
the period shown.                                                   
*   Annualized.                                                             

               See accompanying notes to the financial statements.             5


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

     GMO Inflation Indexed Bond Fund (the "Fund"), which commenced operations on
March 31, 1997, 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 maximum total return by investing primarily in foreign and
U.S. government bonds that are indexed or otherwise linked to general 
    measures of inflation in the country of issue. A bond will be deemed to be
"linked" to general measures of inflation if, by such bond's terms,   
     principal or interest components change with general movements of inflation
in the country of issue.                                              

   Inflation indexed securities issued by the U.S. Treasury are fixed income
    securities whose principal value is periodically adjusted according to the
   rate of inflation. Inflation indexed bonds issued by a foreign government
are generally adjusted to reflect a comparable inflation index.       

At the beginning of the fiscal year, the Fund offered three classes of
     shares: Class I, Class II, and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  
Effective January 9, 1998, Class I and Class II shares ceased to be   
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and
     securities for which no quotations are readily available are valued at fair
   value as determined in good faith by the Trustees or other persons acting
at their direction.                                                   

   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.

6                                                                               


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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 prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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
    the value of the currency changes unfavorably to the U.S. dollar. The U.S.
 dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has  
acquired or hedged through currency contracts as of February 28, 1998.

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,
realization of collateral by the Fund may be delayed or limited.      

                                                                               7


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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 delay in recovery or
     even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its      
securities. At February 28, 1998, the Fund had no securities on loan. 

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
post-October losses and the differing treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

                                                                [Download Table]
  Distributions in                                                      
   Excess of Net           Accumulated Net                              
 Investment Income          Realized Gain            Paid-in Capital    
---------------------  -------------------------   ---------------------
                                                                        
      $39,033                 $(29,178)                  $(9,855)       

   Distributions in excess of tax basis earnings and profits are reported in
    the Fund's financial statements as a return of capital. Differences in the
 recognition or classification of income for financial statement and tax
purposes which result in temporary over-distributions for financial   
statement purposes are classified as distributions in excess of net   
investment income or accumulated net realized gains.                  

8                                                                               


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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 accretion of    
     discounts. In determining the net gain or loss on securities sold, the cost
   of securities is determined on the identified cost basis. Interest income
  on the 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 income.                                                   

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 in such manner as deemed equitable by the Trustees,
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 and fee on redemptions of Fund shares is .10%
   of the amount invested or redeemed. These fees may be reduced by 50% with
respect to any portion of a purchase or redemption that is offset by a
   corresponding redemption or purchase, respectively, occurring on the same
    day. 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. Purchase premiums are
included as part of each class' "shares sold" and redemption fees are 
included as part of each class' "shares repurchased", respectively, as
summarized in Note 5. For the period ended February 28, 1998, the Fund
    received $27,017 in purchase premiums and $1,411 in redemption fees. There
is no premium for reinvested distributions or in-kind transactions.   

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .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 of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III  
shares.                                                               

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
     extraordinary expenses) exceed .10% of average daily net assets. The Fund's
  portion of the fee paid by the Trust to the unaffiliated Trustees during
     the period ended February 28, 1998 was $236. No remuneration is paid to any
Trustee or officer who is affiliated with the Manager.                

                                                                               9


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

3.   Purchases and sales of securities                                          

     For the period ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                                        [Enlarge/Download Table]
                                                    Purchases            Proceeds       
                                               -------------------- --------------------
                                                                                        
U.S. Government securities                    $    26,132,604      $     1,339,781      
Investments (non-U.S. Government securities)          614,298                -          

  At February 28, 1998, the cost for Federal income tax purposes and gross
   unrealized appreciation and depreciation in value of investments held was
as follows:                                                           

                                                        [Enlarge/Download Table]
                         Gross Unrealized       Gross Unrealized        Net Unrealized    
   Aggregate Cost          Appreciation           Depreciation           Depreciation     
---------------------  ---------------------  ----------------------  --------------------
                                                                                          
    $25,832,986                 $0                  $228,845               $228,845       

4.   Principal shareholders                                                     

     At February 28, 1998, 47.5% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
 shares, including purchase premiums and redemption fees received by the
Fund, were as follows:                                                

                                    Period from March 31, 1997
                                     (commencement of operations) to
Class III:                                   February 28, 1998        
                                      ----------------------------------
                                     Shares           Amount
                                      ---------------  -----------------
Shares sold                              2,662,887   $    27,016,765  
Shares issued to shareholders in                                      
reinvestment of distributions              33,789           338,906 
Shares repurchased                        (139,741)       (1,410,566) 
                                      ---------------  -----------------
Net increase                             2,556,935   $    25,945,105  
                                      ===============  =================

10                                                                              


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                                        

Forward currency contracts sold                                       

                                                                [Download Table]


  Settlement                        Units of                     Net Unrealized  
     Date          Deliver          Currency         Value        Appreciation   
-------------- ----------------- --------------- --------------- ----------------
                                                                                 
   3/12/98           NZD           1,000,000    $    586,037    $      8,573     
                                                                 ================

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any margin requirements on open futures contracts.              

                                                                              11


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

The Fund has elected to defer to March 1, 1998 post-October losses of 
$9,855.                                                                         

12                                                                              


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GMO Inflation Indexed Bond Fund                                                 
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

     Mr. Thomas F. Cooper and Mr. William L. Nemerever are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. LLC since 1993.                                                 

Management Discussion and Analysis of Fund Performance                          

   The Class III shares of the Inflation Indexed Bond Fund returned 3.8% for
   the period from the Fund's inception on March 31, 1997 through the fiscal
 year end of February 28, 1998, compared to 3.9% for the Lehman Brothers
     Inflation Notes Index. Consistent with the Fund's investment objectives and
  policies, the Fund was substantially invested, throughout the period, in
   U.S. government and foreign bonds that are indexed or otherwise linked to
general measures of inflation in the country of issue.                

     The fund modestly underperformed its benchmark by 0.1% over the period from
the Fund's inception on March 31, 1997 through the fiscal year end on 
   February 28, 1998. Although interest rates fell in the United States over
   this period, real yields rose. Real yields in the United States began the
 period at approximately 3.57%, climbing to nearly 3.70% by the end. The
fund maintains an interest rate exposure quite similar to that of its 
    benchmark, however it owns securities of foreign countries that are not in
   the benchmark. Currently the only foreign holding is an inflation indexed
bond issued by the government of New Zealand, maturing in 2016.       

Outlook                                                                         

   The Fund will continue to focus on attractive inflation-indexed issues of
     the U.S. government, but will also attempt to broaden its foreign exposure.
The Fund may also enter into interest rate swaps as a means of        
outperforming its benchmark.                                          

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO Inflation Indexed Bond Fund Class III Shares and the  
Lehman Brothers Inflation 
Notes Index 
As of February 28, 1998 

-------------------------------                 
Average Annual Total Return                 
-------------------------------                 
Since 
Inception 
1 Year            3/31/97                   
-------------------------------                 
Class    n/a                3.6%                            
III  -------------------------------                      

[LINE GRAPH APPEARS HERE]                 

GMO Inflation             Lehman Brothers               
Indexed Bond Fund             Inflation                   
Date      Class III Shares             Notes Index                            
----      -----------------         ------------------                        

3/31/97         $9,990                    $10,000                               
2/28/98        $10,356                    $10,390                               

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 10 bp on the purchase and 10 bp on the redemption.           
Transaction fees are paid to the Fund to cover trading costs. Past performance  
is not indicative of future performance. Information is unaudited.              


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GMO International Bond Fund                                             
(A Series of GMO Trust)                                                 
Annual Report                                                           
February 28, 1998                                                       


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Report of Independent Accountants                                   

To the Trustees of GMO Trust and the Shareholders of                
GMO International Bond Fund (A Series of GMO Trust)                 

 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 at February 28, 1998, the results of its    
     operations for the year then ended, the changes in its net assets and the
financial highlights for the periods presented, in conformity with  
    generally accepted accounting principles. These financial statements and
      financial highlights (hereafter referred to as "financial statements") are
  the responsibility of the Trust'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
generally accepted auditing standards 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 28, 1998
  by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.                              

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 23, 1998                                                      


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


          Par Value        Description                                                        Value ($)      
-------------------------------------------------------------------------------------------------------------
                                                                                                             
                           DEBT OBLIGATIONS -- 94.5%                                                         

                           Argentina -- 0.3%                                                                 
USD         1,000,000      Republic of Argentina Par Bond,                                                   
                              Variable Rate, Step Up, 5.50%, due 3/31/23                          758,125    
                                                                                            --------------   

                           Australia -- 1.9%                                                                 
GBP         2,000,000      Commonwealth Bank Australia Series EMTN, 8.13%, due                               
                              12/07/06                                                          3,584,431    
AUD         2,620,000      Queensland Treasury Corp, 8.00%, due 9/14/07                         2,007,239    
                                                                                            --------------   
                                                                                                5,591,670    
                                                                                            --------------   
                           Austria -- 1.9%                                                                   
CAD         7,000,000      Autobahn Schnell, 8.50%, due 3/03/03                                 5,506,254    
                                                                                            --------------   

                           Brazil -- 1.3%                                                                    
USD         4,620,904      Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14                  3,754,484    
                                                                                            --------------   

                           Bulgaria -- 1.5%                                                                  
USD         1,000,000      Bulgaria Discount Bond Series B,                                                  
                              Variable Rate, 6 mo. LIBOR + 1.31%, 7.06%, due 7/28/24              805,000    
USD         5,000,000      Bulgaria Discount Series B Strips, Basket 2, 0.00%, due 7/28/24        637,500    
USD        15,000,000      Bulgaria Discount Strips, 0.00%, due 7/28/24                         2,887,500    
                                                                                            --------------   
                                                                                                4,330,000    
                                                                                            --------------   

                           Canada -- 4.3%                                                                    
CAD           750,000      Government of Canada, 10.25%, due 3/15/14                              778,299    
CAD         5,000,000      Government of Canada Real Return, 4.25%, due 12/01/21                3,934,162    
CAD         3,000,000      Government of Canada Real Return, 4.25%, due 12/01/26                2,237,479    
CAD         2,000,000      Province of British Columbia, 7.88%, due 11/30/23                    1,692,664    
CAD         5,000,000      Societe Quebec D'Ass D'Eaux, 8.13%, due 8/11/03                      3,862,774    
                                                                                            --------------   
                                                                                               12,505,378    
                                                                                            --------------   

                           Cayman Islands -- 0.5%                                                            
CAD         2,000,000      Government of Canada (Cayman), 7.25%, due 6/01/08                    1,541,596    
                                                                                            --------------   
                           Denmark -- 4.8%                                                                   
DKK        85,600,000      Kingdom of Denmark Bullet, 7.00%, due 11/15/07                      13,987,656    
                                                                                            --------------   
                           Ecuador -- 0.4%                                                                   
USD         2,000,000      Republic of Ecuador Par Bond,                                                     
                              Variable Rate, Step up, 3.50%, due 2/28/25                        1,096,250    
                                                                                            --------------   

              See accompanying notes to the financial statements.              1


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


          Par Value        Description                                                          Value ($)      
---------------------------------------------------------------------------------------------------------------
                                                                                                               
                           France -- 5.7%                                                                      
FRF        14,000,000      Auxiliare Credit Foncier, 10.00%, due 4/20/01                          2,639,384    
SEK        10,000,000      Credit Foncier, 6.50%, due 2/22/99                                     1,259,930    
ECU         2,000,000      Credit Foncier, 8.38%, due 3/17/04                                     2,502,062    
ECU         7,000,000      Government of France, 8.25%, due 4/25/22                              10,342,511    
                                                                                              --------------   
                                                                                                 16,743,887    
                                                                                              --------------   

                           Germany -- 5.1%                                                                     
DEM         1,000,000      Bundesrepublic Deutschland, 6.00%, due 6/20/16                           595,933    
ESP       250,000,000      Deutsche Ausgleichsbank, 8.60%, due 5/22/03                            1,893,484    
GBP         2,000,000      KFW International Finance, 10.63%, due 9/03/01                         3,653,584    
ESP       280,000,000      KFW International Finance, 8.60%, due 5/20/03                          2,119,794    
GBP         3,000,000      Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06                     2,922,208    
DEM         6,500,000      Westdeutsche LB, 5.25%, due 10/14/05                                   3,648,281    
                                                                                              --------------   
                                                                                                 14,833,284    
                                                                                              --------------   

                           Greece -- 0.8%                                                                      
GRD       750,000,000      Hellenic Republic,                                                                  
                              Variable Rate, 12 mo. GTB + 1.50%, 11.00%, due 9/30/03              2,458,461    
                                                                                              --------------   

                           Italy -- 0.8%                                                                       
ITL      1,550,000,000     BTPS, 8.50%, due 8/01/04                                               1,022,275    
ITL      1,700,000,000     BTPS, 9.00%, due 11/01/23                                              1,358,043    
                                                                                              --------------   
                                                                                                  2,380,318    
                                                                                              --------------   

                           Japan -- 6.7%                                                                       
GBP         2,000,000      Export Import Bank of Japan, 10.75%, due 5/15/01                       3,628,886    
JPY       400,000,000      Japan Development Bank, 6.50%, due 9/20/01                             3,797,989    
GBP         2,000,000      Japan Finance Corp Municipal Enterprises, 9.13%, due 2/16/05           3,721,090    
USD         1,030,000      Japan Highway Public Corporation, 7.63%, due 9/22/04                   1,110,340    
GBP         4,000,000      Kobe City, 9.50%, due 10/20/04                                         7,514,626    
                                                                                              --------------   
                                                                                                 19,772,931    
                                                                                              --------------   

                           Jordan -- 0.2%                                                                      
USD         1,000,000      Hashemite Kingdom of Jordan Par Bond,                                               
                              Variable Rate, Step up  144A, 5.00%, due 12/23/23                     692,500    
                                                                                              --------------   

                           Mexico -- 0.7%                                                                      
FRF        15,000,000      Mexico Par Bond, 6.63%, due 12/31/19                                   2,146,183    
                                                                                              --------------   

                           New Zealand -- 1.7%                                                                 
NZD         8,800,000      New Zealand Index Linked Bond, 4.50%, due 2/15/16                      4,901,714    
                                                                                              --------------   

2             See accompanying notes to the financial statements.               


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

          Par Value        Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           Norway -- 0.3%                                                      
SEK         6,300,000      A/S Eksportfinans, 7.50%, due 8/16/01                       840,850 
                                                                                 --------------
                           Supra National -- 5.4%                                              
JPY       175,000,000      Asian Development Bank, 5.00%, due 2/05/03                1,636,686 
AUD        21,000,000      European Bank Recon and Development, Zero Coupon,                   
                              due 2/10/28                                            2,154,679 
ITL     5,000,000,000      European Investment Bank, 12.20%, due 2/18/03             3,647,769 
CAD           700,000      European Investment Bank, 8.50%, due 8/30/05                569,070 
GBP         1,755,000      European Investment Bank, 8.75%, due 8/25/17              3,652,464 
GBP         2,000,000      International Bank Recon and Development, 11.50%,                   
                              due 11/09/03                                           4,053,683 
                                                                                 --------------
                                                                                    15,714,351 
                                                                                 --------------
                           Sweden -- 6.5%                                                      
SEK        20,000,000      Government of Sweden Index Linked Bond, 4.00%, due                  
                              12/01/20                                               2,770,783 
SEK       126,100,000      Kingdom of Sweden, 6.00%, due 2/09/05                    16,360,995 
                                                                                 --------------
                                                                                    19,131,778 
                                                                                 --------------
                           United Kingdom -- 1.4%                                              
GBP         2,000,000      Guaranteed Export Financial Corp, 12.88%, due                       
                              9/29/02                                                4,058,623 
                                                                                 --------------
                           United States -- 42.0%                                              

                           Asset Backed Securities -- 36.8%                                    
USD         3,818,387      AFC Home Equity Loan Trust Series 97-1 Class A,                     
                              Variable Rate, 1 mo. LIBOR + .22%, 5.85%, due                    
                              3/25/27                                                3,802,875 
USD         5,000,000      Augusta Funding Series 96-F2,                                       
                              Variable Rate, 3 mo. LIBOR + .30%, 144A, 6.06%,                  
                              due 4/15/06                                            5,000,000 
USD         5,000,000      Big Flower Press Receivables Master Trust 96-2                      
                              Class A, Variable Rate, LIBOR + .25%, 5.88%, due                 
                              4/25/03                                                5,000,000 
USD         2,395,000      Brazos Student Loan Finance Corp Series 96-A4,                      
                              Variable Rate, 3 mo. U.S. Treasury Bill + .50%,                  
                              5.78%, due 12/01/02                                    2,385,645 
USD         6,000,000      Circuit City Credit Card Master Trust 96-1 Class A,                 
                              Variable Rate, 1 mo. LIBOR + .17%, 5.80%, due                    
                              10/15/06                                               5,990,625 
USD         3,297,386      CS First Boston Mortgage Securities Corp., Series                   
                              96-1 Class A1, Variable Rate, 3 mo. LIBOR + .23%,                
                              5.98%, due 7/28/29                                     3,299,364 
USD        14,000,000      Discover Card Master Trust I 94-2 Class A,                          
                              Variable Rate, 1 mo. LIBOR + .35%, 5.98%, due                    
                              10/16/04                                              14,122,500 

              See accompanying notes to the financial statements.              3


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

          Par Value        Description                                             Value ($)   
-----------------------------------------------------------------------------------------------
                                                                                               
                           Asset Backed Securities -- continued                                
USD         1,500,000      First International Funding Co,                                     
                              Variable Rate, 3 mo. LIBOR + .55%, 6.46%, due                    
                              6/03/98                                                1,504,500 
USD         5,000,000      First USA Credit Card Master Trust 94-4 Class A,                    
                              Variable Rate, 1 mo. LIBOR + .37%, 6.00%, due                    
                              8/15/03                                                5,035,938 
USD         9,000,000      National Premier Finance 95-2 Class A, 144A,                        
                              6.21%, due 6/01/99                                     9,000,000 
USD         5,000,000      National Premier Finance IX 96-1 Class A, 144A,                     
                              7.20%, due 7/01/00                                     5,105,000 
USD        10,000,000      Navistar Financial Dealer Note Master Trust 97-1                    
                              Class A, Variable Rate, 1 mo. LIBOR + .15%,                      
                              5.81%, due 8/25/03                                    10,003,000 
USD        10,000,000      Northstar CBO Series 97-2 Class A2, 6.62%, due                      
                              7/15/09                                               10,957,810 
USD        10,000,000      Rhyno CBO Series 97-1 Class A-2, 144A,                              
                              Variable Rate, Step Up, 0.00%, due 9/15/09            10,645,313 
USD         5,966,000      SMS Student Loan Trust 94-A Certificates, Variable                  
                              Rate, 1 mo. LIBOR + .70%, 6.33%, due 7/26/21           6,010,745 
USD         5,000,000      Society Student Loan Trust 93-A Class B, Variable                   
                              Rate, 1 mo. LIBOR + .75%, 6.38%, due 7/25/03           5,007,813 
USD         5,000,000      Starvest CBO-1 Class A, Variable Rate, 6 mo. LIBOR +                
                              .19% 144A, 5.81%, due 7/30/11                          4,940,000 
                                                                                 --------------
                                                                                   107,811,128 
                                                                                 --------------
                           Corporate Debt -- 0.6%                                              
SEK        14,000,000      Toyota Motor Credit, 7.50%, due 8/06/01                   1,859,288 
                                                                                 --------------
                           U.S. Government -- 1.3%                                             
USD         4,028,960      U.S. Treasury Inflation Indexed Note, 3.63%, due                    
                              7/15/02(a)                                             4,007,554 
                                                                                 --------------
                           U.S. Government Agency -- 3.2%                                      
USD         2,800,396      Agency for International Development Floater (Support               
                              of Honduras), Variable Rate, 3 mo. U.S. Treasury                 
                              Bill x 117%, 5.98%, due 10/01/11                       2,797,333 
USD         1,000,000      Agency for International Development Floater                        
                              (Support of India), Variable Rate, 3 mo. LIBOR +                 
                              .10%, 5.73%, due 2/01/27                               1,003,594 
USD         1,905,361      Agency for International Development Floater (Support               
                              of Morocco), Variable Rate, 6 mo. U.S. Treasury                  
                              Bill + .45%, 5.69%, due 11/15/14                       1,896,132 

4             See accompanying notes to the financial statements.               


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


          Par Value        Description                                                        Value ($)       
--------------------------------------------------------------------------------------------------------------
                                                                                                              
                           U.S. Government Agency -- continued                                                
USD           266,667      Agency for International Development Floater (Support of Peru),                    
                              Variable Rate, 3 mo. U.S. Treasury Bill x 114%, 5.13%, due                      
                              2/01/02                                                              264,875    
USD         3,601,161      Agency for International Development Floater (Support of Peru),                    
                              Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.59%, due                      
                              5/01/14                                                            3,576,966    
                                                                                             --------------   
                                                                                                 9,538,900    
                                                                                             --------------   

                           Total United States                                                 123,216,870    
                                                                                             --------------   
                           Venezuela -- 0.3%                                                                  
USD         1,000,000      Republic of Venezuela Discount Bond Series B,                                      
                              Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 3/31/20                875,000    
                                                                                             --------------   
                                                                                                   875,000    
                                                                                             --------------   

                           TOTAL DEBT OBLIGATIONS (COST $270,488,071)                          276,838,163    
                                                                                             --------------   
                           LOAN ASSIGNMENTS -- 0.4%                                                           

                           Ivory Coast -- 0.4%                                                                
FRF        15,000,000      Ivory Coast Credit Agreement*                                         1,096,185    
                                                                                             --------------   
                                                                                                 1,096,185    
                                                                                             --------------   
                           Russia -- 0.0%                                                                     
USD            46,950      Russia Vnesh Restructured Loan Agreements, LIBOR + .8125%                          
                              (3.2486%)                                                             28,287    
                                                                                             --------------   
                                                                                                    28,287    
                                                                                             --------------   

                           TOTAL LOAN ASSIGNMENTS (COST $611,702)                                1,124,472    
                                                                                             --------------   

            Shares                                                                                            
----------------------------                                                                                  

                           PREFERRED STOCKS -- 1.7%                                                           

                           United States -- 1.7%                                                              
                5,000      Bear Stearns Managed Income Securities Plus Fund 13.27%               4,987,850    
                                                                                             --------------   

                           TOTAL PREFERRED STOCKS (COST $4,933,793)                              4,987,850    
                                                                                             --------------   

              See accompanying notes to the financial statements.              5


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

       Principal Amount    Description                                             Value ($)      
--------------------------------------------------------------------------------------------------

                           CALL OPTIONS PURCHASED -- 2.3%                                         

                           Cross Currency Options -- 0.2%                                         
DEM       224,400,000      DEM Call/BEF Put, Expires 7/8/98, Strike 20.6               259,664    
DEM       102,200,000      DEM Call/ITL Put, Expires 9/22/98, Strike 993               416,729    
                                                                                 -------------    
                                                                                       676,393    
                                                                                 -------------    
                           Options on Bonds -- 0.4%                                               
SEK       313,000,000      Sweden Government Bond, Expires 4/30/98, Strike                        
                           100.677                                                   1,204,086    
                                                                                 -------------    
                           Options on Currency -- 1.7%                                            
USD        90,600,000      German Mark, Expires 9/17/98, Strike 1.725                4,720,260    
USD       100,000,000      Japanese Yen, Expires 6/15/98, Strike 140                   170,000    
                                                                                 -------------    
                                                                                     4,890,260    
                                                                                 -------------    
                           Options on Futures -- 0.0%                                             
USD           750,000      Eurodollar, Expires 3/16/98, Strike 94.25                    60,000    
                                                                                 -------------    
                           TOTAL CALL OPTIONS PURCHASED                                           
                            (COST  $7,050,274)                                       6,830,739    
                                                                                 -------------    
                           PUT OPTIONS PURCHASED -- 0.5%                                          

                           Cross Currency Options -- 0.1%                                         
DEM       102,200,000      DEM Put/ITL Call, Expires 9/22/98, Strike 993               259,047    
USD         2,781,893      TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires                       
                           5/12/98, Strike 545,000                                      14,357    
                                                                                 -------------    
                                                                                       273,404    
                                                                                 -------------    
                           Options on Currency -- 0.4%                                            
USD        90,600,000      German Mark, Expires 9/17/98, Strike 1.725                1,268,400    
                                                                                 -------------    
                           Options on Futures -- 0.0%                                             
USD           750,000      Eurodollar, Expires 3/16/98, Strike 94                        3,750    
                                                                                 -------------    
                           TOTAL PUT OPTIONS PURCHASED                                            
                            (COST  $4,102,074)                                       1,545,554    
                                                                                 -------------    

            Shares         RIGHTS AND WARRANTS -- 0.0%                                            
         -------------                                                                            
                                                                                                  
                           Mexico -- 0.0%                                                         
            1,740,000      United Mexican States Warrants, Expires 6/30/03 **               --    
                                                                                 -------------    

6             See accompanying notes to the financial statements.               


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

       Shares/Par Value    Description                                             Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                           Venezuela -- 0.0%                                                      
               19,280      Republic of Venezuela Recovery Warrants,                               
                           Expires 04/15/20 **                                              --    
                                                                                 -------------    
                           TOTAL RIGHTS AND WARRANTS  (COST  $0)                            --    
                                                                                 -------------    
                           SHORT-TERM INVESTMENTS -- 1.2%                                         

                           Commercial Paper -- 1.2%                                               
USD         3,500,000      GE Capital Corp, 5.68% due 3/02/98                        3,500,000    
                                                                                 -------------    
                           TOTAL SHORT-TERM INVESTMENTS                                           
                           (COST $3,500,000)                                         3,500,000    
                                                                                 -------------    
                           TOTAL INVESTMENTS -- 100.6%                                            
                           (Cost $290,685,914)                                     294,826,778    

                           Other Assets and Liabilities (net)-- (0.6)%              (1,804,636)   
                                                                                 -------------    

                           TOTAL NET ASSETS-- 100%                               $ 293,022,142    
                                                                                 =============    
                           Notes to the Schedule of Investments:                                  

                           EMTN - Euromarket Medium Term Note                                     

                           GTB - Greek Treasury Bill                                              

                           PIK - Payment In Kind                                                  

                           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 buyers.                                               

                           Variable and Step up rates - The rates shown on                        
                              variable and step up rate notes are the current                     
                              interest rates at February 28, 1998, which are                      
                              subject to change based on the terms of the                         
                              security, including varying reset dates.                            


              See accompanying notes to the financial statements.              7


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                                [Download Table]

Notes to the Schedule of Investments -- continued                   
                                                                    
Currency Abbreviations                                              
AUD - Australian Dollar                   GRD - Greek Drachma       
BEF - Belgian Franc                       ITL - Italian Lira        
CAD - Canadian Dollar                     JPY - Japanese Yen        
CHF - Swiss Franc                         MYR - Malaysian Ringgit   
DEM - German Mark                         NLG - Netherlands Guilder 
DKK - Danish Krone                        NZD - New Zealand Dollar  
ECU - European Currency Unit              SEK - Swedish Krona       
ESP - Spanish Peseta                      THB - Thailand Baht       
FRF - French Franc                        TRL - Turkish Lira        
GBP - British Pound                       USD - United States Dollar

/(a)/ Security has been segregated to cover margin                  
requirements on open financial futures contracts.                   
*   Non-performing. Borrower not currently paying                   
interest.                                                           
**  Non-income producing security.                                  

8             See accompanying notes to the financial statements.               


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                                
Assets:                                                                                         
      Investments, at value (cost $290,685,914) (Note 1)                           $294,826,778 
      Cash (Note 1)                                                                   1,463,717 
      Interest receivable                                                             4,841,459 
      Receivable for open forward foreign currency contracts (Notes 1 and 6)          6,437,793 
      Receivable for expenses waived or borne by Manager (Note 2)                        62,113 
                                                                                   -------------

       Total assets                                                                 307,631,860 
                                                                                   -------------

Liabilities:                                                                                    
      Written options outstanding, at value (premiums $10,751,065) (Notes 1 and 6)   10,193,340 
      Payable for open forward foreign currency contracts (Notes 1 and 6)             3,865,210 
      Payable to affiliate for (Note 2):                                                        
       Management fee                                                                    89,823 
       Shareholder service fee                                                           32,527 
      Payable for open swap contracts (Notes 1 and 6)                                   175,254 
      Payable for variation margin on open futures contracts (Notes 1 and 6)            151,739 
      Accrued expenses                                                                  101,825 
                                                                                   -------------

       Total liabilities                                                             14,609,718 
                                                                                   -------------

Net assets                                                                         $293,022,142 
                                                                                   -------------

Net assets consist of:                                                                          
      Paid-in capital                                                              $290,950,860 
      Distributions in excess of net investment income                               (5,912,581)
      Accumulated undistributed net realized gain                                     1,228,165 
      Net unrealized appreciation                                                     6,755,698 
                                                                                   =============
                                                                                   $293,022,142 
                                                                                   =============

Net assets attributable to:                                                                     
      Class III shares                                                             $293,022,142 
                                                                                   =============

Shares outstanding:                                                                             
      Class III                                                                      28,048,515 
                                                                                   =============

Net asset value per share:                                                                      
      Class III                                                                    $      10.45 
                                                                                   =============

See accompanying notes to the financial statements. 


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                     
Investment Income:                                                                   
      Interest (including securities lending income of $3,025)           $17,594,851 
      Dividends                                                              497,625 
                                                                         ------------

       Total income                                                       18,092,476 
                                                                         ------------

Expenses:                                                                            
      Management fee (Note 2)                                              1,090,298 
      Custodian and transfer agent fees                                      194,162 
      Audit fees                                                              55,709 
      Legal fees                                                              15,919 
      Registration fees                                                       11,820 
      Trustees fees (Note 2)                                                   2,529 
      Miscellaneous                                                            3,324 
      Fees waived or borne by Manager (Note 2)                              (692,754)
                                                                         ------------
                                                                             681,007 
      Shareholder service fee (Note 2)                                               
       Class III                                                             407,680 
                                                                         ------------
       Net expenses                                                        1,088,687 
                                                                         ------------

          Net investment income                                           17,003,789 
                                                                         ------------

Realized and unrealized gain (loss):                                                 
      Net realized gain (loss) on:                                                   
       Investments                                                         2,258,957 
       Closed futures contracts                                            4,678,102 
       Closed swap contracts                                                 588,168 
       Written options                                                     1,797,176 
       Foreign currency, forward contracts and foreign currency related              
       transactions                                                      (10,834,552)
                                                                         ------------

          Net realized loss                                               (1,512,149)
                                                                         ------------

      Change in net unrealized appreciation (depreciation) on:                       
       Investments                                                        (6,948,715)
       Open futures contracts                                                854,186 
       Open swap contracts                                                  (175,254)
       Written options                                                       430,975 
       Foreign currency, forward contracts and foreign currency related              
       transactions                                                        7,625,704 
                                                                         ------------

          Net unrealized gain                                              1,786,896 
                                                                         ------------

       Net realized and unrealized gain                                      274,747 
                                                                         ------------

Net increase in net assets resulting from operations                     $17,278,536 
                                                                         ============

10            See accompanying notes to the financial statements.               


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                              Year Ended        Year Ended   
                                                             February 28,        February    
                                                                 1998            28, 1997    
                                                            ----------------  ---------------
                                                                                             
Increase (decrease) in net assets:                                                           
Operations:                                                                                  
      Net investment income                                   $17,003,789       $14,716,597  
      Net realized gain (loss)                                 (1,512,149)       15,665,683  
      Change in net unrealized appreciation (depreciation)      1,786,896        (7,800,186) 
                                                              ------------      ------------ 
      Net increase in net assets resulting from operations     17,278,536        22,582,094  
                                                              ------------      ------------ 

Distributions to shareholders from:                                                          
      Net investment income                                                                  
       Class III                                              (14,355,792)      (15,718,077) 
                                                              ------------      ------------ 
      Net realized gains                                                                     
       Class III                                               (2,663,260)      (10,685,120) 
                                                              ------------      ------------ 
      In excess of net realized gains                                                        
       Class III                                               (9,216,709)       (2,935,300) 
                                                              ------------      ------------ 
                                                              (26,235,761)      (29,338,497) 
                                                              ------------      ------------ 
      Net share transactions: (Note 5)                                                       
       Class III                                               66,196,244        48,619,210  
                                                              ------------      ------------ 
      Increase in net assets resulting from net share          66,196,244        48,619,210  
      transactions                                                                           
                                                              ------------      ------------ 

      Total increase in net assets                             57,239,019        41,862,807  

Net assets:                                                                                  
      Beginning of period                                     235,783,123       193,920,316  
                                                              ------------      ------------ 

      End of period (including distributions in excess of                                    
      net investment income of $5,912,581 and                                                
      undistributed net investment income of $5,273,327,                                     
      respectively)                                           $293,022,142      $235,783,123 
                                                              ============      ============ 

See accompanying notes to the financial statements. 


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                        Year Ended February 28/29,              
                                          ---------------------------------------------------   
                                            1998       1997       1996       1995      1994*    
                                          -------    -------    --------   --------   -------   
                                                                                                
Net asset value, beginning of period     $  10.78   $  10.92    $   9.64   $   9.96   $ 10.00   
                                         --------   --------    --------   --------   -------   
Income from investment operations:                                                              
      Net investment income                  0.59       0.71        0.62       0.98      0.08   
      Net realized and unrealized gain                                                          
      (loss)                                 0.08       0.65        1.55      (0.21)    (0.12)  
                                         --------   --------    --------   --------   -------   
      Total from investment operations       0.67       1.36        2.17       0.77     (0.04)  
                                         --------   --------    --------   --------   -------   
Less distributions to shareholders:                                                             
      From net investment income            (0.54)     (0.81)      (0.59)     (0.75)       --   
      From net realized gains               (0.10)     (0.54)      (0.30)     (0.34)       --   
      In excess of net realized gains       (0.36)     (0.15)         --         --        --   
                                         --------   --------    --------   --------   -------   
      Total distributions                   (1.00)     (1.50)      (0.89)     (1.09)       --   
                                         --------   --------    --------   --------   -------   
Net asset value, end of period           $  10.45   $  10.78    $  10.92   $   9.64   $  9.96   
                                         ========   ========    ========   ========   =======   
Total Return/(a)/                            6.32%     12.39%      22.72%      8.23%    (0.40)% 

Ratios/Supplemental Data:                                                                       
      Net assets, end of period (000's)  $293,022   $235,783    $193,920   $151,189   $39,450   
      Net expenses to average daily                                                             
      net assets                             0.40%      0.40%       0.40%      0.40%     0.40%**
      Net investment income to average                                                          
      daily net assets                       6.24%      6.93%       8.17%      7.51%     5.34%**
      Portfolio turnover rate                 105%        95%         99%       141%       14%  
      Fees and expenses voluntarily                                                             
      waived or borne by the Manager                                                            
      consisted of the following per                                                            
      share amounts:                     $   0.02   $   0.02    $   0.01   $   0.02   $  0.01   

*     For the period from December 22, 1993 (commencement of operations) to     
February 28, 1994.                                                  
/(a)/ Calculation excludes purchase premiums. The total returns would have been 
lower had certain expenses not been waived during the periods shown.
**    Annualized.                                                               

12            See accompanying notes to the financial statements.               


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

GMO International Bond Fund (the "Fund") is a series of GMO Trust (the
    "Trust"). The Fund is registered under the Investment Company Act of 1940,
    as amended, as an open-end, non-diversified management investment company.
   The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
    Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an  
unlimited number of series ("Funds"), each of which issues a separate 
series of shares, and to subdivide a series into classes.             

     The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and    
 multicurrency units. The Fund generally seeks to provide a total return
 greater than that provided by the international fixed income securities
market.                                                               

    On June 1, 1996, the Fund began to offer three classes of shares: Class I,
     Class II and Class III. The principal economic difference among the classes
 of shares is the level of shareholder service fee 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 with GMO,
    as more fully outlined in the Trust's prospectus. Class III shares are the
    continuation of the Trust's shares that existed prior to June 1, 1996, and
     bear the same total operating expenses (after the voluntary expense waiver)
 as those shares. Effective January 9, 1998, Class I and Class II shares
ceased to be offered.                                                 

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

    Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual   
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by

                                                                              13


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

 another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.                                   

   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 investments in securities held by the Fund were valued on the basis
    of a price provided by a principal market maker. At February 28, 1998, the
    total value of these securities represented 9% of net assets. These prices
  may differ from the value that would have been used had a broader market
for securities existed and the differences could be material to the   
financial statements.                                                 

Foreign currency translation                                          

The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     

   The Fund may use futures contracts to manage its exposure to the bond and
   currency 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 obligations in accordance with the  
  initial margin requirements of the broker or exchange. 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. Gains or
losses are recognized but not considered realized until the contracts 
   expire or are closed. Futures contracts involve, to varying degrees, risk
 of loss in excess of the variation margin disclosed in the Statement of
   Assets and Liabilities. Losses may arise from the changes in the value of
     the underlying instrument, if there is an illiquid secondary market for the
  contracts, or if counterparties do not perform under the contract terms.
   Futures contracts are valued at the settlement price established each day
    by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of February 28, 1998.                   

14                                                                              


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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
    the value of the currency changes unfavorably to the U.S. dollar. The U.S.
 dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has  
acquired or hedged through currency contracts as of February 28, 1998.

Options                                                               
The Fund may write call and put options on futures, securities or     
   currencies it owns or in which it may invest. 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 offset against the proceeds or amounts paid on the
     transaction to determine the realized gain or loss. The Fund as a writer of
     an option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an 
unfavorable change in the price of the security underlying the written
    option. There is the risk the Fund may not be able to enter into a closing
     transaction because of an illiquid market. See Note 6 for a summary of open
written option contracts as of February 28, 1998.                     

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

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                    

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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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. Direct indebtedness of
emerging countries involves a risk that the governmental entities     
     responsible for the repayment of the debt may be unable or unwilling to pay
the principal and interest when due.                                  

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 invest in swap agreements. 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 swap agreements to manage its exposure
 to interest rates. The Fund entered into interest rate and total return
    swap agreements. 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 based on a notional amount. 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. In connection
  with these agreements, cash may be set aside as collateral by the Fund's
   custodian in accordance with the terms of the swap agreement. At February
     28, 1998, $1,099,769 in cash has been set aside. Swaps are marked to market
   daily based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss in the Statement of Operations.   
     Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and 
    market risk in excess of the amounts recognized on the Statement of Assets
     and Liabilities. Such risks involve the possibility that there is no liquid
  market for these agreements, that the counterparty to the agreements may
default on its obligation to perform and that there may be unfavorable
   changes in the fluctuation of interest rates. See Note 6 for a summary of
open swap agreements as of February 28, 1998.                         

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  

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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements--(Continued)                                      
February 28, 1998                                                               
--------------------------------------------------------------------------------

     transactions in repurchase agreements, if the seller defaults and the value
    of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower fail financially.
    The Fund receives compensation for lending its securities. At February 28,
1998, there were no securities on loan.                               

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

                                                                [Download Table]

 Distributions in Excess                                                   
   of Net Investment       Accumulated Undistributed                       
       Income                  Net Realized Gain         Paid-in Capital   
-----------------------   --------------------------  ---------------------
                                                                           
    ($13,833,905)                $13,833,925                 ($20)         

                                                                              17


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

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 accretion of   
     discounts. In determining the net gain or loss on securities sold, the cost
   of securities is determined on the identified cost basis. Interest income
  on the 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 these securities adjusted for inflation is
recorded as income.                                                   

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 in such a manner as deemed equitable by the Trustees,
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 .15% of the amount    
    invested. The premium may be reduced by 50% with respect to any portion of
  a purchase that is offset by a corresponding redemption occurring on the
 same day. All purchase premiums 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. Purchase premiums are included as
    part of each class' "shares sold" and redemption fees are included as part
     of each class' "shares repurchased", respectively, as summarized in Note 5.
     For the year ended February 28, 1998, the Fund received $99,991 in purchase
premiums. There is no premium for cash redemptions, reinvested        
distributions or in-kind transactions.                                

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 and the
possible imposition of currency exchange blockages 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.                                                              

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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .40% of 
average daily net assets. Effective June 1, 1996, the Fund 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 .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.                                            

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
   extraordinary expenses) exceed .25% of average daily net assets. Prior to
    June 1, 1996, a similar waiver existed for annual expenses exceeding .40%;
thus the net annual expense ratio after the waiver for a Class III    
shareholder is unchanged.                                             

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the year ended February 28, 1998, was $2,529. No      
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

3.   Purchases and sales of securities                                          

   For the year ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                                        [Enlarge/Download Table]

                                                    Purchases           Proceeds     
                                               ------------------- ------------------
                                                                                     
U.S. Government securities                    $   11,978,048      $   7,888,918      
Investments (non-U.S. Government securities)     310,110,352        249,981,938      

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                        [Enlarge/Download Table]

                          Gross Unrealized        Gross Unrealized        Net Unrealized    
   Aggregate Cost           Appreciation            Depreciation           Appreciation     
---------------------  -----------------------  ----------------------  --------------------
                                                                                            
   $ 290,748,365            $12,803,891              $8,725,478             $4,078,413      

4.   Principal shareholders                                                     

   At February 28, 1998, 45% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as 
follows:                                                              

                                                        [Enlarge/Download Table]


                                               Year Ended                   Year Ended           
                                           February 28, 1998            February 28, 1997        
                                   ------------------------------ ------------------------------ 
Class III:                             Shares          Amount          Shares          Amount    
                                  ---------------- -------------- ---------------- --------------
                                                                                                 
Shares sold                          9,447,927    $ 103,640,468      9,398,594    $ 108,940,870  
Shares issued to shareholders in                                                                 
reinvestment of distributions        2,082,876       21,695,786      2,130,615        23,653,871 
Shares repurchased                  (5,355,799)     (59,140,010)    (7,421,298)      (83,975,531)
                                  ---------------- -------------- ---------------- --------------
Net increase                         6,175,004    $  66,196,244      4,107,911    $   48,619,210 
                                  ================ ============== ================ ==============

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]

                                                                             Net Unrealized  
  Settlement                                                                  Appreciation   
     Date        Deliver/Receive     Units of Currency         Value         (Depreciation)  
-------------- ------------------- --------------------- ----------------- ------------------
    Buys                                                                                     
                                                                                             
   5/07/98             AUD                     7,300,000 $       4,980,228 $          68,423 
   3/27/98             CAD                    40,700,000        28,616,855           279,969 
   4/09/98             DEM                   298,600,000       164,948,499          (181,678)
   4/17/98             GBP                    12,300,000        20,199,696             7,592 
   3/20/98             ITL                94,910,620,000        53,023,537        (1,349,630)
   4/03/98             JPY                14,450,000,000       114,971,184           559,949 
   3/23/98             THB                   200,000,000         4,615,953          (650,670)
   6/22/98             THB                   100,000,000         2,258,044          (330,282)
                                                                           ------------------
                                                                           $      (1,596,327)
                                                                           ==================

20                                                                              


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

Forward currency contracts--continued                                                        
                                                                            Net Unrealized   
  Settlement                                                                 Appreciation    
     Date        Deliver/Receive    Units of Currency         Value         (Depreciation)   
--------------- ------------------ -------------------- -------------------------------------
                                                                                             
    Sales                                                                                    

   5/07/98             AUD                  16,500,000$         11,256,680$       (227,420)  
   3/27/98             CAD                   5,200,000           3,656,207         (24,599)  
   3/20/98             DEM                  96,400,000          53,187,529       1,185,637   
   4/09/98             DEM                  21,000,000          11,600,531          20,941   
   4/17/98             GBP                   4,300,000           7,061,682        (101,702)  
   4/03/98             JPY              11,360,000,000          90,385,651        (346,473)  
   3/20/98             MYR                  11,896,500           3,233,294        (233,294)  
   4/17/98             MYR                  22,443,000           6,086,884          (9,711)  
   3/12/98             NZD                   8,800,000           5,157,126          75,442   
   3/23/98             THB                 200,000,000           4,615,953       2,316,456   
   6/22/98             THB                 100,000,000           2,258,044       1,149,111   
                                                                           ------------------
                                                                          $      3,804,388   
                                                                           ==================


Forward cross currency contracts                                                             
                                                                             Net Unrealized  
 Settlement                                                                   Appreciation   
    Date        Deliver/Units of Currency       Receive/In Exchange For      (Depreciation)  
------------- ------------------------------- ----------------------------- -----------------
                                                                                             
  7/10/98         BEF          1,531,758,150     DEM            74,100,000$        (44,754)  
  5/14/98         CHF             12,871,680     DEM            16,000,000          (2,425)  
  3/06/98         DEM             62,500,000     SEK           275,159,627         (78,774)  
  3/20/98         DEM             16,200,000     ITL        15,950,020,000         (27,386)  
  4/23/98         DEM             15,117,675     GBP             5,100,000          14,702   
  4/24/98         DEM             41,600,000     ESP         3,534,128,000         (17,294)  
  4/30/98         DEM            392,416,500     ECU           199,500,000         685,815   
  7/10/98         DEM             28,800,000     BEF           594,040,896         (17,523)  
  3/23/98         DKK            245,073,020     DEM            64,300,000          15,335   
  5/22/98         FRF            203,796,736     DEM            60,800,000          36,497   
  3/05/98         NLG             10,592,860     DEM             9,400,000           4,495   
  3/06/98         SEK            359,490,884     DEM            81,500,000          17,429   
  4/30/98         ECU            112,800,000     DEM           222,178,041        (221,595)  
                                                                            -----------------
                                                                          $        364,522   
                                                                            =================

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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Futures contracts                                                     

                                                        [Enlarge/Download Table]

                                                                                   Net        
                                                                                Unrealized    
Number of                                           Expiration     Contract     Appreciation  
Contracts                   Type                       Date         Value      (Depreciation) 
----------  -------------------------------------  ------------  ------------  ---------------
                                                                                              
    Buys                                                                                      

    79      Australian Government Bond 3 yr         March 1998 $ 6,368,825  $       80,331    
    38      Australian Government Bond 10 yr        March 1998   3,750,609          72,576    
    6       Japanese Government Bond 10 yr          June 1998    6,144,858          13,332    
   125      German Government Bond                  March 1998  18,526,490         756,747    
   114      German Government Bond                  June 1998   16,803,505         (16,221)   
   346      MATIF National Bond                     June 1998   29,367,924         (67,247)   
    18      U.K. Gilt                               June 1998    1,583,261         (18,175)   
                                                                              =============== 
                                                                            $      821,343    
                                                                              =============== 

    Sales                                                                                     

    73      Canadian Government Bond                June 1998  $ 6,387,500  $          (41)   
   140      MSE 3 mo. Bankers Acceptance            March 1998  23,367,763         (98,364)   
    60      Italian Government Bond 10 yr           June 1998    7,921,093           4,824    
    95      Spanish Government Bond MEFSA 10 yr     March 1998   6,707,951        (285,530)   
    71      Spanish Government Bond MEFSA 10 yr     June 1998    4,993,949          12,159    
   165      Swiss Government Bond                   March 1998  14,076,043        (801,780)   
   106      Swiss Government Bond                   June 1998    9,070,959          64,183    
    47      U.S. Long Bond                          June 1998    5,662,031          53,046    
   195      U.S. Treasury Bond 10 yr                June 1998   21,961,875         164,811    
                                                                              =============== 
                                                                            $     (886,692)   
                                                                              =============== 

At February 28, 1998, the Fund has sufficient cash and/or securities to cover   
any margin requirements on open futures contracts.                              

22                                                                              


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GMO International Bond Fund                                                     
(A series of GMO Trust)                                                         

Notes to Financial Statements--(Continued)                                      
February 28, 1998                                                               
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


Written option transactions                                                                   

                                          Puts                           Calls                

                               Principal                         Principal                    
                               Amount of                         Amount of                    
                               Contracts                         Contracts                    
                            (000's omitted)   Premiums        (000's omitted)    Premiums     
                            --------------- ---------------- ---------------- --------------- 
                                                                                              
Outstanding, beginning                                                                        
of period                          13,000  $      646,750           13,000   $     553,800    
Options written                   242,025       5,847,375          357,916       6,579,892    
Options closed                       (100)        (89,975)               --              --   
Options exercised                 (21,000)       (686,750)          (9,266)       (352,754)   
Options expired                    (5,225)       (406,350)        (232,950)     (1,340,923)   
                            --------------- ---------------- ---------------- --------------- 
Outstanding, end                                                                              
     of period                    228,700  $    5,311,050          128,700   $   5,440,015    
                            =============== ================ ================ =============== 


Summary of written options outstanding                                                        

                               Principal                                                      
                               Amount of                                                      
                               Contracts                        Expiration                    
                             (000's omitted)  Exercise Price       Date            Value      
                            ----------------- --------------- --------------- ----------------
                                                                                              
Calls                                                                                         
Canadian Dollar                     38,100      1.4294 CAD       5/08/98     $      270,510   
Japanese Yen                        90,600      113.65 JPY       9/17/98          7,546,980   

Puts                                                                                          
Canadian Dollar                     38,100      1.4294 CAD       5/08/98            430,530   
Japanese Yen                        90,600      113.65 JPY       9/17/98          1,105,320   
Japanese Yen                       100,000      117.18 JPY       6/15/98            840,000   
                                                                              ================
                                                                             $   10,193,340   
                                                                              ================

                                                                              23


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements                                                       

                                                        [Enlarge/Download Table]

                                                                                 Net Unrealized  
   Notional Amount     Expiration                                                 Appreciation   
  Fund/Counterparty       Date                     Description                   (Depreciation)  
---------------------- ----------- --------------------------------------------- ----------------
                                                                                                 
9,600,000 USD/          5/04/98    Agreement with Morgan Guaranty Trust          $    192,252    
5,661,304 USD                      Company dated 2/10/98 to receive the                          
                                   notional amount multiplied by the change                      
                                   in market value (including accrued                            
                                   interest) on the Russia Principal                             
                                   Floating Rate Note due 12/15/20 and to                        
                                   pay the notional amount multiplied by 3                       
                                   month LIBOR adjusted by a                                     
                                   specified spread.                                             

3,000,000 USD/          5/11/98    Agreement with Morgan Guaranty Trust                73,349    
3,044,063 USD                      Company dated 2/03/98 to receive the                          
                                   notional amount multiplied by the change                      
                                   in market value (including accrued                            
                                   interest) on the Republic of Argentina                        
                                   9.75%, 9/19/27 and to pay the notional                        
                                   amount multiplied by 3 month LIBOR                            
                                   adjusted by a specified spread.                               

1,998,907 USD/          5/14/99    Agreement with Bank of America dated              (773,012)   
267,500,000,000 TRL                5/29/97 to receive the notional amount                        
                                   multiplied by the change in market value                      
                                   (including accrued interest) on the                           
                                   Turkey Index Linked Bond due 5/14/99 and                      
                                   to pay the notional amount multiplied by                      
                                   3 month LIBOR adjusted by a specified                         
                                   spread.                                                       

782,986 USD/            6/04/99    Agreement with Bank of America dated               145,329    
170,910,054,657 TRL                6/20/97 to receive the notional amount                        
                                   multiplied by the change in market value                      
                                   (including accrued interest) on the                           
                                   Turkey Index Linked Bond due 6/04/99 and                      
                                   to pay the notional amount multiplied by                      
                                   3 month LIBOR adjusted by a specified                         
                                   spread.                                                       

24                                                                              


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Notes to Financial Statements--(Continued)                                      
February 28, 1998                                                               
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


Swap agreements -- continued                                                                     
                                                                                 Net Unrealized  
   Notional Amount     Expiration                                                 Appreciation   
  Fund/Counterparty       Date                     Description                   (Depreciation)  
---------------------- ----------- --------------------------------------------- ----------------
                                                                                                 
263,846 USD/            6/04/99    Agreement with Bank of America dated           $    186,828   
82,676,302,839 TRL                 11/13/97 to receive the notional amount                       
                                   multiplied by the change in market value                      
                                   (including accrued interest) on the                           
                                   Turkey Index Linked Bond due 6/04/99 and                      
                                   to pay the notional amount multiplied by                      
                                   3 month LIBOR adjusted by a specified                         
                                   spread.                                                       

                                                                                 ----------------
                                                    Net unrealized depreciation    $  (175,254)  
                                                                                 ================

See Notes to the Schedule of Investments for definitions of currency  
abbreviations.                                                                  

                                                                              25


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's        
   distributions are from investment company taxable income, except that the
    Fund has designated 24.66% of distributions as net capital gain dividends.

The Fund has elected to defer to March 1, 1998 post-October losses of 
$1,990,368.                                                           

26                                                                              


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GMO International Bond Fund                                                     
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

     Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. since 1993.                                                     

Management Discussion and Analysis of Fund Performance                          

   The Class III shares of the International Bond Fund returned 6.3% for the
   fiscal year ended February 28, 1998, compared to 3.7% for the J.P. Morgan
Non-U.S. Government Bond Index. Consistent with the Fund's investment 
objectives and policies, the Fund was substantially invested in       
     investment-grade, foreign and domestic, fixed income instruments throughout
the period.                                                           

   Many of the strategies implemented in the Fund were successful during the
     fiscal year. It outperformed its benchmark by 2.6%, though absolute returns
    were fairly modest due to the strength of the U.S. dollar. During the year
     bond market and currency selection were positive. Although foreign interest
   rates generally declined during the year, the strength of the U.S. dollar
     meant that many foreign bond markets performed poorly when measured in U.S.
    dollar terms. Exceptions to this occurred in Italy and the U.K. whose bond
    markets had double-digit U.S. dollar returns. Strong returns were shown as
 well in Australia, Sweden and the U.K. The Canadian dollar was the only
 currency that produced a positive return versus the U.S. dollar for the
year ended February 28, 1998. Value was added during the year by      
   overweighting the Canadian, Swedish and U.K. bond markets, as well as the
 Italian lira, Spanish peseta and the ECU. Additionally, the Fund gained
  versus the benchmark as a result of underweighting the French, Japanese,
     and Swiss bond markets, as well as the Belgian franc and the Dutch guilder.

During the year the Fund held a position in emerging country sovereign
   debt, emphasizing undervalued issues. This market had a somewhat volatile
    year, buffeted by the financial problems in Asia. Returns came mainly from
     bond yields as prices changed little from beginning to end. Our decision to
    include emerging country debt exposure in the portfolio added value in all
but the third fiscal quarter.                                         

Outlook                                                                         

  The Fund is structured to benefit from outperformance in the Australian,
Danish, French, German, Swedish and emerging bond markets. We expect  
underperformance from the Italian, Japanese, Spanish and Swiss bond   
   markets. Our strategy maintains a market duration in each country. Strong
   relative performance is expected from the Canadian dollar, Deutsche mark,
Italian lira, Spanish peseta and U.K. pound. The Belgian franc, Danish
krone, French franc, Japanese yen and U.S. dollar are expected to     
underperform.                                                         

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO International Bond Fund Class III Shares and the JP Morgan Non-U.S. 
Government Bond Index 
As of February 28, 1998 

Average Annual Total Return                       
--------------------------------                        
Since           
Inception           
1 Year         12/22/93                         
--------------------------------                        
Class        6.2%           11.5%                                       
III    --------------------------------                               

[LINE GRAPH APPEARS HERE] 

 GMO International          JP Morgan Non-U.S.
Bond Fund Class               Government  
Date               III Shares                  Bond Index                   
----            -----------------          ------------------               

12/22/93               $9,985                     $10,000                       
2/28/94               $9,945                      $9,934                      
2/28/95              $10,764                     $10,930                      
2/29/96              $13,198                     $12,339                      
2/28/97              $14,848                     $12,550                      
2/28/98              $15,786                     $13,008                      

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    
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions.  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.  Transaction fees are paid to the Fund
to cover trading costs.  Class III shares are a redesignation of the single     
class of shares that has been offered by the Fund since inception.  Past        
performance is not indicative of future performance.  Information is unaudited. 


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                               

To the Trustees of GMO Trust and the Shareholders of GMO International          
Equity Allocation Fund (A Series of GMO Trust)                                  

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 at February 28, 1998, the results of its operations for the year then      
ended, the changes in its net assets and the financial highlights for the       
periods presented, in conformity with generally accepted accounting principles. 
These financial statements and financial highlights (hereafter referred to as   
"financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the custodian, provide a reasonable    
basis for the opinion expressed above.                                          

Price Waterhouse LLP                                                            
Boston, Massachusetts                                                           
April 23, 1998                                                                  


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


    Par Value ($)/                                                                                
      Shares       Description                                                       Value ($)    
--------------------------------------------------------------------------------------------------
                                                                                                  
                   MUTUAL FUNDS -- 100.0%                                                         
      246,673      GMO Emerging Country Debt Fund (Class III Shares)                2,871,278     
    1,423,325      GMO Emerging Markets Fund (Class III Shares)                    13,606,983     
      526,014      GMO Evolving Countries Fund (Class III Shares)                   4,528,979     
       63,894      GMO Inflation Indexed Bond Fund (Class III Shares)                 641,494     
      120,926      GMO International Bond Fund (Class III Shares)                   1,263,676     
    2,552,633      GMO International Core Fund (Class III Shares)                  59,221,082     
      263,440      GMO International Small Companies Fund (Class III Shares)        3,219,237     
       48,710      GMO U.S. Bond/Global Alpha A Fund (Class III Shares)               516,328     
                                                                                  -----------     
                   TOTAL MUTUAL FUNDS  (COST  $92,041,374)                         85,869,057     
                                                                                  -----------     

                   SHORT-TERM INVESTMENT -- 0.0%                                                  

                   Repurchase Agreement -- 0.0%                                                   
    $  19,924      Salomon Smith Barney Inc. Repurchase Agreement, dated                          
                   2/27/98, due 3/2/98, with a maturity value of $19,933 and                      
                   an effective yield of 5.07%, collateralized by a U.S.                          
                   Treasury Obligation with a rate of 8.875%, with a maturity                     
                   date of 8/15/17 and with an aggregate market value of                          
                   $20,323.                                                            19,924     
                                                                                  -----------     

                   TOTAL SHORT-TERM INVESTMENT  (COST  $19,924)                        19,924     
                                                                                  -----------     
                   TOTAL INVESTMENTS -- 100.0%                                                    
                   (Cost $92,061,298)                                              85,888,981     

                   Other Assets and Liabilities (net)-- 0.00%                         (13,474)    
                                                                                  -----------     

                   TOTAL NET ASSETS-- 100%                                        $85,875,507     
                                                                                  ===========     

              See accompanying notes to the financial statements.              1


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                            
Assets:                                                                     
   Investments, at value (cost $92,061,298) (Note 1)            $85,888,981 
   Receivable for expenses waived or borne by Manager (Note 2)        5,550 
                                                                ----------- 

       Total assets                                              85,894,531 
                                                                ----------- 

Liabilities:                                                                
   Accrued expenses                                                  19,024 
                                                                ----------- 

Net assets                                                      $85,875,507 
                                                                =========== 

Net assets consist of:                                                      
   Paid-in capital                                              $87,829,911 
   Accumulated undistributed net realized gain                    4,217,913 
   Net unrealized depreciation                                   (6,172,317)
                                                                ----------- 
                                                                $85,875,507 
                                                                =========== 

Net assets attributable to:                                                 
   Class III shares                                             $85,875,507 
                                                                =========== 

Shares outstanding:                                                         
   Class III                                                      8,435,792 
                                                                =========== 

Net asset value per share:                                                  
   Class III                                                    $     10.18 
                                                                =========== 

2              See accompanying notes to the financial statements.              


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                                   
Investment Income:                                                                 
   Dividends from investment company shares                             $2,252,506 
   Interest                                                                  2,688 
                                                                        ---------- 

       Total income                                                      2,255,194 
                                                                        ---------- 

Expenses:                                                                          
   Custodian and transfer agent fees                                        31,443 
   Registration fees                                                        13,661 
   Audit fees                                                               13,474 
   Legal fees                                                                1,712 
   Trustees fees (Note 2)                                                      625 
   Miscellaneous                                                               526 
   Fees waived or borne by Manager (Note 2)                                (61,441)
                                                                        ---------- 
                                                                                -- 
   Shareholder service fee (Note 2)                                                
       Class I                                                               3,878 
       Class II                                                              9,691 
                                                                        ---------- 
       Net expenses                                                         13,569 
                                                                        ---------- 

          Net investment income                                          2,241,625 
                                                                        ---------- 

Realized and unrealized gain (loss):                                               
   Net realized gain (loss) on:                                                    
       Investments                                                        (676,793)
       Realized gain distributions from investment company shares        8,728,729 
                                                                        ---------- 

          Net realized gain                                              8,051,936 
                                                                        ---------- 

   Change in net unrealized appreciation (depreciation) on investments  (6,728,168)
                                                                        ---------- 

       Net realized and unrealized gain                                  1,323,768 
                                                                        ---------- 

Net increase in net assets resulting from operations                    $3,565,393 
                                                                        ========== 

               See accompanying notes to the financial statements.             3


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                          Period from October 11, 1996
                                                          Year Ended      (commencement of operations)
                                                       February 28, 1998      to February 28, 1997    
                                                        ---------------    -------------------------  
                                                                                                      
Increase (decrease) in net assets:                                                                    
Operations:                                                                                           
   Net investment income                                 $ 2,241,625              $  258,062          
   Net realized gain                                       8,051,936                 831,547          
   Change in net unrealized appreciation                                                              
      (depreciation)                                      (6,728,168)                555,851          
                                                         -----------              -----------         

   Net increase in net assets resulting from                                                          
       operations                                          3,565,393               1,645,460          
                                                         -----------              -----------         

Distributions to shareholders from:                                                                   
   Net investment income                                                                              
       Class I                                              (195,254)                     --          
       Class II                                             (430,549)                (98,709)         
       Class III                                          (1,615,822)               (159,298)         
                                                         -----------              -----------         
       Total distributions from net investment income     (2,241,625)               (258,007)         
                                                         -----------              -----------         
   In excess of net investment income                                                                 
       Class I                                                  (355)                     --          
       Class II                                                 (783)                     --          
       Class III                                              (2,939)                     --          
                                                         -----------              -----------         
       Total distributions in excess of net                                                           
       investment income                                      (4,077)                      --         
                                                         -----------              -----------         
   Net realized gains                                                                                 
       Class I                                              (338,565)                     --          
       Class II                                             (872,870)                (44,198)         
       Class III                                          (3,087,812)                (71,327)         
                                                         -----------              -----------         
       Total distributions from net realized gains        (4,299,247)               (115,525)         
                                                         -----------              -----------         

                                                          (6,544,949)               (373,532)         
                                                         -----------              -----------         
   Net share transactions: (Note 5)                                                                   
       Class I                                             1,138,414                      --          
       Class II                                          (13,394,265)             15,022,907          
       Class III                                          55,162,012              29,654,067          
                                                         -----------              -----------         
   Increase in net assets resulting from net share                                                    
       transactions                                       42,906,161              44,676,974          
                                                         -----------              -----------         

      Total increase in net assets                        39,926,605              45,948,902          

Net assets:                                                                                           
   Beginning of period                                    45,948,902                      --          
                                                         -----------              -----------         

   End of period (including accumulated                                                               
      distributions in excess of net investment                                                       
      income of $0 and $0, respectively)                 $85,875,507              $45,948,902         
                                                         ===========              ===========         

4              See accompanying notes to the financial statements.              


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class I share outstanding throughout the period)                         
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                               Period from April 1, 1997  
                                                                              (commencement of operations)
                                                                                   to January 9, 1998     
                                                                              ----------------------------
                                                                                                          
Net asset value, beginning of period                                                      $10.17          
                                                                                          ------          

Income from investment operations:                                                                        
   Net investment income/(b)/                                                               0.45+         
   Net realized and unrealized loss                                                        (0.65)         
                                                                                          ------          

      Total from investment operations                                                     (0.20)         
                                                                                          ------          

Less distributions to shareholders:                                                                       
   From net investment income                                                              (0.29)         
   In excess of net investment income                                                         --/(d)/     
   From net realized gains                                                                 (0.58)         
                                                                                          ------          

      Total distributions                                                                  (0.87)         
                                                                                          ------          
Net asset value, end of period                                                            $ 9.10/(c)/     
                                                                                          ======          

Total Return/(a)/                                                                          (2.40)%        

Ratios/Supplemental Data:                                                                                 
   Net assets, end of period (000's)                                                          --          
   Net expenses to average daily net assets                                                 0.13%*        
   Net investment income to average daily net assets/(b)/                                   5.49%*        
   Portfolio turnover rate                                                                    16%         
   Fees and expenses voluntarily waived or borne by the Manager consisted of                              
      the following per share amount:                                                     $ 0.01          

/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
    return would have been lower had certain expenses not been waived during
the period shown.                                                   

/(b)/ Recognition of net investment income is affected by the timing of the     
declaration of dividends by the underlying funds in which the fund  
invests.                                                            

/(c)/ All Class I shares of the Fund were exchanged for Class III shares on     
  January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                    

/(d)/ The per share distribution in excess of net investment income was $0.001. 

+   Computed using average shares outstanding throughout the period.            

*   Annualized.                                                                 

               See accompanying notes to the financial statements.             5


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                Period from      Period from December 23, 1996
                                                               March 1, 1997      (commencement of operations)
                                                             to January 9, 1998      to February 28, 1997     
                                                             ------------------  -----------------------------
                                                                                                              
Net asset value, beginning of period                               $10.41                   $ 10.10           
                                                                   ------                   -------           

Income from investment operations:                                                                            
   Net investment income/(b)/                                        0.30+                       --           
   Net realized and unrealized gain (loss)                          (0.74)                     0.41           
                                                                   ------                   -------           

      Total from investment operations                              (0.44)                     0.41           
                                                                   ------                   -------           

Less distributions to shareholders:                                                                           
   From net investment income                                       (0.29)                    (0.07)          
   In excess of net investment income                                  --/(e)/                   --           
   From net realized gains                                          (0.58)                    (0.03)          
                                                                   ------                   -------           

      Total distributions                                           (0.87)                    (0.10)          
                                                                   ------                   -------           
Net asset value, end of period                                     $ 9.10/(c)/              $ 10.41           
                                                                   ======                   =======           

Total Return/(a)/                                                   (4.65)%                    4.07%          

Ratios/Supplemental Data:                                                                                     
   Net assets, end of period (000's)                                  --                   $15,490            
   Net expenses to average daily net assets                         0.07%*                    0.07%*          
   Net investment income to average daily net assets/(b)/           3.23%*                   (0.07)%*         
   Portfolio turnover rate                                            16%                        0%           
   Fees and expenses voluntarily waived or borne by the                                                       
      Manager consisted of the following per share amounts:       $ 0.01                          /(d)/       

/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  

/(b)/ Recognition of net investment income is affected by the timing of the     
declaration of dividends by the underlying funds in which the fund  
invests.                                                            

/(c)/ All Class II shares of the fund were exchanged for Class III shares on    
  January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                    

/(d)/ Fees and expenses waived or borne by the Manager were less than $0.01 per 
share.                                                              

/(e)/ The per share distribution in excess of net investment income was         
$0.001.                                                             

+     Computed using average shares outstanding throughout the period.          

*     Annualized.                                                               

6              See accompanying notes to the financial statements.              


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]

                                                                               Period from October 11, 1996
                                                               Year Ended      (commencement of operations)
                                                            February 28, 1998      to February 28, 1997    
                                                            -----------------  ----------------------------
                                                                                                           
Net asset value, beginning of period                             $10.41                  $10.00            
                                                                 ------                 -------            

Income from investment operations:                                                                         
   Net investment income /(b)/                                     0.33+                   0.10            
   Net realized and unrealized gain                                0.31                    0.41            
                                                                 ------                 -------            

      Total from investment operations                             0.64                    0.51            
                                                                 ------                 -------            

Less distributions to shareholders:                                                                        
   From net investment income                                     (0.29)                  (0.07)           
   In excess of net investment income                                -- /(c)/                --            
   From net realized gains                                        (0.58)                  (0.03)           
                                                                 ------                 -------            

      Total distributions                                         (0.87)                  (0.10)           
                                                                 ------                 -------            
Net asset value, end of period                                   $10.18                 $ 10.41            
                                                                 ======                 =======            

Total Return /(a)/                                                 6.73%                   5.11%           

Ratios/Supplemental Data:                                                                                  
   Net assets, end of period (000's)                            $85,876                 $30,459            
   Net expenses to average daily net assets                        0.00%                   0.01%*          
   Net investment income to average daily net assets /(b)/         3.13%                   3.60%*          
   Portfolio turnover rate                                           16%                      0%           
   Fees and expenses voluntarily waived or borne by the                                                    
     Manager consisted of the following per share amounts:       $ 0.01                 $  0.01            

/(a)/ Calculation excludes purchase premiums and redemption fees. The total     
     returns would have been lower had certain expenses not been waived during
the periods shown.                                                  

/(b)/ Recognition of net investment income is affected by the timing of the     
declaration of dividends by the underlying funds in which the fund  
invests.                                                            

/(c)/ The per share distribution in excess of net investment income was $0.001. 

+     Computed using average shares outstanding throughout the period.          

*   Annualized.                                                                 

               See accompanying notes to the financial statements.             7


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

GMO International Equity Allocation Fund (the "Fund"), which commenced
     operations on October 11, 1996, is a series of GMO Trust (the "Trust"). The
     Fund is registered under the Investment Company Act of 1940, as amended, as
     an open-end, diversified management investment company. The Fund is advised
 and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
   "GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The   
    Declaration of Trust permits the Trustees to create an unlimited number of
    series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.                            

The Fund operates as a "fund-of-funds" in that, pursuant to management
   provided by the Manager, it makes investments in other funds of the Trust
  ("underlying funds"). The Fund seeks a total return greater than that of
     the GMO EAFE-Lite Extended Index, a benchmark developed by the Manager. The
   Fund will pursue its objective by investing primarily in Class III shares
of international equity and fixed income funds of the Trust.          

At the beginning of the fiscal year, the Fund offered three classes of
    shares: Class I, Class II and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  

Effective January 9, 1998, Class I shares and Class II shares ceased  
operations and all shares were exchanged for Class III shares.        

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make  
    estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those   
estimates.                                                            

Portfolio valuation                                                   

    Shares of underlying funds are valued at their net asset value as reported
   on each business day. Short-term investments with a remaining maturity of
    sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the 
Trustees.                                                             

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    

8                                                                               


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

 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, realization of collateral by the Fund may be delayed or  
limited.                                                              

Taxes                                                                 

 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         

   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
classification of distributions from underlying funds.                

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated                                                   
Undistributed Net    Accumulated Undistributed                      
Investment Income       Net Realized Gain           Paid-in Capital 
---------------------  -------------------------   ---------------------
$4,077                 $(250,853)                 $246,776

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

                                                                               9


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Security transactions and related investment income                   

   Security transactions are accounted for on trade date. Dividend income is
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.        

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 in such manner as deemed equitable by the Trustees,
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.
 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                              

The premium on cash purchases of Fund shares is .80% of the amount    
  invested. In the case of cash redemptions, the fee is .11% of the amount
     redeemed. Prior to June 30, 1997, the fee on cash redemptions was .10%. 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. Purchase premiums are included as
    part of each class' "shares sold" and redemption fees are included as part
     of each class' "shares repurchased", respectively, as summarized in Note 5.
For the year ended February 28, 1998, the Fund received $249,442 in   
  purchase premiums and $5,400 in redemption fees. There is no premium for
reinvested distributions or in-kind transactions.                     

2.   Fees and other transactions with affiliates                                

The Manager determines the allocation of the assets of the Fund among 
  designated underlying funds. The Manager does not charge an advisory fee
 for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. 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 .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.   

  GMO has agreed to reimburse all expenses until further notice (excluding
    brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
     November 25, 1996, GMO had agreed to reimburse these expenses to the extent
    that the Fund's annual expenses exceeded .05% of average daily net assets.

10                                                                              


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

The Fund's portion of the fee paid by the Trust to the unaffiliated   
    Trustees during the year ended February 28, 1998 was $625. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$58,443,650 and $11,127,527, respectively.                            

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                                [Download Table]

                      Gross Unrealized    Gross Unrealized     Net Unrealized  
   Aggregate Cost       Appreciation        Depreciation        Depreciation   
-------------------  ------------------  ------------------  ------------------
                                                                               
   $92,635,775           $149,748           $6,896,542          $6,746,794     

4.   Principal shareholders                                                     

   At February 28, 1998, 41% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's    
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:                           

                                             Period from April 1, 1997
                                              (commencement of operations)
Class I:                                        to January 9, 1998  
                                             -----------------------------
                                          Shares          Amount
                                             ------------   --------------
  Shares sold                                   679,610  $     7,302,827
Shares issued to shareholders in                                    
    reinvestment of distributions                56,235          534,174
   Shares repurchased                           (735,845)      (6,698,587)
                                             ------------   --------------
  Net increase                                       --  $     1,138,414
                                             ============   ==============

                                                                              11


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Share transactions - continued                                                  

                                                        [Enlarge/Download Table]

                                                                              Period from December 23, 1996 
                                                Period from March 1, 1997     (commencement of operations)  
Class II:                                           to January 9, 1998            to February 28, 1997      
                                               -----------------------------  ------------------------------
                                                 Shares          Amount          Shares          Amount     
                                               ------------   --------------  -------------   --------------
                                                                                                            
Shares sold                                        --        $       64,521       1,473,267  $    14,880,000
Shares issued to shareholders in reinvestment                                                               
     of distributions                             135,087        1,304,202           14,234          142,907
Shares repurchased                             (1,622,588)     (14,762,988)       --               --       
                                               ------------   --------------  -------------    -------------
Net increase/(decrease)                        (1,487,501)   $ (13,394,265)       1,487,501  $    15,022,907
                                               ============   ==============  =============    =============

                                                        [Enlarge/Download Table]

                                                                               Period from October 11, 1996  
                                                        Year Ended             (commencement of operations)  
Class III:                                          February 28, 1998              to February 28, 1997      
                                               -----------------------------  -------------------------------
                                                 Shares          Amount          Shares           Amount     
                                               ------------   --------------  -------------    --------------
                                                                                                             
Shares sold                                      5,640,062   $    56,708,756      2,910,529   $    29,506,688
Shares issued to shareholders in reinvestment                                                                
     of distributions                              388,075        3,750,538         14,679           147,379 
Shares repurchased                                (517,553)      (5,297,282)      --                --       
                                               ------------   --------------  -------------    --------------
Net increase                                     5,510,584   $   55,162,012      2,925,208    $   29,654,067 
                                               ============   ==============  =============    ==============

12                                                                              


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the fund has designated     
29.58% of distributions as net capital gain dividends.                          

                                                                              13


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GMO International Equity Allocation Fund                                        
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

    Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
   portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
twenty years. Mr. Inker has been with the firm for six years.         

Management Discussion and Analysis of Fund Performance                          

   The Class III shares of the International Equity Allocation Fund returned
   6.7% for the twelve months ended February 28, 1998. The Fund's benchmark,
the GMO EAFE-Lite Extended Index, returned 15.4%.                     

    We use GMO's long-term asset class forecasts to allocate the International
Equity Allocation Fund among various GMO mutual funds. Our research   
  suggests that the next several years will be somewhat more difficult for
developed international stock markets than the recent past, with real 
returns likely to average 3 to 4% per year. Our forecast for emerging 
equities, however, is better. We expect emerging equities to rebound  
significantly from current depressed levels, and our forecast is for  
    emerging markets to provide real returns of 6 to 7% annually over the next
10 years.                                                             

    Performance of the International Core Fund lagged the benchmark during the
 fiscal year as the rally in expensive multinationals continued. The GMO
   International Core Fund returned 11.7%, underperforming the GMO EAFE-Lite
Index by 7.2%. Our diversification into emerging markets was also     
   unsuccessful in adding value. The emerging markets as measured by the IFC
   Investable Index performed poorly, down 21.8%, due to the crisis in Asian
economies. However, performance of the GMO Emerging Markets Fund was  
somewhat better at -12.9%.                                            

The Fund also had a 5% weight in fixed income. While the allocation   
   decision to fixed income investments detracted from the Fund performance,
performance of the underlying bond funds was strong relative to their 
benchmarks.                                                           

     We expect the Fund's diversification into fixed income and emerging markets
  to benefit performance in the current fiscal year. We believe both fixed
     income and emerging markets have better return potential than international
 developed markets. In addition, we expect our tilt in favor of smaller,
 less expensive international stocks in our International Core Fund will
produce better returns relative to the benchmark this year.           

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO International Equity Allocation Fund "IEAF" Class III Shares Index and  
the MSCI World Index  
As of February 28, 1998 

-------------------------------               
Average Annual Total Return               
-------------------------------               
 Since
1 Year          Inception               
-------------------------------               
Class                    10/11/96                         
III      5.8%             8.0%                          
-------------------------------               

[LINE GRAPH APPEARS HERE] 

GMO International Equity     GMO EAFE-LITE          
Date             Allocation Fund        Extended Index      MSCI World Index
--------      ------------------------    ----------------    ----------------  

10/11/96               $9,920                   $10,000           $10,000       
2/28/97              $10,416                   $10,375           $10,636      
2/28/98              $11,118                   $11,970           $13,198      

Performance shown as net of all fees after reimbursement from the manager.      
Returns and net asset values of trust 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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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 11 bp on the redemption Transaction
fees are paid to the Fund to cover trading costs. Past performance is not       
indicative of future performance. Information is unaudited.                     


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GMO U.S. Bond/Global Alpha A Fund                                   
(A Series of GMO Trust)                                             
Annual Report                                                       
February 28, 1998                                                   


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Report of Independent Accountants                                   

To the Trustees of GMO Trust and the Shareholders of                
GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust)           

 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. Bond/Global Alpha A Fund at February 28, 1998, and the results of its
      operations, the changes in its net assets and the financial highlights for
the period from April 30, 1997 (commencement of operations) through 
February 28, 1998, in conformity with generally accepted accounting 
      principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
    Trust'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 generally accepted auditing 
standards 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 28, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion  
expressed above.                                                    

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 20, 1998                                                      


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


      Par Value        Description                                                    Value ($)       
------------------------------------------------------------------------------------------------------
                                                                                                      
                       DEBT OBLIGATIONS -- 96.8%                                                      

                       Albania -- 1.2%                                                                
USD    15,681,227      Republic of Albania Par Bond, Zero Coupon, due 8/31/25         2,702,346       
                                                                                  --------------      

                       Argentina -- 0.3%                                                              
USD     1,000,000      Republic of Argentina Par Bond,                                                
                          Variable Rate, Step Up, 5.50%, due 3/31/23                    758,125       
                                                                                  --------------      

                       Brazil -- 1.4%                                                                 
USD     4,043,291      Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14            3,285,174       
                                                                                  --------------      

                       Bulgaria -- 0.1%                                                               
USD     2,000,000      Bulgaria Discount Series B Strips, Basket 2, 0.00%,                            
                          due 7/28/24                                                   255,000       
                                                                                  --------------      

                       Denmark -- 0.9%                                                                
DKK    13,100,000      Kingdom of Denmark Bullet, 7.00%, due 11/15/07                 2,140,634       
                                                                                  --------------      

                       Germany -- 0.9%                                                                
GBP     2,000,000      Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06             1,948,139       
                                                                                  --------------      

                       Mexico -- 3.2%                                                                 
FRF    44,500,000      Mexico Par Bond, 6.63%, due 12/31/19                           6,367,009       
USD     1,000,000      Mexico Par Bond Series B, 6.25%, due 12/31/19                    843,750       
                                                                                  --------------      
                                                                                      7,210,759       
                                                                                  --------------      

                       New Zealand -- 3.2%                                                            
NZD    13,000,000      New Zealand Index Linked Bond, 4.50%, due 2/15/16              7,241,169       
                                                                                  --------------      

                       Supra National -- 2.4%                                                         
AUD    17,700,000      European Bank Recon and Development, Zero Coupon,                              
                          due 2/10/28                                                 1,816,087       
ITL 5,000,000,000      European Investment Bank, 12.20%, due 2/18/03                  3,647,769       
                                                                                  --------------      
                                                                                      5,463,856       
                                                                                  --------------      

                       Sweden -- 4.2%                                                                 
SEK    74,600,000      Kingdom of Sweden, 6.00%, due 2/09/05                          9,679,067       
                                                                                  --------------      

                       United States -- 79.0%                                                         

                       Asset Backed Securities -- 64.3%                                               
USD     4,582,065      AFC Home Equity Loan Trust Series 97-1 Class A,                                
                          Variable Rate, 1 mo. LIBOR + .22%, 5.85%, due 3/25/27       4,563,450       

USD     2,472,296      Americredit Automobile Receivables Trust Series                                
                          96-B Class A, 6.50%, due 1/12/02                            2,483,884       


See accompanying notes to the financial statements.        1  


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


          Par Value        Description                                                             Value ($)                        
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
                        Asset Backed Securities -- continued                                                                        
USD        20,500,000   Big Flower Receivables Master Trust 96-2 Class A,                                                           
                           Variable Rate, LIBOR +.25%, 5.88%, due 4/25/03                          20,499,999                       
USD        18,145,000   Brazos Student Loan Finance Corp Series 96-A4,                                                              
                           Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.78%, due                                               
                           12/01/02                                                                18,074,121                       
USD         8,450,000   Discover Card Master Trust I 94-2 Class A,                                                                  
                           Variable Rate, 1 mo. LIBOR + .35%, 5.98%, due 10/16/04                   8,523,938                       
USD         5,000,000   First Chicago Master Trust II 95-0 Class A,                                                                 
                           Variable Rate, 1 mo. LIBOR + .23%, 5.86%, due 2/15/04                    5,018,750                       
USD        20,000,000   First Chicago Master Trust II 96-S Class A,                                                                 
                           Variable Rate, 1 mo. LIBOR + .13%, 5.75%, due 8/15/04                   20,005,999                       
USD        10,000,000   First North American National Bank 97-2 Class A,                                                            
                           Variable Rate, 1 mo. LIBOR +.21%, 5.84%, due 3/15/06                    10,004,000                       
USD         5,000,000   First USA Credit Card Master Trust 97-4 Class A,                                                            
                           Variable Rate, 1 mo. LIBOR + .21%, 5.84%, due 2/17/10                    5,006,250                       
USD         2,746,232   Keycorp Student Loan Trust 94-B Class A,                                                                    
                           Variable Rate, 1 mo. LIBOR + .29%, 5.92%, due 8/27/18                    2,761,336                       
USD         8,538,038   Keystone Auto Grantor Trust Series 1996-A Class A,                                                          
                           144A, 6.60%, due 12/15/02                                                8,674,647                       
USD        10,000,000   Navistar Financial Dealer Note Master Trust 90-A                                                            
                           Class A3, Variable Rate, 1 mo. LIBOR + .90%, 6.55%, due 1/25/03         10,000,000                       
USD         9,500,000   Navistar Financial Dealer Note Master Trust 95-1                                                            
                           Class A, Variable Rate, 1 mo. LIBOR + .30%, 5.96%, due 8/25/07           9,655,859                       
USD         5,000,000   Northstar CBO Series 97-2 Class A2, 6.62%, due 7/15/09                      5,478,905                       
USD         6,926,243   Signet Student Loan Trust Series 96-A Class A-1,                                                            
                           Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due 1/25/05                    6,924,079                       
USD         6,188,507   Society Student Loan Trust 94-A Class A2,                                                                   
                           Variable Rate, 1 mo. LIBOR +.33%, 6.00%, due 12/29/03                    6,196,242                       
USD         3,000,000   Starvest CBO-1 Class A,                                                                                     
                           Variable Rate, 6 mo. LIBOR + .19% 144A, 5.82%, due                                                       
                           7/30/11                                                                  2,964,000                       
                                                                                                --------------                      
                                                                                                  146,835,459                       
                                                                                                --------------                      
                        U.S. Government -- 14.7%                                                                                    
USD        10,100,000   U.S. Treasury 0.00% Receipts, due 2/15/10                                   4,872,139                       
USD        10,100,000   U.S. Treasury 0.00% Receipts, due 2/15/12                                   4,272,199                       
USD        10,100,000   U.S. Treasury 0.00% Receipts, due 8/15/12                                   4,136,758                       
USD        10,000,000   U.S. Treasury Bond, 6.25%, due 8/15/23/(a)/                                10,334,370                       
USD         5,090,850   U.S. Treasury Inflation Indexed Note, 3.38%, due 1/15/07                    4,966,761                       
USD         5,036,200   U.S. Treasury Inflation Indexed Note, 3.63%, due  7/15/02/(a)/              5,009,443                       
                                                                                                --------------                      
                                                                                                   33,591,670                       
                                                                                                --------------                      
                        Total United States                                                       180,427,129                       
                                                                                                --------------                      
                        TOTAL DEBT OBLIGATIONS  (COST  $218,592,835)                              221,111,398                       
                                                                                                --------------                      


2                    See accompanying notes to the financial statements.        


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


              Shares           Description                                                        Value ($)        
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
                               PREFERRED STOCKS -- 1.8%                                                            

                               United States -- 1.8%                                                               
                   4,000       Bear Stearns Managed Income Securities Plus Fund 13.27%               3,990,280     
                                                                                               ----------------    
                               TOTAL PREFERRED STOCKS  (COST  $3,949,109)                            3,990,280     
                                                                                               ----------------    

         Principal Amount                                                                                          
       ---------------------                                                                                       
                               CALL OPTIONS PURCHASED -- 1.9%                                                      

                               Cross Currency Options -- 0.2%                                                      
DEM          159,700,000       DEM Call/BEF Put, Expires 7/08/98, Strike 20.6                          184,797     
DEM           72,000,000       DEM Call/ITL Put, Expires 9/22/98, Strike 993.00                        293,586     
                                                                                               ----------------    
                                                                                                       478,383     
                                                                                               ----------------    

                               Options on Bonds -- 0.2%                                                            
SEK          119,000,000       Sweden Government Bond, Expires 4/30/98, Strike 100.677                 457,783     
                                                                                               ----------------    

                               Options on Currency -- 1.5%                                                         
USD           64,100,000       German Mark, Expires 9/17/98, Strike 1.725                            3,339,610     
USD           80,000,000       Japanese Yen, Expires 6/15/98, Strike 140.00                            136,000     
                                                                                               ----------------    
                                                                                                     3,475,610     
                                                                                               ----------------    

                               Options on Futures -- 0.0%                                                          
USD              750,000       Eurodollar, Expires 3/16/98, Strike 94.25                                60,000     
                                                                                               ----------------    

                               TOTAL CALL OPTIONS PURCHASED (COST $4,811,458)                         4,471,776    
                                                                                               ----------------    

                               PUT OPTIONS PURCHASED -- 0.5%                                                       

                               Cross Currency Options -- 0.1%                                                      
DEM           72,000,000       DEM Put/ITL Call, Expires 9/22/98, Strike 993.00                        182,499     
USD              834,568       TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires 5/12/98,                           
                               Strike 545,000                                                            4,307     
                                                                                               ----------------    
                                                                                                       186,806     
                                                                                               ----------------    

                               Options on Currency -- 0.4%                                                         
USD           64,100,000       German Mark, Expires 9/17/98, Strike 1.725                              897,400     
                                                                                               ----------------    

                               Options on Futures -- 0.0%                                                          
USD              750,000       Eurodollar, Expires 3/16/98, Strike 94.00                                 3,750     
                                                                                               ----------------    

                               TOTAL PUT OPTIONS PURCHASED (COST $2,896,984)                                       
                                                                                                     1,087,956     
                                                                                               ----------------    

            See accompanying notes to the financial statements.            3


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


         Par Value/Shares      Description                                                        Value ($)        
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
                               RIGHTS AND WARRANTS -- 0.0%                                                         

                               Mexico -- 0.0%                                                                      
               2,740,000       United Mexican States Warrants, Expires 6/30/03 *                            --     
                                                                                               ---------------     
                               Venezuela -- 0.0%                                                                   
               1,000,000       Republic of Venezuela Recovery Warrants,                                            
                               Expires 04/15/20 *                                                           --     
                                                                                               ---------------     
                               TOTAL RIGHTS AND WARRANTS  (COST  $0)                                        --     
                                                                                               ---------------     
                               SHORT-TERM INVESTMENTS -- 1.4%                                                      

                               Commercial Paper -- 1.3%                                                            
USD            3,000,000       GE Capital Corp, 5.68% due 3/02/98                                    3,000,000     
                                                                                               ---------------     

                               Repurchase Agreement -- 0.1%                                                        
USD              109,124       Salomon Smith Barney Repurchase Agreement, dated 2/27/98,                           
                               due 3/2/98, with a maturity value of $109,170 and an                                
                               effective yield of 5.07%, collateralized by a U.S. Treasury                         
                               Obligation with a rate of 8.125%, with a maturity date of                           
                               8/15/21 and with a market value of $111,306.                            109,124     
                                                                                               ---------------     

                               TOTAL SHORT-TERM INVESTMENTS (COST                                                  
                               $3,109,124)                                                           3,109,124     
                                                                                               ---------------     

                               TOTAL INVESTMENTS -- 102.4%                                                         
                               (COST $233,359,510)                                                 233,770,534     

                               Other Assets and Liabilities (net)-- (2.4)%                          (5,384,508)    
                                                                                               ---------------     

                               TOTAL NET ASSETS-- 100%                                         $   228,386,026     
                                                                                               ===============     


4             See accompanying notes to the financial statements.               


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

Notes to the Schedule of Investments:     

PIK -- Payment In Kind                    

      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 buyers.

      Variable and Step up rates -- The rates shown on
     variable and step up rate notes are the
          current interest rates at February 28, 1998,
      which are subject to change based on the
      terms of the security, including varying
reset dates.                      

Currency Abbreviations                    
AUD - Australian Dollar                   
BEF - Belgian Franc                       
CAD - Canadian Dollar                     
CHF - Swiss Franc                         
DEM - German Mark                         
DKK - Danish Krone                        
ECU - European Currency Unit              
ESP - Spanish Peseta                      
FRF - French Franc                        
GBP - British Pound                       
ITL - Italian Lira                        
JPY - Japanese Yen                        
MYR - Malaysian Ringgit                   
NLG - Netherlands Guilder                 
NZD - New Zealand Dollar                  
SEK - Swedish Krona                       
THB - Thailand Baht                       
TRL - Turkish Lira                        
USD - United States Dollar                

(a) All or a portion of this security has been segregated to  
        cover margin requirements on open financial futures contracts.
*  Non-income producing security.                           

          See accompanying notes to the financial statements.              5


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


Assets:                                                                                         
                                                                                                
    Investments, at value (cost $233,359,510) (Note 1)                           $   233,770,534
    Cash (Note 1)                                                                        332,831
    Interest receivable                                                                  931,154
    Receivable for variation margin on open futures contracts (Notes 1 and 6)            219,183
    Receivable for open forward foreign currency contracts (Notes 1 and 6)             4,987,427
    Receivable for expenses waived or borne by Manager (Note 2)                           32,595
    Miscellaneous receivable                                                                 659
                                                                                 ---------------

        Total assets                                                                 240,274,383
                                                                                 ---------------

Liabilities:                                                                                    
    Written options outstanding, at value (premiums $7,739,490) (Notes 1 and 6)        7,325,310
    Payable for open forward foreign currency contracts (Notes 1 and 6)                4,399,850
    Payable to affiliate for (Note 2):                                                          
        Management fee                                                                    69,582
        Shareholder service fee                                                           25,378
    Payable for open swap contracts (Notes 1 and 6)                                        1,989
    Accrued expenses                                                                      66,248
                                                                                 ---------------

        Total liabilities                                                             11,888,357
                                                                                 ---------------

Net assets                                                                       $   228,386,026
                                                                                 ===============

Net assets consist of:                                                                          
    Paid-in capital                                                              $   223,718,576
    Accumulated undistributed net investment income                                    2,266,216
    Accumulated undistributed net realized gain                                        2,354,269
    Net unrealized appreciation                                                           46,965
                                                                                 ---------------
                                                                                 $   228,386,026
                                                                                 ===============

Net assets attributable to:                                                                     
    Class III shares                                                             $   228,386,026
                                                                                 ===============

Shares outstanding:                                                                             
    Class III                                                                         21,548,708
                                                                                 ===============

Net asset value per share:                                                                      
    Class III                                                                    $         10.60
                                                                                 ===============


6             See accompanying notes to the financial statements.               


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Statement of Operations --                                                      
Period from April 30, 1997 (commencement of operations) to February 28, 1998
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                                     
Investment Income:                                                                                   
    Interest                                                                           $   8,807,383 
    Dividends                                                                                398,100 
                                                                                       ------------- 
        Total income                                                                       9,205,483 
                                                                                       ------------- 
Expenses:                                                                                            
    Management fee (Note 2)                                                                  571,318 
    Custodian and transfer agent fees                                                         94,825 
    Audit fees                                                                                46,512 
    Legal fees                                                                                 2,925 
    Registration fees                                                                          1,291 
    Trustees fees (Note 2)                                                                     1,194 
    Miscellaneous                                                                              1,488 
    Fees waived or borne by Manager (Note 2)                                                (361,139)
                                                                                       ------------- 
                                                                                             358,414 
    Shareholder service fee (Note 2)                                                                 
        Class III                                                                            213,529 
                                                                                       ------------- 
        Net expenses                                                                         571,943 
                                                                                       ------------- 

            Net investment income                                                          8,633,540 
                                                                                       ------------- 

Realized and unrealized gain (loss):                                                                 
  Net realized gain (loss) on:                                                                       
        Investments                                                                        2,668,168 
        Closed futures contracts                                                           3,241,938 
        Closed swap contracts                                                                506,400 
        Written options                                                                      938,687 
        Foreign currency, forward contracts and foreign currency related transactions      1,606,930 
                                                                                       ------------- 
            Net realized gain                                                              8,962,123 
                                                                                       ------------- 
    Change in net unrealized appreciation (depreciation) on:                                         
        Investments                                                                          411,024 
        Open futures contracts                                                            (1,358,005)
        Open swap contracts                                                                   (1,989)
        Written options                                                                      414,180 
        Foreign currency, forward contracts and foreign currency related transactions        581,755 
                                                                                       ------------- 

            Net unrealized gain                                                               46,965 
                                                                                       ------------- 

        Net realized and unrealized gain                                                   9,009,088 
                                                                                       ------------- 

Net increase in net assets resulting from operations                                   $  17,642,628 
                                                                                       ============= 


            See accompanying notes to the financial statements.            7


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                                   Period from April 30, 1997  
                                                                  (commencement of operations) 
                                                                      to February 28, 1998     
                                                                  -----------------------------
                                                                                               
Increase (decrease) in net assets:                                                             
Operations:                                                                                    
    Net investment income                                                 $   8,633,540        
    Net realized gain                                                         8,962,123        
    Change in net unrealized appreciation (depreciation)                         46,965        
                                                                          -------------        

    Net increase in net assets resulting from operations                     17,642,628        
                                                                          -------------        

Distributions to shareholders from:                                                            
    Net investment income                                                                      
        Class III                                                            (5,715,005)       
                                                                          -------------        
    Net realized gains                                                                         
        Class III                                                            (7,260,173)       
                                                                          -------------        

                                                                            (12,975,178)       
                                                                          -------------        
    Net share transactions: (Note 5)                                                           
        Class III                                                           223,718,576        
                                                                          -------------        
    Increase in net assets resulting from net share transactions            223,718,576        
                                                                          -------------        

       Total increase in net assets                                         228,386,026        

Net assets:                                                                                    
    Beginning of period                                                              --        
                                                                          -------------        

    End of period (including accumulated undistributed net                                     
       investment income of $2,266,216)                                   $ 228,386,026        
                                                                          =============        

8             See accompanying notes to the financial statements.               


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                                    Period from April 30, 1997   
                                                                   (commencement of operations)  
                                                                       to February 28, 1998      
                                                                  -------------------------------
                                                                                                 
Net asset value, beginning of period                                        $   10.00            
                                                                            ---------            

Income from investment operations:                                                               
    Net investment income                                                        0.55+           
    Net realized and unrealized gain                                             0.66            
                                                                            ---------            

       Total from investment operations                                          1.21            
                                                                            ---------            

Less distributions to shareholders:                                                              
    From net investment income                                                  (0.27)           
    From net realized gains                                                     (0.34)           
                                                                            ---------            

       Total distributions                                                      (0.61)           
                                                                            ---------            
Net asset value, end of period                                              $   10.60            
                                                                            =========            

Total Return /(a)/                                                              12.16%           

Ratios/Supplemental Data:                                                                        
    Net assets, end of period (000's)                                       $ 228,386            
    Net expenses to average daily net assets                                     0.40%*          
    Net investment income to average daily net assets                            6.05%*          
    Portfolio turnover rate                                                        58%           
    Fees and expenses voluntarily waived or borne by the Manager                                 
       consisted of the following per share amount:                         $    0.02            


+     Computed using average shares outstanding throughout the period.          
/(a)/ Calculation excludes purchase premiums. The total return would have been  
lower had certain expenses not been waived during the period shown. 
*     Annualized.                                                               

            See accompanying notes to the financial statements.            9


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

    GMO U.S. Bond/Global Alpha A Fund (the "Fund"), which commenced operations
on April 30, 1997, 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 primarily through investing in     
investment-grade bonds.                                               

At the beginning of the fiscal year, the Fund offered three classes of
     shares: Class I, Class II, and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  
Effective January 9, 1998, Class I and Class II shares ceased to be   
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

    Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual   
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
 another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.                                   

10                                                                              


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

   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 investments in securities held by the Fund were valued on the basis
    of a price provided by a principal market maker. At February 28, 1998, the
     total value of these securities represented 19% of net assets. These prices
  may differ from the value that would have been used had a broader market
 for the securities existed and the differences could be material to the
financial statements.                                                 

Foreign currency translation                                          
The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     
   The Fund may use futures contracts to manage its exposure to the bond and
   currency 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 obligations in accordance with the  
  initial margin requirements of the broker or exchange. 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. Gains or
losses are recognized but not considered realized until the contracts 
   expire or are closed. Futures contracts involve, to varying degrees, risk
 of loss in excess of the variation margin disclosed in the Statement of
   Assets and Liabilities. Losses may arise from changes in the value of the
 underlying instrument, if there is an illiquid secondary market for the
  contracts, or if counterparties do not perform under the contract terms.
   Futures contracts are valued at the settlement price established each day
    by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of February 28, 1998.                   

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                 

                                                                              11


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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 the value of the currency changes unfavorably to the
     U.S. dollar. The U.S. dollar value of the currencies the Fund has committed
   to buy or sell is shown under Note 6 and represents the currency exposure
   the Fund has acquired or hedged through currency contracts as of February
28, 1998.                                                             

Options                                                               
     The Fund may write call and put options on securities or currencies it owns
  or in which it may invest. 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 offset against the proceeds or amounts paid on the      
     transaction to determine the realized gain or loss. The Fund as a writer of
     an option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an 
unfavorable change in the price of the security underlying the written
    option. There is the risk the Fund may not be able to enter into a closing
     transaction because of an illiquid market. See Note 6 for a summary of open
written option contracts as of February 28, 1998.                     

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

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 invest in swap agreements. 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 swap agreements to manage its exposure
 to interest rates. The Fund entered into interest rate and total return
    swap agreements. 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                 

12                                                                              


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

 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 based on a notional amount. To the
extent that 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. In connection with these agreements, cash may
   be set aside as collateral by the Fund's custodian in accordance with the
 terms of the swap agreement. At February 28, 1998, $332,831 in cash has
     been set aside. Swaps are marked to market daily based upon quotations from
 market makers and the change, if any, is recorded as unrealized gain or
   loss in the Statement of Operations. Payments received or made at the end
of the measurement period are recorded as realized gain or loss in the
Statement of Operations. Entering into these agreements involves, to  
varying degrees, elements of credit and market risk in excess of the  
   amounts recognized on the Statement of Assets and Liabilities. Such risks
involve the possibility that there is no liquid market for these      
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap  
agreements as of February 28, 1998.                                   

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower fail financially.
    The Fund receives compensation for lending its securities. At February 28,
1998, the Fund had no securities on loan.                             

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

                                                                              13


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
     investment income on each class of shares. Income distributions and capital
     gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These 
    differences are primarily due to differing treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Undistributed Net         Accumulated Net                 
       Investment Income          Realized Gain          Paid-in Capital
       ---------------------  -----------------------   ------------------
  $(652,319)                $652,319                   -

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

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 accretion of    
     discounts. In determining the net gain or loss on securities sold, the cost
   of securities is determined on the identified cost basis. Interest income
  on the 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 income.                                                   

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 in such manner as deemed equitable by the Trustees,
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.

14                                                                              


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Purchases and redemptions of Fund shares                              
The premium on cash purchases of Fund shares is .15% of the amount    
    invested. The premium may be reduced by 50% with respect to any portion of
  a purchase that is offset by a corresponding redemption occurring on the
 same day. All purchase premiums are paid to and recorded by the Fund as
   paid-in capital. This fee is allocated relative to each class' net assets
  on the share transaction date. Purchase premiums are included as part of
 each class' "shares sold" as summarized in Note 5. For the period ended
   February 28, 1998, the Fund received $321,656 in purchase premiums. There
 is no premium for cash redemptions, reinvested distributions or in-kind
transactions.                                                         

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 and the
possible imposition of currency exchange blockages 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.                                                              

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .40% of 
   average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the    
   Shareholder Service Plan, the shareholder service fee is calculated based
  on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III  
shares.                                                               

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .25% of average daily net assets.      

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the period ended February 28, 1998 was $1,194. No     
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

                                                                              15


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

3.   Purchases and sales of securities                                          

     For the period ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                                   Purchases        Proceeds
                                                   -------------   -------------
     U.S. Government securities                   $   30,827,812  $   13,030,781
     Investments (non-U.S. Government securities)    287,066,083      79,054,934

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                     Gross Unrealized    Gross Unrealized   Net Unrealized
  Aggregate Cost      Appreciation        Depreciation      Appreciation
    ----------------  ------------------  ------------------  ----------------
 $233,440,608        $4,504,544          $4,174,618         $329,926

4.   Principal shareholders                                                     

   At February 28, 1998, 66% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's     
outstanding shares.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including purchase premiums received by the Fund, were as follows:

                                Period from April 30, 1997
                                (commencement of operations)
Class III:                              to February 28, 1998        
                                  --------------------------------
                                Shares            Amount
                                  ------------    ----------------
Shares sold                          23,536,230   $     245,381,956 
Shares issued to shareholders                                       
in reinvestment of                                        
    distributions                      906,550           9,564,099
Shares repurchased                   (2,894,072)        (31,227,479)
                                  ------------    ----------------
Net increase                         21,548,708   $     223,718,576 
                                  ============    ================

16                                                                              


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                                        

                                                        [Enlarge/Download Table]


Forward currency contracts                                                                
                                                                          Net Unrealized  
  Settlement                           Units of                            Appreciation   
     Date         Deliver/Receive      Currency              Value        (Depreciation)  
  -----------     ----------------  ----------------     --------------   ----------------
                                                                                          
  Buys                                                                                    

   5/07/98              AUD               5,400,000   $      3,684,004   $        50,612  
   3/27/98              CAD              44,900,000         31,569,946           276,068  
   3/06/98              DEM               4,900,000          2,701,186             4,773  
   3/23/98              DEM              43,000,000         23,729,114           290,036  
   4/09/98              DEM              96,000,000         53,030,998          (256,692) 
   4/30/98              DEM              24,190,950         13,379,940          (141,156) 
   5/22/98              DEM             106,400,000         58,924,318             7,008  
   7/10/98              DEM              68,500,000         38,041,397        (1,641,920) 
   4/17/98              GBP              11,200,000         18,393,220               845  
   3/20/98              ITL          41,548,010,000         23,211,550          (590,815) 
   4/03/98              JPY           5,850,000,000         46,545,428           151,829  
   3/06/98              SEK              17,566,200          2,194,509           (71,121) 
   3/23/98              THB              60,000,000          1,384,786          (195,201) 
   6/22/98              THB              30,000,000            677,413           (99,080) 
                                                                          ----------------
                                                                         $    (2,214,814) 
                                                                          ================

  Sales                                                                                   

   5/07/98              AUD              15,200,000   $     10,369,790   $      (209,502) 
   7/10/98              BEF           1,415,997,750         38,082,769         1,600,548  
   3/27/98              CAD              10,400,000          7,312,415           (43,534) 
   3/06/98              DEM               4,000,000          2,205,049            60,581  
   3/20/98              DEM              42,200,000         23,283,338           519,024  
   4/09/98              DEM              47,600,000         26,294,537           (43,513) 
   3/23/98              DKK             163,890,200         23,718,859          (279,781) 
   4/30/98              ECU              12,300,000         13,423,966            97,231  
   5/22/98              FRF             356,644,288         58,860,450            56,861  
   4/17/98              GBP               3,000,000          4,926,755           (70,955) 
   4/03/98              JPY           8,910,000,000         70,892,268          (285,125) 

                                                                              17


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Forward currency contracts - continued                                

                                                        [Enlarge/Download Table]

                                                                             Net Unrealized  
  Settlement                             Units of                             Appreciation   
     Date         Deliver/Receive        Currency              Value         (Depreciation)  
  -----------     ----------------    ----------------     --------------    ----------------
                                                                                             
  Sales                                                                                      

   3/20/98              MYR                 9,913,750          2,694,411           (194,411) 
   4/17/98              MYR                18,702,500          5,072,403             (8,092) 
   3/12/98              NZD                13,000,000          7,618,481            111,449  
   3/06/98              SEK                21,829,647          2,727,133            (30,720) 
   3/23/98              THB                60,000,000          1,384,786            694,937  
   6/22/98              THB                30,000,000            677,413            344,733  
                                                                             ----------------
                                                                          $       2,319,731  
                                                                             ================

Forward cross currency contracts                                                             

                                                                            Net Unrealized   
 Settlement                                                                  Appreciation    
    Date       Deliver/Units of Currency      Receive/In Exchange For       (Depreciation)   
------------- ----------------------------- ----------------------------- -------------------

  7/10/98        BEF           299,083,090     DEM            14,500,000  $           8,822  
  5/14/98        CHF            10,056,000     DEM            12,500,000             (1,895) 
  3/20/98        DEM            10,500,000     ITL        10,334,650,000            (19,608) 
  3/06/98        DEM            43,800,000     SEK           192,765,750            (63,464) 
  5/14/98        DEM             1,300,000     CHF             1,044,680               (590) 
  4/23/98        DEM            10,671,300     GBP             3,600,000             10,378  
  4/24/98        DEM            16,700,000     ESP         1,418,748,500             (6,943) 
  4/30/98        DEM           332,226,300     ECU           168,900,000            580,622  
  4/30/98        ECU            76,900,000     DEM           151,476,773           (145,732) 
  3/05/98        NLG            29,412,090     DEM            26,100,000             12,480  
  3/06/98        SEK           229,470,742     DEM            52,200,000            108,590  
                                                                           ------------------
                                                                          $         482,660  
                                                                           ==================

18                                                                              


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Futures contracts                                                     

                                                        [Enlarge/Download Table]


                                                                                     Net Unrealized  
 Number of                                          Expiration                        Appreciation   
 Contracts                  Type                       Date        Contract Value    (Depreciation)  
------------  ----------------------------------  ---------------  ---------------  -----------------
                                                                                                     
    Buys                                                                                             

    66        MATIF FRF Bond                        June 1998    $      5,601,974  $      (12,828)   
     9        U.K. Gilt                             June 1998             791,631          (9,087)   
     5        German Government Bond                March 1998            741,060          30,270    
    87        German Government Bond                June 1998          12,823,727         (11,830)   
    86        Australian Government Bond 10 yr.     March 1998          8,488,220         138,424    
    26        Australian  Government Bond 3 yr.     March 1998          2,096,069          59,113    
    207       U.S. Treasury Note 5 yr.              June 1998          22,575,938        (174,385)   
    82        U.S. Treasury Note 10 yr.             March 1998          9,240,375         100,342    
    89        U.S. Treasury Note 10 yr.             June 1998          10,023,625          (8,672)   
    23        U.S. Treasury Bond 30 yr.             March 1998          2,777,969          40,913    
    257       U.S. Treasury Bond 30 yr.             June 1998          30,960,469        (266,210)   
                                                                                    ---------------  
                                                                                   $     (113,950)   
                                                                                    ===============  

    Sales                                                                                            

    192       Spanish Government Bond 10 yr.        March 1998   $     13,557,121  $     (548,280)   
    144       Spanish Government Bond 10 yr.        June 1998          10,128,572          24,848    
    127       Swiss Government Bond                 March 1998         10,834,287        (609,770)   
    83        Swiss Government Bond                 June 1998           7,102,732          50,186    
    42        Japanese Government Bond 10 yr.       June 1998          43,014,011        (100,097)   
     1        Canadian Government Bond              June 1998              87,500              (1)   
    111       MSE 3 Mo. Bankers Acceptance          March 1998         18,527,298         (77,986)   
    212       Italian Government Bond 10 yr.        June 1998          27,987,862          17,045    
                                                                                    ---------------  
                                                                                   $   (1,244,055)   
                                                                                    ===============  

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.                   

                                                                              19


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Written option transactions                                           

                                                        [Enlarge/Download Table]


                                          Puts                              Calls             

                               Principal                          Principal                   
                               Amount of                          Amount of                   
                               Contracts                          Contracts                   
                             (000's omitted)     Premiums       (000's omitted)     Premiums  
                            -----------------  ------------    -----------------  ------------
                                                                                              
 Outstanding, beginning                                                                       
      of period                    --         $    --                 --         $    --      
 Options written                     178,295     4,337,858              253,622     4,668,333 

 Options exercised                 --               --                   (3,019)     (298,020)
 Options expired                      (5,225)     (406,350)            (157,603)     (499,348)
 Options sold                            (70)      (62,983)           --              --      
                            -----------------  ------------    -----------------  ------------
 Outstanding, end                                                                             
      of period                      173,000  $  3,868,525               93,000  $  3,870,965 
                            =================  ============    =================  ============

Summary of written options outstanding                                                        

                       Principal Amount                                                       
                         of Contracts                       Expiration                        
                        (000's omitted)   Exercise Price       Date               Value       
                       ------------------ --------------------------------- ------------------
Calls                                                                                         
Canadian Dollar             28,900          1.4294 CAD       05/08/98      $          205,190 
Japanese Yen                64,100          113.65 JPY       09/17/98               5,339,530 

Puts                                                                                          
Canadian Dollar             28,900          1.4294 CAD       05/08/98                 326,570 
Japanese Yen                80,000          117.18 JPY       06/15/98                 672,000 
Japanese Yen                64,100          113.65 JPY       09/17/98                 782,020 
                                                                            ------------------
                                                                           $        7,325,310 
                                                                            ==================

20                                                                              


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements                                                         

                                                        [Enlarge/Download Table]


                                                                                    Net      
                                                                                Unrealized   
  Notional Amount     Expiration                                               Appreciation  
 Fund/Counterparty       Date                    Description                   (Depreciation)
--------------------- ----------- -------------------------------------------  --------------
                                                                                             
   USD 4,000,000/      5/04/98    Agreement with Morgan Guaranty Trust       $       80,105  
     2,358,877                    Company dated 2/10/98 to receive the                       
                                  notional amount multiplied by the change                   
                                  in market value (including accrued                         
                                  interest) on the Russia Principal                          
                                  Floating Rate Note due 12/15/20 and to                     
                                  pay the counterparty's notional amount                     
                                  multiplied by 3 month LIBOR adjusted by                    
                                  a specified spread.                                        

   USD 2,000,000/      5/11/98    Agreement with Morgan Guaranty Trust               48,900  
     2,029,375                    Company dated 2/03/98 to receive the                       
                                  notional amount multiplied by the change                   
                                  in market value (including accrued                         
                                  interest) on the Republic of Argentina                     
                                  9.75%, 9/19/27 and to pay the                              
                                  counterparty's notional amount                             
                                  multiplied by 3 month LIBOR adjusted by                    
                                  a specified spread.                                        

    USD 599,672/       5/14/99    Agreement with Bank of America dated             (231,904) 
 TRL 80,250,000,000               5/29/97 to receive the notional amount                     
                                  multiplied by the change in market value                   
                                  (including accrued interest) of Turkey                     
                                  Index Linked Bond due 5/14/99 and to pay                   
                                  the notional amount multiplied by 3                        
                                  month LIBOR adjusted by a specified                        
                                  spread.                                                    

   USD 30,000,000      11/11/98   Agreement with Morgan Guaranty Trust                1,263  
                                  Company dated 11/07/97 to receive (pay)                    
                                  the notional amount multiplied by the                      
                                  return on the Lehman Aggregate Index and                   
                                  to pay the notional amount multiplied by                   
                                  3 month LIBOR adjusted by a specified                      
                                  spread.*                                                   

                                                                              21


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements (continued)                                           

                                                        [Enlarge/Download Table]


                                                                                    Net      
                                                                                Unrealized   
  Notional Amount     Expiration                                               Appreciation  
 Fund/Counterparty       Date                    Description                   (Depreciation)
--------------------- ----------- -------------------------------------------  --------------
                                                                                             
    USD 234,896/       6/04/99    Agreement with Bank of America dated       $       43,599  
 TRL 51,273,017,332               6/20/97 to receive the notional amount                     
                                  multiplied by the change in market value                   
                                  (including accrued interest) of Turkey                     
                                  Index Linked Bond due 6/04/99 and to pay                   
                                  the notional amount multiplied by 3                        
                                  month LIBOR adjusted by a specified                        
                                  spread.                                                    

    USD 79,153/        6/04/99    Agreement with Bank of America dated               56,048  
 TRL 24,802,803,728               11/13/97 to receive the notional amount                    
                                  multiplied by the change in market value                   
                                  (including accrued interest) of Turkey                     
                                  Index Linked Bond due 6/04/99 and to pay                   
                                  the notional amount multiplied by 3                        
                                  month LIBOR adjusted by a specified                        
                                  spread.                                                    
                                                                               --------------

                                                 Net unrealized depreciation $       (1,989) 
                                                                               ==============

See Notes to the Schedule of Investments for definitions of currency  
abbreviations.                                                                  

* This swap agreement is valued by management (Note 1).               

22                                                                              


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's        
   distributions are from investment company taxable income, except that the
    Fund has designated 19.25% of distributions as net capital gain dividends.

                                                                              23


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GMO U.S. Bond/Global Alpha A Fund                                               
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

     Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. LLC since 1993.                                                 

Management Discussion and Analysis of Fund Performance                          

  The Class III shares of the U.S. Bond/Global Alpha A Fund returned 12.2%
for the period from the Fund's inception on April 30, 1997 through the
fiscal year ended February 28, 1998, compared to 10.0% for the Lehman 
Brothers Aggregate Bond Index. Consistent with the Fund's investment  
objectives and policies, the Fund was substantially invested in       
     investment-grade, foreign and domestic, fixed income instruments throughout
     the period. Although the Fund is benchmarked against a domestic bond index,
the value added is derived from global bond and currency strategies.  

   Many of the strategies implemented in the Fund were successful during the
     fiscal year. It outperformed its benchmark by 2.2%, though absolute returns
  were reduced somewhat due to the strength of the U.S. dollar. During the
     partial year since the fund's inception bond market selection was positive,
however currency selection was successful only in the second and third
    fiscal quarters. Although foreign interest rates generally declined during
the year, the strength of the U.S. dollar meant that many foreign bond
    markets performed poorly when measured in U.S. dollar terms. Exceptions to
 this occurred in Italy and the U.K. whose bond markets had double-digit
     U.S. dollar returns. Strong returns were shown as well in Australia, Sweden
and the U.K. The Canadian dollar was the only currency that produced a
positive return versus the U.S. dollar for the year ended February 28,
1998. Value was added during the year by overweighting the Canadian,  
    Swedish and U.K. bond markets, as well as the Italian lira, Spanish peseta
     and the ECU. Additionally, the Fund gained versus the benchmark as a result
    of underweighting the French, Japanese, and Swiss bond markets, as well as
the Belgian franc and the Dutch guilder.                              

During the year the Fund held a position in emerging country sovereign
   debt, emphasizing undervalued issues. This market had a somewhat volatile
    year, buffeted by the financial problems in Asia. Returns came mainly from
     bond yields as prices changed little from beginning to end. Our decision to
    include emerging country debt exposure in the portfolio added value in all
but the third fiscal quarter.                                         

Outlook                                                                         

  The Fund is structured to benefit from outperformance in the Australian,
Danish, French, German, Swedish and emerging bond markets. We expect  
underperformance from the Italian, Japanese, Spanish and Swiss bond   
   markets. Our strategy maintains a market duration in each country. Strong
   relative performance is expected from the Canadian dollar, Deutsche mark,
Italian lira, Spanish peseta and U.K. pound. The Belgian franc, Danish
krone, French franc, Japanese yen and U.S. dollar are expected to     
underperform.                                                         

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in GMO U.S. Bond/Global 
Alpha A Fund Class III Shares and the Lehman Brothers Aggregate 
Bond Index  
As of February 28, 1998 

Average Annual Total Return                                     
---------------------------                                     
Since                   
Inception                   
1 Year          4/30/97                                   
---------------------------                                     
Class                                                                           
III        n/a             12.0%                                              
---------------------------                                     

[LINE GRAPH APPEARS HERE] 

GMO U.S. Bond/Global            Lehman Brothers Aggregate       
Alpha A Fund                       Bond Index           

4/30/97        $ 9,985                            $10,000                       
2/28/98        $11,199                            $10,996                       

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 15bp on the purchase. Transaction fees are paid to the Fund  
to cover trading costs. Past performance is not indicative of future            
performance. Information is unaudited.                                          


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                     

To the Trustees of GMO Trust and the Shareholders of                  
GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust)             

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. Bond/Global Alpha B Fund at February 28, 1998, and the results of its
    operations, the changes in its net assets and the financial highlights for
    the period July 29, 1997 (commencement of operations) through February 28,
  1998, in conformity with generally accepted accounting principles. These
 financial statements and financial highlights (hereafter referred to as
   "financial statements") are the responsibility of the Trust'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 generally accepted auditing standards 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 28, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion    
expressed above.                                                      

Price Waterhouse LLP                                                  
Boston, Massachusetts                                                 
April 20, 1998                                                        


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

         Par Value       Description                                               Value ($)  
----------------------------------------------------------------------------------------------
                                                                                              
                         DEBT OBLIGATIONS -- 97.6%                                            

                         Australia -- 1.2%                                                    
GBP       2,500,000      Commonwealth Bank Australia Series EMTN, 8.13%, due                  
                            12/07/06                                                 4,480,538
                                                                                 -------------
                         Brazil -- 1.0%                                                       
USD      20,000,000      Brazil Discount Bond, Principal Strip, due 4/15/24          3,820,000
                                                                                 -------------
                         Cayman Islands -- 0.8%                                               
CAD       4,000,000      Government of Canada (Cayman), 7.25%, due 6/01/08           3,083,193
                                                                                 -------------
                         Denmark -- 2.3%                                                      
DKK      52,500,000      Kingdom of Denmark Bullet, 7.00%, due 11/15/07              8,578,878
                                                                                 -------------
                         France -- 1.6%                                                       
ECU       4,000,000      Government of France, 8.25%, due 4/25/22                    5,910,006
                                                                                 -------------
                         Germany -- 0.3%                                                      
DEM       2,000,000      Deutsche Siedlungs LB, 6.75%, due 10/02/23                  1,220,079
                                                                                 -------------
                         Japan -- 1.4%                                                        
GBP       3,000,000      Export Import Bank of Japan, 10.75%, due 5/15/01            5,443,329
                                                                                 -------------
                         New Zealand -- 1.7%                                                  
NZD      11,700,000      New Zealand Index Linked Bond, 4.50%, due 2/15/16           6,517,052
                                                                                 -------------
                         Supra National -- 0.2%                                               
AUD       8,600,000      European Bank Recon and Development, Zero Coupon,                    
                         due 2/10/28                                                   882,393
                                                                                 -------------
                         Sweden -- 1.7%                                                       
SEK      48,400,000      Kingdom of Sweden, 6.00%, due 2/09/05                       6,279,716
                                                                                 -------------
                         United Kingdom -- 2.2%                                               
GBP       4,160,000      Guaranteed Export Financial Corp, 12.88%, due 9/29/02       8,441,935
                                                                                 -------------
                         United States -- 83.2%                                               

                         Asset Backed Securities -- 56.5%                                     
USD      10,000,000      Anfield Road I Ltd.,                                                 
                            Variable Rate, 6 mo. LIBOR + .25%, 5.88%, due            9,972,000
                            11/06/06                                                          
USD      11,503,428      Banc One Student Loan Trust 94-A Class A2,                           
                            Variable Rate, 1 mo. LIBOR + .30%, 5.93%, due           11,549,442
                            10/25/16                                                          
USD       5,000,000      Big Flower Receivables Master Trust 96-2 Class A,                    
                            Variable Rate, LIBOR +.25%, 5.88%, due 4/25/03           5,000,000

               See accompanying notes to the financial statements.             1


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


         Par Value       Description                                               Value ($)  
----------------------------------------------------------------------------------------------
                                                                                              
                         Asset Backed Securities -- continued                                 
USD       5,000,000      Bombardier Receivables Master Trust I 97-1 Class A,                  
                            Variable Rate, 1 mo. LIBOR + .12%, 5.75%, due                     
                            4/15/04                                                  5,000,000
USD       4,635,000      Brazos Student Loan Finance Corp Series 96-A4,                       
                            Variable Rate, 3 mo. U.S. Treasury Bill + .50%,                   
                            5.78%, due 12/01/02                                      4,616,895
USD      15,000,000      Chevy Chase Master Credit Card Trust 95-C Class A,                   
                            Variable Rate, 1 mo. LIBOR + .26%, 5.89%, due                     
                            5/15/06                                                 15,030,000
USD       7,500,000      Chevy Chase Master Credit Card Trust Series 96-A,                    
                            Variable Rate, 1 mo. LIBOR + .15%, 5.78%, due                     
                            2/15/05                                                  7,495,313
USD      10,000,000      Chyps CBO 97-1, Class A2, 144A, 6.72%, due 1/15/10          9,862,500
USD      10,000,000      Circuit City Credit Card Master Trust 96-1 Class A,                  
                            Variable Rate, 1 mo. LIBOR + .17%, 5.80%, due                     
                            10/15/06                                                 9,984,375
USD      22,500,000      Discover Card Master Trust I 94-2 Class A,                           
                            Variable Rate, 1 mo. LIBOR + .35%, 5.98%, due                     
                            10/16/04                                                22,696,874
USD       5,000,000      Dreamworks Film Trust Series 1 Class A,                              
                            Variable Rate, 3 mo. LIBOR + .22%, 5.81%, due                     
                            10/15/06                                                 5,000,000
USD       5,000,000      European Sovereign Investments,                                      
                            Variable Rate, 6 mo. LIBOR + .40%, 6.03%, due                     
                            1/20/99                                                  5,020,000
USD       4,000,000      First Chicago Master Trust II 95-0 Class A,                          
                            Variable Rate, 1 mo. LIBOR + .23%, 5.86%, due                     
                            2/15/04                                                  4,015,000
USD       5,000,000      First Deposit Master Trust Series 96-1 Class A,                      
                            Variable Rate, 1 mo. LIBOR +.17%, 5.76%, due                      
                            8/15/07                                                  5,012,500
USD      10,000,000      First North American National Bank 97-2 Class A,                     
                            Variable Rate, 1 mo. LIBOR +.21%, 5.84%, due                      
                            3/15/06                                                 10,004,000
USD      10,000,000      First USA Credit Card Master Trust 97-2 Class A,                     
                            Variable Rate, 1 mo LIBOR + .13%, 5.76%, due                      
                            1/17/07                                                  9,987,500
USD      10,000,000      Keycorp Student Loan Trust 95-A Class B,                             
                            Variable Rate, 1 mo. LIBOR + .75%, 6.38%, due                     
                            10/27/21                                                10,000,000
USD       5,034,531      Keystone Auto Grantor Trust Series 1996-A Class A,                   
                            144A, 6.60%, due 12/15/02                                5,115,084
USD      11,000,000      Navistar Financial Dealer Note Master Trust 97-1                     
                            Class A,                                                          
                            Variable Rate, 1 mo. LIBOR + .15%, 5.81%,                         
                            due 8/25/03                                             11,003,300

USD       3,300,000      Northstar CBO Series 97-2 Class A2, 6.62%, due                       
                            7/15/09                                                  3,616,077
USD       8,000,000      PARMA Food Corp BV,                                                  
                            Variable Rate, 3 mo. LIBOR + .25%, 6.16%, due                     
                            12/20/00                                                 8,024,000
USD       5,000,000      Premier Auto Trust 95-1 Certificates, 8.10%, due                     
                            3/04/01                                                  5,072,656
USD       2,495,824      Resolution Trust Corp 94-C1 Class A1,                                
                            Variable Rate, 1 mo. LIBOR + .45%, 6.14%, due                     
                            6/25/26                                                  2,499,724
USD      10,000,000      Rhyno CBO Series 97-1 Class A-2, 144A,                               
                            Variable Rate, Step Up, 0.00% due 9/15/09               10,645,313
USD      16,276,671      Signet Student Loan Trust Series 96-A Class A-1,                     
                            Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due                     
                            1/25/05                                                 16,271,585

2              See accompanying notes to the financial statements.              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


         Par Value       Description                                               Value ($)  
----------------------------------------------------------------------------------------------
                                                                                              
                         Asset Backed Securities -- continued                                 
USD       2,620,000      SMS Student Loan Trust 94-B Certificates,                            
                            Variable Rate, 1 mo. LIBOR + .75%, 6.38%, due                     
                            10/25/23                                                 2,620,000
                                                                                 -------------
                                                                                   215,114,138
                                                                                 -------------
                         Structured Notes -- 6.0%                                             
USD       2,900,000      Federal Home Loan Bank,                                              
                            Variable Rate, (10.00% - 6 mo. LIBOR), 4.16%, due                 
                            3/03/98                                                  2,891,300
USD      20,000,000      Student Loan Marketing Association Series 95-1 Class                 
                            A2, Variable Rate, 3 mo. U.S. Treasury Bill + .75%,               
                            6.03%, due 10/25/07                                     19,920,000
                                                                                 -------------
                                                                                    22,811,300
                                                                                 -------------
                         U.S. Government -- 11.9%                                             
USD       8,057,920      U.S. Treasury Inflation Indexed Note, 3.63%, due                     
                            7/15/02/(a)/                                             8,015,108
USD       5,090,850      U.S. Treasury Inflation Indexed Note, 3.38%, due                     
                            1/15/07                                                  4,966,761
USD      31,600,000      U.S. Treasury Note, 6.38%, due 8/15/02                     32,547,998
                                                                                 -------------
                                                                                    45,529,867
                                                                                 -------------
                         U.S. Government Agency -- 8.8%                                       
USD       5,000,000      Agency for International Development Floater                         
                            (Support of C.A.B.E.I.),                                          
                            Variable Rate, 6 mo. U.S. Treasury Bill + .40%,                   
                            5.64%, due 10/01/12                                      4,982,031
USD       8,333,333      Agency for International Development Floater                         
                            (Support of India),                                               
                            Variable Rate, 3 mo. U.S. Treasury Bill + .45%,                   
                            5.63%, due 2/01/99                                       8,321,615
USD      20,000,000      Federal National Mortgage Association, 6.49%, due                    
                            1/19/06                                                 20,070,000
                                                                                 -------------
                                                                                    33,373,646
                                                                                 -------------
                         Total United States                                       316,828,951
                                                                                 -------------
                         TOTAL DEBT OBLIGATIONS  (COST $369,205,999)               371,486,070
                                                                                 -------------


    Principal Amount                                                                          
-----------------------                                                                       
                                                                                              
                         CALL OPTIONS PURCHASED -- 1.1%                                       

                         Cross Currency Options -- 0.1%                                       
DEM     140,500,000      DEM Call/BEF Put, Expires 7/8/98, Strike 20.6                 162,580
DEM      64,000,000      DEM Call/ITL Put, Expires 9/22/98, Strike 993                 260,965
                                                                                 -------------
                                                                                       423,545
                                                                                 -------------

             See accompanying notes to the financial statements.               3


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]

      Principal Amount   Description                                               Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                         Options on Bonds -- 0.2%                                                 
SEK      143,000,000     Sweden Government Bond, Expires 4/30/98, Strike                          
                         100.677                                                       550,110    
                                                                                 -------------    
                         Options on Currency -- 0.8%                                              
USD      57,100,000      German Mark, Expires 9/17/98, Strike 1.725                  2,974,910    
USD      65,000,000      Japanese Yen, Expires 6/15/98, Strike 140                     110,500    
                                                                                 -------------    
                                                                                     3,085,410    
                                                                                 -------------    
                         Options on Futures -- 0.0%                                               
USD         500,000      Eurodollar, Expires 3/16/98, Strike 94.25                      40,000    
                                                                                 -------------    
                         TOTAL CALL OPTIONS PURCHASED                                             
                         (COST $4,306,764)                                           4,099,065    
                                                                                 -------------    
                         PUT OPTIONS PURCHASED -- 0.3%                                            

                         Cross Currency Options -- 0.1%                                           
DEM      64,000,000      DEM Put/ITL Call, Expires 9/22/98, Strike 993                 162,221    
                                                                                 -------------    
                         Options on Currency -- 0.2%                                              
USD      57,100,000      German Mark, Expires 9/17/98, Strike 1.725                    799,400    
                                                                                 -------------    
                         Options on Futures -- 0.0%                                               
USD         500,000      Eurodollar, Expires 3/16/98, Strike 94.00                       2,500    
                                                                                 -------------    
                         TOTAL PUT OPTIONS PURCHASED                                              
                         (COST $2,556,172)                                             964,121    
                                                                                 -------------    

    Par Value/Shares                                                                              
----------------------                                                                            
                                                                                                  
                         SHORT-TERM INVESTMENTS -- 7.0%                                           

                         Cash Equivalents -- 4.4%                                                 
USD      12,430,145      BankBoston Eurodollar Time Deposit, 5.7875% due                          
                         3/2/98/(b)/                                                12,430,145    
          4,549,855      Merrimac Cash Fund Premium Class/(b)/                       4,549,855    
                                                                                 -------------    
                                                                                    16,980,000    
                                                                                 -------------    
                         Commercial Paper -- 2.5%                                                 
USD       9,500,000      GE Capital Corp, 5.68% due 3/02/98                          9,500,000    
                                                                                 -------------    

4              See accompanying notes to the financial statements.              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


         Par Value       Description                                               Value ($)      
--------------------------------------------------------------------------------------------------
                                                                                                  
                         Repurchase Agreement -- 0.1%                                             
USD         302,122      Salomon Smith Barney Inc. Repurchase Agreement,                          
                         dated 2/27/98, due 3/2/98, with a maturity value of                      
                         $302,250 and an effective yield of 5.07%,                                
                         collateralized by a U.S. Treasury Obligation with a                      
                         rate of 8.125%, with a maturity date of 8/15/21 and                      
                         with a market value of $308,164.                             302,122     
                                                                                -------------     
                         TOTAL SHORT-TERM INVESTMENTS                                             
                         (COST $26,782,122)                                        26,782,122     
                                                                                -------------     
                         TOTAL INVESTMENTS -- 106.0%                                              
                         (Cost $402,851,057)                                      403,331,378     

                         Other Assets and Liabilities (net) -- (6.0)%             (22,726,797)    
                                                                                -------------     

                         TOTAL NET ASSETS -- 100%                               $ 380,604,581     
                                                                                =============     

                         Notes to the Schedule of Investments:                                    

                         EMTN -- Euromarket Medium Term Note                                      

                         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                     
                            buyers.                                                               

                         Variable rates -- The rates shown on variable rate                       
                            notes are the current interest rates at February 28,                  
                            1998, which are subject to change based on the terms                  
                            of the security, including varying reset dates.                       

              See accompanying notes to the financial statements.              5


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         
Schedule of Investments -- (Continued)                                          
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                     Notes to the Schedule of Investments -- (continued)

Currency Abbreviations        
AUD - Australian Dollar       
BEF - Belgian Franc           
CAD - Canadian Dollar         
CHF - Swiss Franc             
DEM - German Mark             
DKK - Danish Krone            
ECU - European Currency Unit  
ESP - Spanish Peseta          
FRF - French Franc            
GBP - British Pound           
ITL - Italian Lira            
JPY - Japanese Yen            
NLG - Netherlands Guilder     
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.                      
               /(b)/ Represents investments of security lending collateral
(Note 1).                       

6              See accompanying notes to the financial statements.              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                                                
Assets:                                                                         
   Investments, at value (cost $402,851,057) (Note 1)               $403,331,378
   Interest receivable                                                 2,882,964
   Receivable for open swap contracts (Notes 1 and 6)                    431,038
   Receivable for variation margin on open futures                              
    contracts (Notes 1 and 6)                                            325,382
   Receivable for open forward foreign currency                                 
    contracts (Notes 1 and 6)                                          1,945,111
   Receivable for expenses waived or borne by Manager (Note 2)            78,300
                                                                    ------------

       Total assets                                                  408,994,173
                                                                    ------------

Liabilities:                                                                    
   Payable for investments purchased                                   3,099,114
   Payable upon return of securities loaned (Note 1)                  16,980,000
   Written options outstanding, at value (premiums $6,810,350)                  
    (Notes 1 and 6)                                                    6,453,530
   Payable for open forward foreign currency contracts                          
    (Notes 1 and 6)                                                    1,607,423
   Payable to affiliate for (Note 2):                                           
      Management fee                                                     117,156
      Shareholder service fee                                             42,446
   Accrued expenses                                                       89,923
                                                                    ------------

       Total liabilities                                              28,389,592
                                                                    ------------

Net assets                                                          $380,604,581
                                                                    ============

Net assets consist of:                                                          
   Paid-in capital                                                  $375,106,837
   Accumulated undistributed net investment income                     1,144,792
   Accumulated undistributed net realized gain                         3,450,365
   Net unrealized appreciation                                           902,587
                                                                    ------------
                                                                    $380,604,581
                                                                    ============

Net assets attributable to:                                                     
   Class III shares                                                 $380,604,581
                                                                    ============

Shares outstanding:                                                             
   Class III                                                          37,541,918
                                                                    ============

Net asset value per share:                                                      
   Class III                                                        $      10.14
                                                                    ============

                  See accompanying notes to the financial statements.          7


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Statement of Operations --                                                      
 Period from July 29, 1997 (commencement of operations) to February 28, 1998
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                                                
Investment Income:                                                              
   Interest (including securities lending income                                
    of $8,378)                                                      $13,470,922 
                                                                    ----------- 

       Total income                                                  13,470,922 
                                                                    ----------- 

Expenses:                                                                       
   Management fee (Note 2)                                              865,631 
   Custodian and transfer agent fees                                    126,786 
   Audit fees                                                            42,541 
   Legal fees                                                             3,313 
   Trustees fees (Note 2)                                                 1,847 
   Registration fees                                                        690 
   Miscellaneous                                                          1,609 
   Fees waived or borne by Manager (Note 2)                            (609,605)
                                                                    ----------- 
                                                                        432,812 
   Shareholder service fee (Note 2)                                             
       Class III                                                        323,124 
                                                                    ----------- 
       Net expenses                                                     755,936 
                                                                    ----------- 

          Net investment income                                      12,714,986 
                                                                    ----------- 

Realized and unrealized gain (loss):                                            
    Net realized gain (loss) on:                                                
       Investments                                                      797,753 
       Closed futures contracts                                       1,476,027 
       Closed swap contracts                                            769,882 
       Written options                                                  439,267 
       Foreign currency, forward contracts and foreign                          
        currency related transactions                                (1,660,755)
                                                                    ----------- 

          Net realized gain                                           1,822,174 
                                                                    ----------- 

   Change in net unrealized appreciation (depreciation) on:                     
       Investments                                                      480,321 
       Open futures contracts                                          (708,914)
       Open swap contracts                                              431,038 
       Written options                                                  356,820 
       Foreign currency, forward contracts and foreign                          
        currency related transactions                                   343,322 
                                                                    ----------- 

          Net unrealized gain                                           902,587 
                                                                    ----------- 

       Net realized and unrealized gain                               2,724,761 
                                                                    ----------- 

Net increase in net assets resulting from operations                $15,439,747 
                                                                    =========== 

8              See accompanying notes to the financial statements.              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                     Period from July 29, 1997  
                                                    (commencement of operations)
                                                       to February 28, 1998     
                                                    --------------------------  
                                                                                
Increase (decrease) in net assets:                                              
Operations:                                                                     
   Net investment income                                   $12,714,986          
   Net realized gain                                         1,822,174          
   Change in net unrealized appreciation                                        
    (depreciation)                                             902,587          
                                                           -----------          

   Net increase in net assets resulting from                                    
    operations                                              15,439,747          
                                                           -----------          

Distributions to shareholders from:                                             
   Net investment income                                                        
       Class III                                            (7,602,708)         
                                                           -----------          
   Net realized gains                                                           
       Class III                                            (2,339,295)         
                                                           -----------          

                                                            (9,942,003)         
                                                           -----------          
   Net share transactions: (Note 5)                                             
       Class III                                           375,106,837          
                                                           -----------          

      Total increase in net assets                         380,604,581          

Net assets:                                                                     
   Beginning of period                                              --          
                                                           -----------          

   End of period (including accumulated                                         
    undistributed net investment                                                
    income of $1,144,792)                                 $380,604,581          
                                                          ============          

               See accompanying notes to the financial statements.             9


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

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

                                                                [Download Table]


                                                    Period from July 29, 1997   
                                                    (commencement of operations)
                                                      to February 28, 1998      
                                                    --------------------------  
                                                                                
Net asset value, beginning of period                        $  10.00            
                                                            --------            

Income from investment operations:                                              
   Net investment income                                        0.35+           
   Net realized and unrealized gain                             0.06            
                                                            --------            

      Total from investment operations                          0.41            
                                                            --------            

Less distributions to shareholders:                                             
   From net investment income                                  (0.21)           
   From net realized gains                                     (0.06)           
                                                            --------            

      Total distributions                                      (0.27)           
                                                            --------            
Net asset value, end of period                              $  10.14            
                                                            ========            

Total Return /(a)/                                              4.15%           

Ratios/Supplemental Data:                                                       
   Net assets, end of period (000's)                        $380,605            
   Net expenses to average daily net assets                     0.35%*          
   Net investment income to average daily net assets            5.88%*          
   Portfolio turnover rate                                        27%           
   Fees and expenses voluntarily waived or borne                                
      by the Manager consisted of the following                                 
      per share amount:                                     $   0.02            

+     Computed using average shares outstanding throughout the period.          
/(a)/ Calculation excludes purchase premiums. The total return would have been  
lower had certain expenses not been waived during the period shown. 
*     Annualized.                                                               

10             See accompanying notes to the financial statements.              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

    GMO U.S. Bond/Global Alpha B Fund (the "Fund"), which commenced operations
on July 29, 1997, 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 primarily through investing in     
investment-grade bonds.                                               

At the beginning of the fiscal year, the Fund offered three classes of
     shares: Class I, Class II, and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  
Effective January 9, 1998, Class I and Class II shares ceased to be   
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
    statements. The preparation of the financial statements in accordance with
generally accepted accounting principles 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 available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, 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 market value. Other assets and securities for which no   
    quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.

    Some fixed income securities and options thereon 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 any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual   
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
 another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.                                   

                                                                              11


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

   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 investments in securities held by the Fund were valued on the basis
    of a price provided by a principal market maker. At February 28, 1998, the
     total value of these securities represented 10% of net assets. These prices
  may differ from the value that would have been used had a broader market
 for the securities existed and the differences could be material to the
financial statements.                                                 

Foreign currency translation                                          
The accounting records of the Fund are maintained in U.S. dollars. The
     market values of foreign securities, currency holdings and other assets and
     liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign   
currencies are translated at prevailing 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
net exchange gains and losses on disposition of foreign currencies,   
   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.

Futures contracts                                                     
   The Fund may use futures contracts to manage its exposure to the bond and
   currency 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 obligations in accordance with the  
  initial margin requirements of the broker or exchange. 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. Gains or
losses are recognized but not considered realized until the contracts 
   expire or are closed. Futures contracts involve, to varying degrees, risk
 of loss in excess of the variation margin disclosed in the Statement of
   Assets and Liabilities. Losses may arise from changes in the value of the
 underlying instrument, if there is an illiquid secondary market for the
  contracts, or if counterparties do not perform under the contract terms.
   Futures contracts are valued at the settlement price established each day
    by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of February 28, 1998.                   

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                 

12                                                                              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

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 the value of the currency changes unfavorably to the
     U.S. dollar. The U.S. dollar value of the currencies the Fund has committed
   to buy or sell is shown under Note 6 and represents the currency exposure
   the Fund has acquired or hedged through currency contracts as of February
28, 1998.                                                             

Options                                                               
     The Fund may write call and put options on securities or currencies it owns
  or in which it may invest. 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 offset against the proceeds or amounts paid on the      
     transaction to determine the realized gain or loss. The Fund as a writer of
     an option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an 
unfavorable change in the price of the security underlying the written
    option. There is the risk the Fund may not be able to enter into a closing
     transaction because of an illiquid market. See Note 6 for a summary of open
written option contracts as of February 28, 1998.                     

  The Fund may also purchase put and call options. 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. The risk associated with purchasing put and call options is
limited to the premium paid.                                          

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 invest in swap agreements. 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 swap agreements to manage its exposure
 to interest rates. The Fund entered into interest rate and total return
    swap agreements. 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                 

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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

 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 based on a notional amount. 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. Swaps are marked to market daily based upon quotations from
 market makers and the change, if any, is recorded as unrealized gain or
   loss in the Statement of Operations. Payments received or made at the end
of the measurement period are recorded as realized gain or loss in the
Statement of Operations. Entering into these agreements involves, to  
varying degrees, elements of credit and market risk in excess of the  
   amounts recognized on the Statement of Assets and Liabilities. Such risks
involve the possibility that there is no liquid market for these      
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap  
agreements as of February 28, 1998.                                   

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,
realization of collateral by the Fund may be delayed or limited.      

Security lending                                                      
  The Fund may lend its securities to certain qualified brokers. The loans
     are collateralized at all times with cash or securities with a market value
     at least equal to the market value of the securities on loan. As with other
  extensions of credit, the Fund may bear the risk of delay in recovery or
     even loss of rights in the collateral should the borrower fail financially.
    The Fund receives compensation for lending its securities. At February 28,
1998, the Fund loaned securities having a market value of $16,522,638,
    collateralized by cash in the amount of $16,980,000, which was invested in
short-term instruments.                                               

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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       

14                                                                              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

     in shares of the Fund, at net asset value, unless the shareholder elects to
   receive cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
differing treatments for 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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated         Accumulated Undistributed             
Undistributed Net            Net Realized                     
     Investment Income              Gain                   Paid-in Capital
       ----------------------- ------------------------ ------------------------
 $(3,967,486)              $3,967,486                     --

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

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 accretion of    
     discounts. 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 the securities adjusted for inflation is recorded as income.

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 in such manner as deemed equitable by the Trustees,
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.

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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Purchases and redemptions of Fund shares                              
The premium on cash purchases of Fund shares is .15% of the amount    
    invested. The premium may be reduced by 50% with respect to any portion of
  a purchase that is offset by a corresponding redemption occurring on the
 same day. All purchase premiums are paid to and recorded by the Fund as
   paid-in capital. This fee is allocated relative to each class' net assets
  on the share transaction date. Purchase premiums are included as part of
  each class' "shares sold", as summarized in Note 5. For the period ended
   February 28, 1998, the Fund received $191,161 in purchase premiums. There
 is no premium for cash redemptions, reinvested distributions or in-kind
transactions.                                                         

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 and the
possible imposition of currency exchange blockages 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.                                                              

2.   Fees and other transactions with affiliates                                

GMO earns a management fee paid monthly at the annual rate of .40% of 
   average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the    
   Shareholder Service Plan, the shareholder service fee is calculated based
  on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III  
shares.                                                               

    GMO has agreed to waive a portion of its fee and bear other expenses until
     further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other     
    transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .20% of average daily net assets.      

The Fund's portion of the fee paid by the Trust to the unaffiliated   
Trustees during the period ended February 28, 1998 was $1,847. No     
   remuneration is paid to any Trustee or officer who is affiliated with the
Manager.                                                              

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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

3.   Purchases and sales of securities                                          

     For the period ended February 28, 1998, cost of purchases and proceeds from
   sales of investments, other than short-term obligations, were as follows:

                                                                [Download Table]

                                                    Purchases          Proceeds    
                                                ----------------   ----------------
                                                                                   
U.S. Government securities                    $    139,068,275    $   29,487,109   
Investments (non-U.S. Government securities)       340,549,352        66,799,430   

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                        [Enlarge/Download Table]

                          Gross Unrealized        Gross Unrealized        Net Unrealized    
   Aggregate Cost           Appreciation            Depreciation           Appreciation     
---------------------  ----------------------- -----------------------  --------------------
                                                                                            
    $402,858,668             $4,430,095              $3,957,385              $472,710       


4.   Principal shareholder                                                      

     At February 28, 1998, 99.9% of the outstanding shares of the Fund were held
by one shareholder.                                                   

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including purchase premiums received by the Fund, were as follows:

                                                                [Download Table]

                                          Period from July 29, 1997   
                                        (commencement of operations)  
  Class III:                                to February 28, 1998      
                                      --------------------------------
                                          Shares          Amount      
                                      --------------- ----------------
                                                                      
Shares sold                             37,287,695   $    372,664,834 
Shares issued to shareholders                                         
  in reinvestment of                                                  
  distributions                            990,239          9,942,003 
Shares repurchased                        (736,016)        (7,500,000)
                                      --------------- ----------------
Net increase                            37,541,918   $    375,106,837 
                                      =============== ================

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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

6.   Financial instruments                                                      

   A summary of outstanding financial instruments at February 28, 1998 is as
follows:                                                              

Forward currency contracts                                            

                                                        [Enlarge/Download Table]


                                                                        Net Unrealized   
 Settlement                      Units of Currency                       Appreciation    
    Date      Deliver/Receive                            Value          (Depreciation)   
------------- -----------------  ----------------- ------------------ ------------------ 
                                                                                         
    Buys                                                                                 

  5/07/98           AUD                  2,500,000    $     1,705,558 $           23,433 
  3/27/98           CAD                 94,100,000         66,163,292            766,264 
  4/09/98           DEM                 94,300,000         52,091,909           (241,986)
  4/17/98           GBP                  7,800,000         12,809,563             15,098 
  3/20/98           ITL             33,474,700,000         19,177,260           (476,011)
  4/03/98           JPY              4,960,000,000         39,464,157             75,317 
                                                                       ----------------- 
                                                                      $          162,115 
                                                                       ==================
   Sales                                                                                 

  5/07/98           AUD                  1,900,000    $     1,296,224 $         (26,188) 
  3/27/98           CAD                 62,200,000         43,733,866          (242,222) 
  3/20/98           DEM                 34,000,000         18,759,087           418,171  
  4/09/98           DEM                 56,300,000         31,100,470           (65,312) 
  4/17/98           GBP                 12,500,000         20,528,147           (32,736) 
  4/03/98           JPY              7,550,000,000         60,071,450          (162,531) 
  3/12/98           NZD                 11,700,000          6,856,633           100,304  
                                                                       ------------------
                                                                      $         (10,514) 
                                                                       ==================

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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


Forward cross currency contracts                                                             

                                                                          Net Unrealized     
  Settlement                                                               Appreciation      
     Date       Deliver/Units of Currency    Receive/In Exchange For      (Depreciation)     
 ------------- ---------------------------  -------------------------- --------------------- 
                                                                                             
   7/10/98        BEF        1,246,491,450    DEM           60,300,000 $            (36,419) 
   5/14/98        CHF           10,855,904    DEM           13,500,000                 1,103 
   7/10/98        DEM            5,600,000    BEF          115,507,952               (3,407) 
   4/24/98        DEM           22,200,000    ESP        1,886,001,000               (9,229) 
   4/23/98        DEM            9,485,600    GBP            3,200,000                 9,225 
   3/20/98        DEM            8,800,000    ITL        8,675,000,000               (8,848) 
   3/06/98        DEM           55,400,000    SEK          243,627,034             (104,112) 
   4/30/98        DEM          266,331,800    ECU          135,400,000               465,460 
   3/23/98        DKK          161,984,500    DEM           42,500,000                10,136 
   5/22/98        FRF          261,449,760    DEM           78,000,000                46,821 
   3/20/98        ITL        2,562,170,000    DEM            2,600,000                 3,116 
   3/05/98        NLG           25,129,870    DEM           22,300,000                10,663 
   3/06/98        SEK          271,281,334    DEM           61,400,000              (43,108) 
   4/30/98        ECU           74,700,000    DEM          147,118,376             (155,314) 
                                                                         ------------------- 
                                                                        $            186,087 
                                                                         =================== 


Futures contracts                                                                            

                                                                             Net Unrealized  
  Number of                                    Expiration         Contract    Appreciation   
  Contracts                Type                   Date             Value      (Depreciation) 
 ----------- --------------------------------- ------------   -------------- ----------------
                                                                                             
    Buys                                                                                     

     59      Australian Government Bond 10 yr    March 1998   $    5,823,314 $         51,673
     5       Canadian Government Bond             June 1998          437,500             (72)
     49      German Government Bond               June 1998        7,222,559         (12,624)
     59      MATIF FRF Bond                       June 1998        5,007,825         (11,467)
     447     U.S. Treasury Note 5 yr.             June 1998       48,750,938        (376,570)
     138     U.S. Treasury Note 10 yr.           March 1998       15,550,875          168,509
     115     U.S. Treasury Note 10 yr.            June 1998       12,951,875           10,627
     182     U.S. Treasury Bond 30 yr.           March 1998       21,982,187          308,320
     141     U.S. Treasury Bond 30 yr.            June 1998       16,986,094        (153,706)
                                                                              ---------------
                                                                             $       (15,310)
                                                                              ===============

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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


Futures contracts -- continued                                                         

     Sales                                                                             
                                                                                       
     88      MSE 3mo. Bankers Acceptance     March 1998  $  14,688,308 $       (61,860)
     104     Italian Government Bond 10 yr.   June 1998     13,729,895            (305)
     57      Japanese Government Bond 10 yr.  June 1998     58,376,158        (136,289)
     67      Spanish Government Bond 10 yr.  March 1998      4,730,870        (173,155)
     50      Spanish Government Bond 10 yr.   June 1998      3,516,865            8,662
     105     Swiss Government Bond           March 1998      8,957,482        (508,374)
     71      Swiss Government Bond            June 1998      6,075,831           42,450
     136     U.K Gilt                         June 1998     11,962,419          135,267
                                                                        ---------------
                                                                       $      (693,604)
                                                                        ===============

 At February 28, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.                   

Written option transactions                                           

                                                        [Enlarge/Download Table]


                                         Puts                                Calls           

                         Principal Amount                    Principal Amount                
                           of Contracts                        of Contracts                  
                         (000's omitted)     Premiums        (000's omitted)     Premiums    
                        -----------------  ---------------  ----------------- ---------------
                                                                                             
Outstanding, beginning                                                                       
     of period                 --         $      --                --         $      --      

Options written             146,800          3,372,860          222,800          3,876,757   
Options exercised              --                --            (141,000)          (359,550)  
Options expired                --                --                --              (79,717)  
                        -----------------  ---------------  ----------------- ---------------
Outstanding, end                                                                             
         of period          146,800       $  3,372,860           81,800      $  3,437,490    
                        =================  ===============  ================= ===============

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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Summary of written options outstanding                                

                                                        [Enlarge/Download Table]


                 Principal Amount                      Expiration                      
                   of Contracts     Exercise Price        Date              Value      
                  (000's omitted)                                                      
                 ------------------ --------------- ------------------ ----------------
Calls                                                                                  
                                                                                       
Canadian Dollar       24,700           1.4294 CAD       05/08/98      $     175,370    
Japanese Yen          57,100           113.65 JPY       09/17/98          4,756,430    

Puts                                                                                   
Canadian Dollar       24,700           1.4294 CAD       05/08/98            279,110    
Japanese Yen          65,000           117.18 JPY       06/15/98            546,000    
Japanese Yen          57,100           113.65 JPY       09/17/98            696,620    
                                                                       ----------------
                                                                      $   6,453,530    
                                                                       ================

                                                                              21


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Notes to Financial Statements-- (Continued)                                     
February 28, 1998                                                               
--------------------------------------------------------------------------------

Swap agreements                                                       

                                                        [Enlarge/Download Table]


                                                                                     Net      
                    Expiration                                                    Unrealized  
 Notional Amount       Date                      Description                     Appreciation 
------------------- ----------- ---------------------------------------------  ---------------
                                                                                              
  USD 70,000,000     11/11/98   Agreement with Morgan Guaranty Trust Company   $         2,947
                                dated 11/07/97 to receive (pay) the notional                  
                                amount multiplied by the return on the Lehman                 
                                Aggregate Index and to pay the notional                       
                                amount multiplied by 3 month LIBOR adjusted                   
                                by a specified spread. +                                      

  USD 50,000,000     11/30/98   Agreement with Morgan Guaranty Trust Company           428,091
                                dated 12/05/97 to receive (pay) the notional                  
                                amount multiplied by the return on the Lehman                 
                                Aggregate Index and to pay the notional                       
                                amount multiplied by 3 month LIBOR adjusted                   
                                by a specified spread. +                                      

                                                                                --------------
                                                   Net unrealized appreciation $       431,038
                                                                                ==============

See Notes to the Schedule of Investments for definitions of currency  
abbreviations.                                                        
+ This swap agreement is valued by management (Note 1).               

22                                                                              


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's        
   distributions are from investment company taxable income, except that the
    Fund has designated 23.53% of distributions as net capital gain dividends.

                                                                              23


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GMO U.S. Bond/Global Alpha B Fund                                               
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

     Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily responsible
for the day-to-day management of the Fund's portfolio. Each of these  
    individuals has been a portfolio manager with Grantham, Mayo, Van Otterloo
& Co. LLC since 1993.                                                 

Management Discussion and Analysis of Fund Performance                          

     The Class III shares of the U.S. Bond/Global Alpha B Fund returned 4.2% for
  the period from the Fund's inception on July 29, 1997 through the fiscal
year ended February 28, 1998, compared to 5.2% for the Lehman Brothers
    Aggregate Bond Index. Consistent with the Fund's investment objectives and
     policies, the Fund was substantially invested in foreign and domestic fixed
    income instruments throughout the period. Although the Fund is benchmarked
    against a domestic bond index, the value added is derived from global bond
and currency strategies.                                              

   The fund underperformed its benchmark by 1.0%. During the seven months of
     the fiscal year, beginning with the fund's inception, bond market selection
   was negative, but currency selection was mixed. Although foreign interest
   rates generally declined during the year, the strength of the U.S. dollar
     meant that many foreign bond markets performed poorly when measured in U.S.
    dollar terms. Exceptions to this occurred in Italy and the U.K. whose bond
    markets had strong U.S. dollar returns. Good returns were shown as well in
  Australia, Sweden and the U.K. The Canadian dollar was the only currency
   that produced a positive return versus the U.S. dollar for the year ended
 February 28, 1998. Value was added during the year by overweighting the
     Italian lira and the ECU. These contributions to performance were offset by
losses due to overweighting German and Swedish bonds, as well as the  
Italian lira and Canadian dollar.                                     

Outlook                                                                         

  The Fund is structured to benefit from outperformance in the Australian,
     Danish, French, German and Swedish bond markets. We expect underperformance
  from the Italian, Japanese, Spanish and Swiss bond markets. Our strategy
     maintains a market duration in each country. Strong relative performance is
 expected from the Canadian dollar, Deutsche mark, Italian lira, Spanish
peseta and U.K. pound. The Belgian franc, Danish krone, French franc, 
Japanese yen and U.S. dollar are expected to underperform.            

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO U.S. Bond/Global Alpah B Fund Class III Shares and the Lehman Brothers  
Aggregate 
Bond Index  
As of February 28, 1998 

---------------------------                                           
Average Annual Total Return                                           
---------------------------                                           
Since                             
Inception                             
1 Year        7/29/97                                           
---------------------------                                           
Class                                                                           
III     n/a           4.0%                                                    
---------------------------                                           

[LINE GRAPH APPEARS HERE] 

                  GMO U.S. Bond/           Lehman Brothers
Date                        Global Alpha B         Aggregate Bond Index       
-------                      --------------         --------------------        
7/29/97                           $9,985                   $10,000              
2/28/98                          $10,520                   $10,399              

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     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. 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. Transaction fees are paid to the Fund 
to cover trading costs. Past performance is not indicative of future            
performance. Information is unaudited.                                          


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         
Annual Report                                                                   
February 28, 1998                                                               


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Report of Independent Accountants                                   

 To the Trustees of GMO Trust and the Shareholders of GMO World Equity
Allocation Fund (A Series of GMO Trust)                             

 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
 World Equity Allocation Fund at February 28, 1998, the results of its
     operations for the year then ended, the changes in its net assets and the
financial highlights for the periods presented, in conformity with  
    generally accepted accounting principles. These financial statements and
      financial highlights (hereafter referred to as "financial statements") are
  the responsibility of the Trust'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
generally accepted auditing standards 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 28, 1998
    by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.                                            

Price Waterhouse LLP                                                
Boston, Massachusetts                                               
April 23, 1998                                                      


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         
Schedule of Investments                                                         
(showing percentage of total net assets)                                        
February 28, 1998                                                               

                                                        [Enlarge/Download Table]


   Par Value                                                                                      
     ($)/                                                                             Value       
    Shares        Description                                                          ($)        
--------------------------------------------------------------------------------------------------
                                                                                                  
                  MUTUAL FUNDS -- 100.0%                                                          
    355,758       GMO Core Fund (Class III Shares)                                  7,111,593     
    176,763       GMO Currency Hedged International Core Fund (Class III                          
                  Shares)                                                           2,107,014     
    175,579       GMO Emerging Country Debt Fund (Class III Shares)                 2,043,737     
    604,090       GMO Emerging Markets Fund (Class III Shares)                      5,775,101     
    302,667       GMO Evolving Countries Fund (Class III Shares)                    2,605,963     
     64,014       GMO Growth Fund (Class III Shares)                                  280,381     
     81,383       GMO Inflation Indexed Bond Fund (Class III Shares)                  817,086     
     50,591       GMO International Bond Fund (Class III Shares)                      528,681     
    821,206       GMO International Core Fund (Class III Shares)                   19,051,969     
    118,086       GMO International Small Companies Fund (Class III Shares)         1,443,008     
    197,771       GMO REIT Fund (Class III Shares)                                  2,555,197     
    167,314       GMO Small Cap Growth Fund (Class III Shares)                      2,054,613     
    113,151       GMO Small Cap Value Fund (Class III Shares)                       2,068,393     
     98,893       GMO U.S. Bond/Global Alpha A Fund (Class III Shares)              1,048,261     
    101,780       GMO Value Fund (Class III Shares)                                 1,458,506     
                                                                                  -------------   

                  TOTAL MUTUAL FUNDS  (COST $52,569,517)                           50,949,503     
                                                                                  -------------   

                  SHORT-TERM INVESTMENT -- 0.0%                                                   

                  Repurchase Agreement -- 0.0%                                                    
   $ 15,247       Salomon Smith Barney Inc. Repurchase Agreement, dated                           
                  2/27/98, due 3/2/98, with a maturity value of $15,254 and an                    
                  effective yield of 5.07%, collateralized by a U.S. Treasury                     
                  Obligation with a rate of 8.875%, with a maturity date of            15,247     
                  8/15/17 and with a market value of $15,552.                     -------------   

                  TOTAL SHORT-TERM INVESTMENT  (COST  $15,247)                         15,247     
                                                                                  -------------   

                  TOTAL INVESTMENTS -- 100.0%                                                     
                  (Cost $52,584,764)                                               50,964,750     

                  Other Assets and Liabilities (net) -- 0.0%                          (13,095)    
                                                                                  -------------   

                  TOTAL NET ASSETS -- 100%                                        $50,951,655     
                                                                                  =============   

              See accompanying notes to the financial statements.              1


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Statement of Assets and Liabilities -- February 28, 1998                        
--------------------------------------------------------------------------------

                                                                [Download Table]


                                                                            
Assets:                                                                     
   Investments, at value (cost $52,584,764) (Note 1)            $50,964,750 
   Receivable for expenses waived or borne by Manager (Note 2)        5,079 
                                                                ------------

       Total assets                                              50,969,829 
                                                                ------------

Liabilities:                                                                
   Accrued expenses                                                  18,174 
                                                                ------------

Net assets                                                      $50,951,655 
                                                                ============

Net assets consist of:                                                      
   Paid-in capital                                              $50,308,786 
   Accumulated undistributed net realized gain                    2,262,883 
   Net unrealized depreciation                                   (1,620,014)
                                                                ------------
                                                                $50,951,655 
                                                                ============

Net assets attributable to:                                                 
   Class III shares                                             $50,951,655 
                                                                ============

Shares outstanding:                                                         
   Class III                                                      4,904,301 
                                                                ============

Net asset value per share:                                                  
   Class III                                                    $     10.39 
                                                                ============

2             See accompanying notes to the financial statements.               


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Statement of Operations -- Year Ended February 28, 1998                         
--------------------------------------------------------------------------------

                                                                [Download Table]


                                                                                   
Investment Income:                                                                 
   Dividends from investment company shares                             $1,345,199 
   Interest                                                                    603 
                                                                        -----------

       Total income                                                      1,345,802 
                                                                        -----------

Expenses:                                                                          
   Custodian and transfer agent fees                                        24,661 
   Audit fees                                                               15,380 
   Registration fees                                                        11,856 
   Legal fees                                                                1,389 
   Trustees fees (Note 2)                                                      452 
   Miscellaneous                                                               284 
   Fees waived or borne by Manager (Note 2)                                (54,022)
                                                                        -----------
                                                                                -- 
   Shareholder service fee (Note 2)                                                
       Class I                                                              11,172 
                                                                        -----------
       Net expenses                                                         11,172 
                                                                        -----------

          Net investment income                                          1,334,630 
                                                                        -----------

Realized and unrealized gain (loss):                                               
   Net realized gain (loss) on:                                                    
       Investments                                                         395,076 
       Realized gain distributions from investment company shares        7,238,083 
                                                                        -----------

          Net realized gain                                              7,633,159 
                                                                        -----------

   Change in net unrealized appreciation (depreciation) on investments  (2,989,836)
                                                                        -----------

       Net realized and unrealized gain                                  4,643,323 
                                                                        -----------

Net increase in net assets resulting from operations                    $5,977,953 
                                                                        ===========

              See accompanying notes to the financial statements.              3


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Statement of Changes in Net Assets                                              
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                Year Ended      Period from June 28, 1996  
                                               February 28,    (commencement of operations)
                                                   1998           to February 28, 1997     
                                              ---------------- --------------------------- 
                                                                                           
Increase (decrease) in net assets:                                                         
Operations:                                                                                
   Net investment income                         $1,334,630            $  159,870          
   Net realized gain                              7,633,159               634,574          
   Change in net unrealized appreciation                                                   
      (depreciation)                             (2,989,836)            1,369,822          
                                                 -----------           -----------         

   Net increase in net assets resulting from                                               
      operations                                  5,977,953             2,164,266          
                                                 -----------           -----------         
Distributions to shareholders from:                                                        
   Net investment income                                                                   
       Class I                                     (239,456)              (95,107)         
       Class III                                 (1,095,174)              (64,763)         
                                                 -----------           -----------         
       Total distributions from net                                                        
          investment income                      (1,334,630)             (159,870)         
                                                 -----------           -----------         
   In excess of net investment income                                                      
       Class I                                         (318)                 (702)         
       Class III                                     (1,455)                 (478)         
                                                 -----------           -----------         
       Total distributions in excess of net                                                
          investment income                          (1,773)               (1,180)         
                                                 -----------           -----------         
   Net realized gains                                                                      
       Class I                                   (1,057,705)             (157,650)         
       Class III                                 (4,579,052)             (104,501)         
                                                 -----------           -----------         
       Total distributions from net realized                                               
          gains                                  (5,636,757)             (262,151)         
                                                 -----------           -----------         

                                                 (6,973,160)             (423,201)         
                                                 -----------           -----------         
   Net share transactions: (Note 5)                                                        
       Class I                                   (8,356,794)            9,038,695          
       Class II                                          --               (24,488)         
       Class III                                 14,133,364            35,415,020          
                                                 -----------           -----------         
   Increase in net assets resulting from net                                               
      share transactions                          5,776,570            44,429,227          
                                                 -----------           -----------         

      Total increase in net assets                4,781,363            46,170,292          

Net assets:                                                                                
   Beginning of period                           46,170,292                    --          
                                                 -----------           -----------         

   End of period (including accumulated                                                    
      undistributed net investment income of     $50,951,655           $46,170,292         
      $0 and $0, respectively)                   ===========           ===========         

4             See accompanying notes to the financial statements.               


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                    Period from                                 
                                                   March 1, 1997    Period from June 28, 1996   
                                                   to January 9,    (commencement of operations)
                                                       1998           to February 28, 1997      
                                                  ----------------  --------------------------  
                                                                                                
Net asset value, beginning of period                   $10.52                $10.00             
                                                       -------               -------            

Income from investment operations:                                                              
   Net investment income/(b)/                            0.28+                 0.09             
   Net realized and unrealized gain                      0.02                  0.72             
                                                       -------               -------            

      Total from investment operations                   0.30                  0.81             
                                                       -------               -------            

Less distributions to shareholders:                                                             
   From net investment income                           (0.27)                (0.11)            
   In excess of net investment income                      --/(d)/             0.00             
   From net realized gains                              (1.17)                (0.18)            
                                                       -------               -------            

      Total distributions                               (1.44)                (0.29)            
                                                       -------               -------            
Net asset value, end of period                         $ 9.38/(c)/           $10.52             
                                                       =======               =======            

Total Return/(a)/                                        2.41%                 8.23%            

Ratios/Supplemental Data:                                                                       
   Net assets, end of period (000's)                       --                $9,424             
   Net expenses to average daily net assets              0.13%*                0.16%*           
   Net investment income to average daily net                                                   
      assets/(b)/                                        2.88%*                1.80%*           
   Portfolio turnover rate                                 49%                   31%            
   Fees and expenses voluntarily waived or borne                                                
      by the Manager consisted of the following                                                 
      per share amounts:                               $ 0.01                $ 0.01             

/(a)/Calculation excludes purchase premiums and redemption fees. The total      
   returns would have been lower had certain expenses not been waived during
the periods shown.                                                    
/(b)/Recognition of net investment income is affected by the timing of the      
     declaration of dividends by the underlying funds in which the fund invests.
/(c)/All Class I shares of the Fund were exchanged for Class III shares on      
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.                                                      
/(d)/The per share distribution in excess of net investment income was $0.0003. 
+    Computed using average shares outstanding throughout the period.           
*    Annualized.                                                                

              See accompanying notes to the financial statements.              5


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Financial Highlights                                                            
(For a Class II share outstanding throughout the period)                        
--------------------------------------------------------------------------------

                                                                [Download Table]


                                                  Period from June 28, 1996   
                                                  (commencement of operations)
                                                      October 16, 1996        
                                                  --------------------------  
                                                                              
Net asset value, beginning of period                       $10.00             
                                                           -------            

Income from investment operations:                                            
   Net investment income                                     0.04/(b)/        
   Net realized and unrealized gain                          0.02             
                                                           -------            

      Total from investment operations                       0.06             
                                                           -------            
Net asset value, end of period                             $10.06             
                                                           =======            

Total Return/(a)/                                            0.60%            

Ratios/Supplemental Data:                                                     
   Net assets, end of period (000's)                       $   --             
   Net expenses to average daily net assets                  0.12%*           
   Net investment income to average daily net                                 
      assets                                                 1.55%*/(b)/      
   Portfolio turnover rate                                     31%            
   Fees and expenses voluntarily waived or borne                              
      by the Manager consisted of the following                               
      per share amount:                                    $ 0.01             

/(a)/Calculation excludes purchase premiums and redemption fees. The total      
  return would have been lower had certain expenses not been waived during
the period shown.                                                     
/(b)/Recognition of net investment income is affected by the timing of the      
     declaration of dividends by the underlying funds in which the fund invests.
*    Annualized.                                                                

6             See accompanying notes to the financial statements.               


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

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

                                                        [Enlarge/Download Table]


                                                     Year Ended    Period from October 22, 1996
                                                    February 28,   (commencement of operations)
                                                        1998           to February 28, 1997    
                                                  ---------------- ----------------------------
                                                                                               
Net asset value, beginning of period                  $10.52                $ 10.07            
                                                      -------               --------           

Income from investment operations:                                                             
   Net investment income/(b)/                           0.29+                  0.11            
   Net realized and unrealized gain                     1.03                   0.63            
                                                      -------               --------           

      Total from investment operations                  1.32                   0.74            
                                                      -------               --------           

Less distributions to shareholders:                                                            
   From net investment income                          (0.28)                 (0.11)           
   In excess of net investment income                     --/(c)/              0.00            
   From net realized gains                             (1.17)                 (0.18)           
                                                      -------               --------           

      Total distributions                              (1.45)                 (0.29)           
                                                      -------               --------           
Net asset value, end of period                        $10.39                $ 10.52            
                                                      =======               ========           

Total Return/(a)/                                      13.56%                  7.51%           

Ratios/Supplemental Data:                                                                      
   Net assets, end of period (000's)                 $50,952                $36,746            
   Net expenses to average daily net assets             0.00%                  0.00%*          
   Net investment income to average daily net                                                  
      assets/(b)/                                       2.65%                  0.91%*          
   Portfolio turnover rate                                49%                    31%           
   Fees and expenses voluntarily waived or borne                                               
      by the Manager consisted of the following                                                
      per share amounts:                              $ 0.01                $  0.03            

/(a)/Calculation excludes purchase premiums and redemption fees. The total      
   returns would have been lower had certain expenses not been waived during
the periods shown.                                                    
/(b)/Recognition of net investment income is affected by the timing of the      
     declaration of dividends by the underlying funds in which the fund invests.
/(c)/The per share distribution in excess of net investment income was $0.0004. 
+    Computed using average shares outstanding throughout the period.           
*    Annualized.                                                                

              See accompanying notes to the financial statements.              7


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements                                                   
February 28, 1998                                                               
--------------------------------------------------------------------------------

1.   Significant accounting policies                                            

   GMO World Equity Allocation Fund (the "Fund"), which commenced operations
on June 28, 1996, is a series of GMO Trust (the "Trust"). The Fund is 
registered under the Investment Company Act of 1940, as amended, as an
  open-end, diversified management investment company. The Fund is advised
 and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
   "GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The   
    Declaration of Trust permits the Trustees to create an unlimited number of
    series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.                            

The Fund operates as a "fund-of-funds" in that, pursuant to management
   provided by the Manager, it makes investments in other funds of the Trust
  ("underlying funds"). The Fund seeks a total return greater than that of
  the GMO World-Lite Extended Index, a benchmark developed by the Manager.
The Fund will pursue its objective by investing primarily in Class III
shares of equity funds of the Trust.                                  

At the beginning of the fiscal year, the Fund offered three classes of
    shares: Class I, Class II and Class III. The principal economic difference
   among the classes of shares is the level of shareholder service fee 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 with GMO, as more fully outlined in the Trust's prospectus.  

    Effective January 9, 1998, Class I shares ceased operations and all shares
were exchanged for Class III shares, and Class II shares ceased to be 
offered.                                                              

    The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial 
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make  
    estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those   
estimates.                                                            

Portfolio valuation                                                   
    Shares of underlying funds are valued at their net asset value as reported
   on each business day. Short-term investments with a remaining maturity of
    sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the 
Trustees.                                                             

8                                                                               


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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,
realization of collateral by the Fund may be delayed or limited.      

Taxes                                                                 
 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
   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 federal income
   tax purposes. Therefore, no provision for federal income or excise tax is
necessary.                                                            

Distributions to shareholders                                         
   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. The Fund declares separate dividends from net     
investment income on each class of shares.                            

Income distributions and capital gain distributions are determined in 
accordance with income tax regulations which may differ from generally
    accepted accounting principles. These differences are primarily due to the
classification of distribution from underlying funds.                 

  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 28, 1998. This reclassification has
    no impact on net investment income, realized gain/loss and net asset value
 of the Fund and is primarily attributable to certain differences in the
 computation of distributable income and capital gains under federal tax
   rules versus generally accepted accounting principles. The calculation of
    net investment income per share in the financial highlights table excludes
these adjustments.                                                    

Accumulated        Accumulated Undistributed      
Undistributed Net            Net Realized               
            Investment Income                Gain                Paid-in Capital
           ---------------------  ---------------------------  -----------------
               $1,773                  $(104,762)                 $102,989

                                                                               9


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.   
  Differences in the recognition or classification of income for financial
     statement and tax purposes which result in temporary over-distributions for
   financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.              

Security transactions and related investment income                   
   Security transactions are accounted for on trade date. Dividend income is
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.        

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 in such manner as deemed equitable by the Trustees,
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 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.
 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                              
The premium on cash purchases of Fund shares is .66% of the amount    
  invested. In the case of cash redemptions, the fee is .15% of the amount
  redeemed. Prior to June 30, 1997, the premium on cash purchases was .69%
and the fee on cash redemptions was .09%. 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. Purchase premiums are included as part of each class'
"shares sold" and redemption fees are included as part of each class' 
   "shares repurchased", respectively, as summarized in Note 5. For the year
     ended February 28, 1998, the Fund received $49,696 in purchase premiums and
$23,227 in redemption fees. There is no premium for reinvested        
distributions or in-kind transactions.                                

2.   Fees and other transactions with affiliates                                

The Manager determines the allocation of the assets of the Fund among 
  designated underlying funds. The Manager does not charge an advisory fee
 for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Service Plan under which the Fund pays GMO a    
shareholder service fee for client and                                

10                                                                              


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements -- (Continued)                                    
February 28, 1998                                                               
--------------------------------------------------------------------------------

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 .13%
     for Class I shares and .07% for Class II shares. No shareholder service fee
is charged for Class III shares.                                      

  GMO has agreed to reimburse all expenses until further notice (excluding
    brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
     November 25, 1996, GMO had agreed to reimburse these expenses to the extent
    that the Fund's annual expenses exceeded .05% of average daily net assets.

The Fund's portion of the fee paid by the Trust to the unaffiliated   
    Trustees during the year ended February 28, 1998 was $452. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager. 

3.   Purchases and sales of securities                                          

Cost of purchases and proceeds from sales of securities, excluding    
  short-term investments, for the year ended February 28, 1998, aggregated
$31,697,981 and $24,330,821, respectively.                            

  At February 28, 1998, the cost for Federal income tax purposes and gross
    unrealized appreciation and depreciation in value of investments held were
as follows:                                                           

                                                                [Download Table]


                      Gross Unrealized     Gross Unrealized       Net Unrealized   
  Aggregate Cost        Appreciation         Depreciation          Depreciation    
-------------------  ------------------  --------------------  --------------------
                                                                                   
   $ 52,862,325           $ 732,093           $ 2,629,668           $ 1,897,575    

4.   Principal shareholders                                                     

     At February 28, 1998, 91.7% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's     
outstanding shares.                                                   

                                                                              11


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Notes to Financial Statements--(Continued)                                      
February 28, 1998                                                               
--------------------------------------------------------------------------------

5.   Share transactions                                                         

    The Declaration of Trust permits the Trustees to issue an unlimited number
    of shares of beneficial interest (without par value). Transactions in Fund
    shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:                           

                                                        [Enlarge/Download Table]

                                                                    Period from June 28, 1996   
                                    Period from March 1, 1997     (commencement of operations)  
Class I:                               to January 9, 1998             to February 28, 1997      
                                  ------------------------------  ------------------------------
                                     Shares           Amount         Shares           Amount    
                                  -------------    -------------  -------------    -------------
                                                                                                
Shares sold                              204      $     11,513       870,993      $  8,785,236  
Shares issued to shareholders in                                                                
  reinvestment of distributions       88,972           869,785        25,095           253,459  
Shares repurchased                  (985,264)       (9,238,092)           --                --  
                                  -------------    -------------  -------------    -------------
Net increase/(decrease)             (896,088)     $ (8,356,794)      896,088      $  9,038,695  
                                  =============    =============  =============    =============


                                                                    Period from June 28, 1996   
                                                                  (commencement of operations)  
Class II:                                                              to October 16, 1996      
                                                                  ------------------------------
                                                                     Shares           Amount    
                                                                  -------------    -------------
                                                                                                
Shares sold                                                          412,344     $   4,123,441  
Shares issued to shareholders in                                                                
  reinvestment of distributions                                           --                --  
Shares repurchased                                                  (412,344)       (4,147,929) 
                                                                  =============    =============
Net decrease                                                              --      $    (24,488) 
                                                                  =============    =============


                                                                  Period from October 22, 1996  
                                           Year Ended             (commencement of operations)  
Class III:                              February 28, 1998             to February 28, 1997      
                                  ------------------------------  ------------------------------
                                     Shares           Amount         Shares           Amount    
                                  -------------    -------------  -------------    -------------
                                                                                                
Shares sold                         2,510,385     $  26,539,533     3,482,496     $  35,298,804 
Shares issued to shareholders in                                                                
  reinvestment of distributions       564,648         5,513,999        11,507           116,216 
Shares repurchased                 (1,664,735)      (17,920,168)           --                -- 
                                  =============    =============  =============    =============
Net increase                        1,410,298     $  14,133,364     3,494,003     $  35,415,020 
                                  =============    =============  =============    =============

12                                                                              


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

Federal Tax Information -- (Unaudited)                                          
--------------------------------------------------------------------------------

For the fiscal year ended February 28, 1998, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated     
34.27% of distributions as net capital gain dividends.                          

                                                                              13


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GMO World Equity Allocation Fund                                                
(A Series of GMO Trust)                                                         

--------------------------------------------------------------------------------

Portfolio Managers                                                              

    Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
   portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
twenty years. Mr. Inker has been with the firm for six years.         

Management Discussion and Analysis of Fund Performance                          

     The Class III shares of the GMO World Equity Allocation Fund returned 13.6%
for the twelve months ended February 28, 1998. During that period the 
Fund's benchmark (GMO World-Lite Extended Index) returned 24.3%.      

   We use GMO's long-term asset class forecasts to allocate the World Equity
     Allocation Fund among various GMO mutual funds. In our view, the U.S. stock
     market is significantly overvalued. It is notoriously difficult to call the
 top of a major stock market bubble like the one that exists in the U.S.
    today. We believe, however, that our key analysis has been correct, having
   done a far more complete analysis of bullish competitive data on the U.S.
     market and "new era" thinking than we have ever done. Our research suggests
that from the market's current valuation level prospective returns for
large capitalization U.S. stocks over the next 10 years will be very  
disappointing.                                                        

During the fiscal year, the Fund was underweight in U.S. stocks by 19%
relative to the benchmark. This allocation hurt the Fund's overall    
performance due to the continuing rally of U.S. equities. Within U.S. 
stocks, we tilted the portfolio towards the most attractively valued  
sectors including small stocks, where we were 7% overweight, and real 
estate investment trusts (REITs), where we were 5% overweight. For the
     fiscal year, the allocation to REITs hurt performance, as the GMO REIT Fund
    underperformed the S&P 500 Index by 21%. Although small stocks as measured
by the Russell 2000 underperformed the S&P 500, performance of the GMO
Small Cap Growth Fund and the GMO Small Cap Value Fund was strong,    
  providing returns comparable to that of the S&P 500. In addition, return
from our holding of the GMO Core Fund exceeded that of the S&P 500    
benchmark.                                                            

  Our overweight of international stocks was unsuccessful in adding value.
    Performance of the GMO International Core Fund lagged the benchmark as the
 rally in expensive multinationals continued. The GMO International Core
   Fund returned 11.7%, underperforming the GMO EAFE-Lite Index by 7.2%. The
    emerging markets as measured by the IFC Investable Index performed poorly,
   down 21.8%, due to the crisis in Asian economies. However, performance of
the GMO Emerging Markets Fund was better at -12.9%.                   

 The Fund had a 7% weight in fixed income. The allocation was 3% to U.S.
bonds and 4% to international bonds. While this allocation away from  
  equities was detrimental to overall Fund performance, performance of the
underlying bond funds was strong relative to their benchmarks.        

   Until we see a significant correction in U.S. equities, it is likely that
    the Fund will maintain its bearish stance. The diversification of the Fund
    into fixed income and international equities should benefit performance in
the current fiscal year. We also expect our U.S. portfolio to perform 
   better this year. Small stocks are poised to outperform, and REITs should
     do well in the current market environment, providing more attractive yields
and valuations than those available from large cap U.S. equities.     

The views expressed here are exclusively those of Grantham, Mayo, Van 
 Otterloo & Co. LLC Management. They are not meant as investment advice.


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Comparison of Change in Value of a $10,000 Investment in  
GMO World Equity Allocation Fund "WEAF" Class III Shares  
and the MSCI World Index  
As of February 28, 1998 

Average Annual Total Return                               
           Since
           Inception
Class        1 Year        5 Year         6/28/96*                              
III           12.6%          n/a           12.6%                                

   [LINE GRAPH APPEARS HERE]

               GMO World Equity        GMD World Lite       MSCI World
Date               Allocation Fund         Extended Index          Index      
----               ----------------       ----------------      -----------   

6/28/96                  $9,934                 $10,000            $10,000      
2/28/97                  $10,738                $11,132            $11,132      
2/28/98                  $12,195                $13,456            $13,836      

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 bad certain expenses not been     
waived during the periods shown and do not include the effect of taxes on       
reinvested distributions. Each performance figure assumes purchase at the       
beginning and redemption at the end of the stated period and reflects a         
transaction fee of 66 bp on the purchase and 15 bp on the redemption.           
Transaction fees are paid to the Fund to cover trading costs. Past performance  
is not indicative of future performance. Information is unaudited.              

* Performance is linked to Class I shares (originating share class) and is      
converted to Class III shares on October 22, 1996 (commencement date of Class   
III shares).

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
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