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Gmo Trust · N-30D · For 2/28/98

Filed On 5/8/98   ·   SEC File 811-04347   ·   Accession Number 950109-98-3053

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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    1:883                                    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   3.50M 


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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 883TOC1stPreviousNextBottomJust 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


N-30D25th Page of 883TOC1stPreviousNextBottomJust 25th


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.               


N-30D30th Page of 883TOC1stPreviousNextBottomJust 30th


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.               


N-30D32nd Page of 883TOC1stPreviousNextBottomJust 32nd


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.               


N-30D34th Page of 883TOC1stPreviousNextBottomJust 34th


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.               


N-30D40th Page of 883TOC1stPreviousNextBottomJust 40th


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.               


N-30D42nd Page of 883TOC1stPreviousNextBottomJust 42nd


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 
                                                                                          ====================

28                                                                              


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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  
                                                                                              ====================


                                                                              29


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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) 
                    ===============    ================   ==================     ================= 


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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.