GMO TRUST, 485APOS, 1999-05-19

GMO TRUST
485APOS, 1999-05-19

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<PAGE> 1

File Nos. 2-98772
811-4347

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MAY 19, 1999

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. / /

Post-Effective Amendment No. 49 / X /

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 56 / X /

GMO TRUST
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

40 Rowes Wharf, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices)

617-330-7500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

with a copy to:

R. Jeremy Grantham J.B. Kittredge, Esq.
GMO Trust Ropes & Gray
40 Rowes Wharf One International Place
Boston, Massachusetts 02110 Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Name and address of agents for service)

It is proposed that this filing will become effective:

/ / Immediately upon filing pursuant to paragraph (b), or

/ / 60 days after filing pursuant to paragraph (a)(1), or

/ / On _______________, pursuant to paragraph (b), or

/ X / 75 days after filing pursuant to paragraph (a)(2), of Rule 485.

================================================================================
<PAGE> 2
This filing relates solely to the GMO Intrinsic Value Fund. No prior filing
relating to any other series of GMO Trust is amended or superseded hereby.
<PAGE> 3
GMO INTRINSIC VALUE FUND
40 Rowes Wharf, Boston, Massachusetts 02110

The GMO INTRINSIC VALUE FUND (the "INTRINSIC VALUE FUND") (the "FUND")
is one of thirty-eight separate investment portfolios currently offered by GMO
TRUST (the "TRUST"), an open-end management investment company. The other
portfolios are offered pursuant to separate prospectuses. GRANTHAM, MAYO, VAN
OTTERLOO & CO. LLC (the "Manager" or "GMO") is the investment manager for each
Funds of the Trust.

INVESTMENT MANAGER &
CLIENT SERVICE PROVIDER

GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC

("GMO")

Tel: (617) 346-7646
Fax: (617) 439-4192

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

PROSPECTUS AUGUST 2, 1999
<PAGE> 4
TABLE OF CONTENTS

Page

FUND OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

PRINCIPAL RISKS

FEES AND EXPENSES

MULTIPLE CLASSES

BENCHMARKS AND INDEXES

DETERMINATION OF NET ASSET VALUE

TAXES

MANAGEMENT OF THE TRUST

FINANCIAL HIGHLIGHTS

ADDITIONAL INFORMATION

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<PAGE> 5
FUND OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

The following summary describes the Fund's investment objective and
principal investment strategies. A "Summary of Principal Risks" describing the
principal risks of investing in the Fund begins on page [__]. For additional
information regarding the Fund's investment strategies and risks, see
"Description and Risks of Fund Investments" and "Investment Guidelines" in the
Statement of Additional Information.

The Fund summary that follows notes that the Fund will "invest
primarily in" equity securities. Investors should understand that this
Prospectus uses the word "invest" to mean not only direct investment in a
particular asset but also indirect investment in or exposure to the asset
through the use of derivatives and related instruments.

It is possible to lose money on investments in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

The Fund is currently managed and/or meant to be measured relative to
the Russell 1000 Value Index. While the Fund may be managed or measured relative
to this index, the Fund is not managed as an "index fund" or "index-plus fund,"
and the actual composition of the Fund's portfolio may differ substantially from
that of the index. The benchmark or index against which the Manager measures the
Fund's performance may be changed from time to time. Some general information
about the index is provided under "Benchmarks and Indexes" later in this
Prospectus

CURRENT BENCHMARK: FUND CODES
Ticker Symbol Cusip
------ ------ -----
Russell 1000 Value Index Class III
FUND INCEPTION DATE: / /99
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE: The GMO Intrinsic Value Fund seeks long-term capital
growth through investment in equity securities.

INVESTMENT UNIVERSE: The Fund invests primarily in equity securities of
companies chosen from the Russell 1000 Value Index, emphasizing large
capitalization equity securities. The Fund may also use derivatives and related
instruments.

PRINCIPAL INVESTMENTS AND STRATEGIES: The Fund invests primarily in U.S. equity
securities of companies that in the opinion of the Manager, represent favorable
values relative to their market prices. The Fund intends to be fully invested
and will not general take temporary defensive positions through investment in
cash and high quality money market instruments. The Fund may use exchange-traded
and over-the-counter derivative instruments and related investment techniques
to: (i) hedge equity exposure; (ii) replace direct investing; and (iii)
implement shifts in investment exposure as a substitute for buying and selling
securities. The Fund will not use derivative

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<PAGE> 6
instruments to expose on a net basis more than 100% of its assets to equity
securities or markets.

METHODOLOGY/PORTFOLIO CONSTRUCTION: The Fund uses quantitative investment
principles to evaluate large capitalization stocks. Using these principles, the
Manager employs a bottom-up approach to select stocks based on strategies such
as fair value, price to sales flow, price to book ratio and cash flow yield.
Stocks that are inexpensive based on these strategies are ranked highly. The
Manager then uses a top-down approach to favor sectors that it believes
represent the best long-term values within the U.S. stock market. The Manager
then selects stocks ranked highly in each of the four strategies, emphasizing
stocks that appear attractive in more than one strategy and that are in
undervalued sectors. The Manager then uses an optimization process to evaluate a
stock's return forecast and how much risk it adds to the portfolio, and to weigh
the risk of the entire portfolio relative to the Fund's benchmark. In addition,
the Manager explicitly considers expected transaction costs in the portfolio
optimization.

SUMMARY OF PRINCIPAL RISKS

The value of your investment in the Fund changes with the
values of the Fund's investments. Many factors can affect those values, and you
could lose money by investing in this Fund. Factors that may affect the Fund's
portfolio as a whole are called "principal risks." They are summarized in this
section. This summary describes the nature of the risks so identified but is not
intended to include every potential risk. The Fund could be subject to
additional risks because the types of investments made by the Fund can change
over time. In addition, the Statement of Additional Information includes more
information about the Fund and its investments. The Statement of Additional
Information is available free of charge by contacting the Manager.

- MARKET RISK. The Fund is subject to market risk, which is the risk of
unfavorable market-induced changes in the value of the securities owned by the
Fund. The following summarizes certain general market risks associated with
investments in equity and fixed income securities.

Equity Securities. A principal risk of each Fund that invests a
substantial portion of its assets in equity securities is that those equity
securities will decline in value due to factors affecting the issuing companies,
their industries, or the economy and equity markets generally. The values of
equity securities may decline for a number of reasons which directly relate to
the issuing company, such as management performance, financial leverage and
reduced demand for the issuer's goods or services. They may also decline due to
factors which affect a particular industry or industries, such as labor
shortages or increased production costs and competitive conditions within an
industry. In addition, they may decline due to general market conditions which
are not specifically related to a company or industry, such as real or perceived
adverse economic conditions, changes in the general outlook for corporate
earnings, changes in interest or currency rates or adverse investor sentiment
generally.

The Fund maintains substantial exposure to equities and generally does
not attempt to time the market. Because of this exposure, the possibility that
stock market prices in general will decline over short or even extended periods
subjects the Fund to unpredictable declines in the value of its shares, as well
as periods of poor performance.

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<PAGE> 7
Value Securities Risk. Some equity securities (generally referred to as
"value securities") are purchased primarily because they are selling at a price
lower than what is believed to be their true value not necessarily because the
issuing companies are expected to experience significant earnings growth. Such
companies may have experienced adverse business developments or may be subject
to special risks. Other factors may also have caused their securities to be out
of favor. These securities bear the risk that the companies may not overcome the
adversity or that the market does not recognize the value of the company, such
that the price of its securities may decline or may not approach the value that
the Manager anticipates. The Fund will have particularly significant exposure to
these risks because it will invest primarily in companies chosen from the
Russell 1000 Value Index.

- LIQUIDITY RISK. Liquidity risk exists when particular investments are
difficult to purchase or sell due to a limited market or to legal restrictions,
such that the Fund may be prevented from selling particular securities at the
price at which the Fund values them. The Fund is subject to liquidity risk,
particularly with respect to its use of derivatives.

- DERIVATIVES RISK. The Fund may use derivatives, which are financial
contracts whose value depends upon, or is derived from, the value of an
underlying asset, reference rate or index. Derivatives may relate to stocks,
bonds, interest rates, currencies or currency exchange rates, and related
indexes. The Fund can use derivatives for many purposes, including for hedging,
and as a substitute for direct investment in securities or other assets. The
Fund may also use derivatives as a way to efficiently adjust its exposure to
various securities, markets and currencies without having to actually sell
current assets and purchase different ones. This is generally done either
because the adjustment is expected to be relatively temporary or in anticipation
of effecting the sale and purchase of Fund assets over time. For a description
of the various derivative instruments that may be utilized by the Fund, please
see the Statement of Additional Information.

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<PAGE> 8
The use of derivative instruments involves risks different from, or
greater than, the risks associated with investing directly in securities and
other more traditional investments. Derivatives are subject to a number of risks
described elsewhere in this section, including market risk, liquidity risk and
the credit risk of the counterparty to the derivatives contract. Since their
value is calculated and derived from the value of other assets, instruments or
references, there is greater risk that derivatives will be improperly valued.
Derivatives also involve the risk that changes in the value of the derivative
may not correlate perfectly with relevant assets, rates or indexes they are
designed to hedge or to closely track. Also, suitable derivative transactions
may not be available in all circumstances and there can be no assurance that the
Fund will engage in these transactions to reduce exposure to other risks when
that would be beneficial.

-5-
<PAGE> 9
- NON-DIVERSIFICATION RISK. Most analysts believe that overall risk can
be reduced through diversification, while concentration of investments in a
small number of securities increases risk. The Fund is not "diversified" within
the meaning of the 1940 Act. This means it is allowed to invest in a relatively
small number of issuers and/or foreign currencies with greater concentration of
risk. As a result, credit, market and other risks associated with the Fund's
investment strategies or techniques may be more pronounced for the Funds.

- LEVERAGING RISK. The Fund's portfolio may at times be economically
leveraged when the Fund temporarily borrows money to meet redemption requests
and/or to settle investment transactions. Additionally, the Fund invests in
derivatives. While the Fund does not intend to use derivatives to create net
exposure to securities, currencies or other assets in amounts greater than the
total assets of the Fund, the Fund will consider derivative instruments as
offsetting one another or other assets such that only the net difference in
value of the derivatives and/or assets that are offsetting will be considered
for these purposes. In these cases, to the extent that the offsetting positions
do not behave in relation to one another as expected, the Fund may perform as if
it were leveraged.

- CREDIT AND COUNTERPARTY RISK. This is the risk that the issuer or
guarantor of a fixed income security, the counterparty to an OTC derivatives
contract, or a borrower of the Fund's securities, will be unable or unwilling to
make timely principal, interest or settlement payments, or to otherwise honor
its obligations.

The Fund is exposed to credit risk primarily because it may use OTC
derivatives (such as swap contracts) and because it may engage to a significant
extent in the lending of Fund securities or use of repurchase agreements.

- MANAGEMENT RISK. The Fund is subject to management risk because it
relies on the Manager's ability to pursue its objective. The Manager will apply
investment techniques and risk analyses in making investment decisions for the
Fund, but there can be no guarantee that these will produce the desired results.
As noted above, the Manager may also fail to use derivatives effectively, for
example, choosing to hedge or not to hedge positions precisely when it is least
advantageous to do so. As indicated above, however, the Fund is generally not
subject to the risk of market timing because it generally stays fully invested
in the relevant asset class, such as domestic equities and foreign equities.

- SPECIAL YEAR 2000 RISK CONSIDERATIONS. Many of the services provided
to the Fund depend

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<PAGE> 10
on the proper functioning of computer systems. Many systems in use today cannot
distinguish between the year 1900 and the year 2000. Should any of the Fund's
service systems fail to process information properly, that could have an adverse
impact on the Fund's operations and services provided to shareholders. GMO, as
well as the Trust's administrator, transfer agent, custodians and other service
providers, have reported that each is working toward mitigating the risks
associated with the so-called "Year 2000 problem." However, there can be no
assurance that the problem will be corrected in all respects and that the Fund's
operations and services provided to shareholders will not be adversely affected,
nor can there be any assurance that the Year 2000 problem will not have an
adverse effect on the entities whose securities are held by the Fund or on U.S.
or global equity markets or economies generally.

FEES AND EXPENSES

<TABLE>
<CAPTION>
- ---------------------- --------------------------- ------------------------------------------------------------------------------
PURCHASE AND
REDEMPTION FEES
(fees paid directly to
Fund at purchase or ANNUAL FUND OPERATING EXPENSES
redemption) (expenses that are deducted from Fund assets)
- ---------------------- --------------------------- ------------------------------------------------------------------------------
Cash
Purchase Redemption
Premium Fees
(as a % of (as a % of Investment Shareholder Total
amount amount Management Service Other Operating Expense Net
invested)1 redeemed) Fee Fee Expenses Expenses Reimbursement Expenses
- ---------------------- ------------ -------------- ------------- ----------- ---------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intrinsic Value Fund
- ---------------------- ------------ -------------- ------------- ----------- ---------- ---------- --------------- ---------
Class III 0.14%2 None 0.33% 0.15% 0.10% 0.58% 0.10% 0.48%
- ---------------------- ------------ -------------- ------------- ----------- ---------- ---------- --------------- ---------

</TABLE>

Footnotes to the above tables begin on page ___ and are important to
understanding this table.

EXAMPLES

The examples below illustrate the expenses you would incur on a $10,000
investment over the stated timeframes, assuming your investment had a 5% return
each year and the Fund's operating expenses remained the same. The examples are
for comparative purposes only; they do not represent past or future expenses or
performance, and your actual expenses and performance may be higher or lower.

<TABLE>
<CAPTION>
- -------------------- ---------------------------------------------- --------------------------------------
Example 1: Example 2:
Assuming you redeem your shares at the end of Assuming you do not redeem your shares
each period
- -------------------- ------------------------ -------------------- -------------------- ----------------
1 Year 3 Years 1 Year 3 Years
- -------------------- ------------------------ -------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Intrinsic Value Fund
- -------------------- ------------------------ -------------------- -------------------- ----------------
Class III $63 $190 $63 $190
- -------------------- ------------------------ -------------------- -------------------- ----------------
</TABLE>

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<PAGE> 11
NOTES TO FEES AND EXPENSES

1. Purchase premiums generally apply only to cash transactions. These fees
are paid to and retained by the Fund itself and are designed to
allocate transaction costs caused by shareholder activity to the
shareholder generating the activity, rather than to the Fund as a
whole.

2. The purchase premium for this Fund may generally not be waived due to
offsetting transactions, and may be waived in only rare circumstances.
The premium or fee will only be waived for this Fund (i) if the
purchase is part of a transfer from or to another Fund where the
Manager is able to transfer securities among the Funds as part of
effecting the transaction, (ii) during periods (expected to exist only
rarely) when the Manager determines that the Fund is either
substantially overweighted or underweighted with respect to its cash
position so that a purchase will not require a securities transaction,
or (iii) in certain other instances (not including offsetting
transactions) where it is compelling to the Manager that the purchase
will not result in transaction costs to the Fund. Any waiver with
respect to this Fund must be arranged in advance with the Manager.

3. Shareholder Service Fee ("SSF") paid to GMO for providing client
services and reporting services. The level of SSF is the sole economic
distinction between the various classes of Fund shares. A lower SSF for
larger investments reflects that the cost of servicing client accounts
is lower for larger accounts when expressed as a percentage of the
account.

4. Based on estimated amounts for the Fund's first fiscal year.

5. The Manager has contractually agreed to reimburse the Fund with respect
to certain Fund expenses through June 30, 2000 to the extent that the
Fund's total annual operating expenses (excluding Shareholder Service
Fees, brokerage commissions and other investment-related costs,
interest expense, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses and transfer taxes) would
otherwise exceed the percentage of the Fund's daily net assets set
forth under the heading "Investment Management Fee."

MULTIPLE CLASSES

The Fund has four classes of shares, Class I, Class II, Class III and
Class IV Shares, but is currently offering only Class III Shares. The sole
economic difference among the various classes of shares is the level of
Shareholder Service Fee that the classes bear for client and shareholder
service, reporting and other support. The existence of multiple classes reflects
the fact that, as the size of a client relationship increases, the cost to
service that client decreases as a percentage of the assets in that account.
Thus, the Shareholder Service Fee is lower for classes where eligibility
criteria require greater total assets under GMO's management.

Eligibility for classes is generally dependent upon the aggregate of an
investor's total assets under GMO's management or, in the case of Class IV
Shares only, the investor's total assets in the Fund. More detailed information
regarding eligibility requirements for each class and conversions between
classes of shares, is contained in a separate document, the GMO Trust
Shareholder's Manual. As described in greater detail in the Manual, under class
conversion rules, the Manager evaluates annually whether a shareholder's shares
should be automatically converted to a different class of shares (which may
include, under certain circumstances, converting a shareholder from a class of
shares with a lower Shareholder Service Fee to a class of shares with a higher
Shareholder Service Fee).

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<PAGE> 12
The Manual accompanies this Prospectus, has been filed with the SEC and
is incorporated by reference into this Prospectus. Additional copies of the
Manual are available free of charge by contacting the Manager.

BENCHMARKS AND INDEXES

Some general information about each Benchmark or index referred to in
this Prospectus is provided in the table below.

<TABLE>
<CAPTION>
- ------------------------ ------------------------ --------------------- -------------------------------------------------
ABBREVIATION FULL NAME SPONSOR OR PUBLISHER DESCRIPTION
- ------------------------ ------------------------ --------------------- -------------------------------------------------
<S> <C> <C> <C>
Russell 1000 Value Index Russell 1000 Value Index Frank Russell Company Independently maintained and published index
composed of the 1,000 largest U.S. companies
based on total market capitalization with lower
price-to-book ratios and lower forecasted
growth values
- ------------------------ ------------------------ --------------------- -------------------------------------------------
</TABLE>

DETERMINATION OF NET ASSET VALUE

The net asset value of a share is determined for the Fund once on each
day on which the New York Stock Exchange is open as of 4:15 p.m., New York City
Time, except that the Fund may not determine its net asset value on days during
which no security is tendered for redemption and no order to purchase or sell
such security is received by the Fund. The Fund's net asset value is determined
by dividing the total market value of the Fund's portfolio investments and other
assets, less any liabilities, by the total outstanding shares of the Fund.
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. However,
for those securities that are listed on an exchange but that exchange is less
relevant in determining the market value of such securities than is the private
market, a broker bid will be used. Criteria for relevance include where the
securities are principally traded and what their intended market for disposition
is. Price information on listed securities is generally taken from the closing
price on the exchange where the security is primarily traded. Unlisted
securities for which market quotations are readily available are valued at the
most recent quoted bid price, except that debt obligations with sixty days or
less remaining until maturity may be valued at their amortized cost, unless
circumstances dictate otherwise. Circumstances may dictate otherwise, among
other times, when the issuer's creditworthiness has become impaired.

All other fixed income securities (which include bonds, loans and
structured notes) and options thereon are valued at the closing bid for such
securities as supplied by a primary pricing source chosen by the Manager. While
the Manager evaluates such primary pricing sources on an ongoing basis, and may
change any pricing source at any time, the Manager will not normally evaluate
the prices supplied by the pricing sources on a day-to-day basis. However, the
Manager is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to override
any price supplied by a source (by taking a price supplied from another) because
of such price activity or because the Manager has other reasons to suspect that
a price supplied may not be reliable.

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<PAGE> 13
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 persons acting at their direction. The values of foreign securities quoted in
foreign currencies are translated into U.S. dollars at current exchange rates or
at such other rates as the Trustees may determine in computing net asset value.

Because of time zone differences, foreign exchanges and securities
markets will usually be closed prior to the time of the closing of the New York
Stock Exchange and values of foreign options and foreign securities will be
determined as of the earlier closing of such exchanges and securities markets.
However, events affecting the values of such foreign securities may occasionally
occur between the earlier closings of such exchanges and securities markets and
the closing of the New York Stock Exchange which will not be reflected in the
computation of the Funds' net asset value. If an event materially affecting the
value of such foreign securities occurs during such period, then such securities
may be valued at fair value as determined in good faith by the Trustees or
persons acting at their direction.

Because foreign securities, options on foreign securities and foreign
futures are quoted in foreign currencies, fluctuations in the value of such
currencies in relation to the U.S. dollar will affect the net asset value of
shares of the Funds even though there has not been any change in the values of
such securities and options measured in terms of the foreign currencies in which
they are denominated.

TAXES

The following is a general summary of the principal federal income tax
consequences of investing in the Fund for shareholders who are U.S. citizens,
residents or domestic corporations. Shareholders should consult their own tax
advisors about the precise tax consequences of an investment in the Fund in
light of each shareholder's particular tax situation, including possible
foreign, state, local or other applicable tax laws (including the federal
alternative minimum tax).

- - The Fund is treated as a separate taxable entity for federal income tax
purposes and intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended.

- - Fund distributions derived from interest, dividends and certain other
income, including in general short-term capital gains, will be taxable as
ordinary income to shareholders subject to federal income tax whether
received in cash or reinvested shares. Properly designated Fund
distributions derived from net long-term capital gains will be taxable as
such (generally at a 20% rate for noncorporate shareholders). Distributions
by the Fund result in a reduction in the fair market value of the Fund's
shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless may be taxable to
the shareholder as described above, even though, from an investment
standpoint, it may constitute a partial return of capital. In particular,
shareholders should be careful to consider the tax implications of buying
shares just prior to a taxable distribution. The price of shares purchased
at that time includes the amount of any forthcoming distribution.
Shareholders purchasing shares just prior to a taxable distribution will
receive a return of investment upon distribution that nevertheless will be
taxable to them.

-10-
<PAGE> 14
- - The Fund's investments in foreign securities may be subject to foreign
withholding taxes on dividends or interest. In that case, the Fund's yield
on those securities would be decreased. In certain instances, shareholders
may be entitled to claim a credit or deduction with respect to foreign
taxes.

- - In addition, the Fund's investments in debt obligations issued or
purchased at a discount, assets "marked to the market" for federal income
tax purposes and, potentially, so-called "indexed securities" (including
inflation indexed bonds) may increase or accelerate the Fund's recognition
of income, including the recognition of taxable income in excess of the
cash generated by such investments. These investments may, therefore,
affect the timing or amount of the Fund's distributions and may cause the
Fund to liquidate other investments to satisfy the distribution
requirements that apply to entities taxed as regulated investment
companies.

- - Any gain resulting from the sale or exchange of your shares, including a
redemption in kind, will generally also be subject to tax.

MANAGEMENT OF THE TRUST

The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co.
LLC, 40 Rowes Wharf, Boston, Massachusetts 02110 (the "Manager" or "GMO") which
provides investment advisory services to a substantial number of institutional
and other investors. Each of the following four members holds a greater than 5%
interest in the Manager: R. Jeremy Grantham, Richard A. Mayo, Eyk H.A. Van
Otterloo and Kingsley Durant.

Under the Fund's Management Contract, the Manager selects and reviews
the Fund's investments and provides executive and other personnel for the
management of the Trust. Pursuant to the Trust's Agreement and Declaration of
Trust, the Board of Trustees supervises the affairs of the Trust as conducted by
the Manager. In the event that the Manager ceases to be the manager of the Fund,
the right of the Trust to use the identifying name "GMO" may be withdrawn.

The Management Contract provides for payment to the Manager of a
management fee at the stated annual rate set forth under Fees and Expenses. The
management fee is computed and accrued daily, and paid monthly. In addition, the
Manager has contractually agreed to reimburse the Fund and to bear certain Fund
expenses until June 30, 2000 in order to limit the Fund's annual expenses to
specified limits (with certain exclusions). These limits and the terms
applicable to them are described under the Fees and Expenses.

Mr. R. Jeremy Grantham and Mr. Christopher Darnell are expected to be
primarily responsible for the day-to-day management of the Fund. Mr. Grantham is
a founding partner of the Manager, currently serves as a member of the Manager,
and has been engaged by the Manager in portfolio management since the Manager's
inception in 1977. Mr. Darnell is a member of the Manager and has been with the
Manager since 1979 and has been involved in equity portfolio management for
more than ten years.

-11-
<PAGE> 15
Pursuant to a Servicing Agreement with the Trust on behalf of each
class of shares of the Fund, GMO, in its capacity as the Trust's shareholder
servicer (the "Shareholder Servicer"), provides direct client service,
maintenance and reporting to shareholders of each class of shares. Such
servicing and reporting services include, without limitation, professional and
informative reporting, client account information, personal and electronic
access to Fund information, access to analysis and explanations of Fund reports,
and assistance in the correction and maintenance of client-related information.

-12-
<PAGE> 16
ADDITIONAL INFORMATION

Additional information about the Fund's investments will be available
in the Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. The annual and semi-annual reports, and the Fund's
Statement of Additional Information dated June 30, 1999, as revised from time to
time, are available free of charge by writing to GMO, 40 Rowes Wharf, Boston,
Massachusetts 02110 or by calling collect (617) 346-7646 (ask for Shareholder
Services). The Statement, which contains more detailed information about the
Fund, has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus.

Information about the Fund (including the Statement) can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Information
regarding the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. Reports and other information about the Fund are
available on the Commission's Internet site at http://www.sec.gov . Copies of
this information may be obtained, upon payment of a duplicating fee, by writing
the Public Reference Section of the SEC, Washington, D.C. 20549-6009.

PURCHASE AND SALE INFORMATION

Information regarding the purchase and sale of Fund shares is contained
in a separate document, the GMO Trust Shareholders Manual. The Manual
accompanies this Prospectus, has been filed with the SEC and is incorporated by
reference into this Prospectus. Additional copies of the Manual are available
free of charge by contacting the Manager.

SHAREHOLDER INQUIRIES
Shareholders may request additional
information from and direct inquiries to:

GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC,
40 ROWES WHARF, BOSTON, MA 02110
TEL: (617) 346-7646
FAX: (617) 439-4192

INVESTMENT COMPANY ACT FILE NO. 811-4347

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<PAGE> 17
GMO TRUST
SUPPLEMENT TO GMO INTRINSIC VALUE FUND PROSPECTUS DATED AUGUST 2, 1999

MULTIPLE CLASSES - SUPPLEMENTAL INFORMATION

CLASS DESIGNATIONS

In addition to the classes of shares identified in the Prospectus as
being currently offered by the Fund, the Fund may also from time to time issue
one or more of the following classes of shares: Class I Shares, Class II Shares,
Class III Shares and Class IV Shares. Each class of shares of the Fund will
represent interests in the same portfolio of investments and, except as
described herein, shall have the same rights and obligations as each other class
of shares of the Fund. The sole economic difference among the various classes of
shares is the level of Shareholder Service Fee that the classes bear for client
and shareholder service, reporting and other support. The existence of multiple
classes reflects the fact that, as the size of a client relationship increases,
the cost to service that client decreases as a percentage of the assets in that
account. Thus, the Shareholder Service Fee is lower for classes where
eligibility criteria require greater total assets under GMO's management.

Each class of shares that is not presently being offered shall be
subject to such investment minimums and other eligibility requirements as shall
be set forth in the Trust's prospectus or statement of additional information
prior to the commencement of sale of such shares (the "Prospectus").

CLASS ELIGIBILITY

Class eligibility is generally dependent on the size of the client's
total account under the management of Grantham, Mayo, Van Otterloo & Co. LLC,
the Trust's investment adviser (referred to herein as "GMO" or the "Adviser"),
as described from time to time in the Prospectus.

Class I, Class II and Class III Shares:

With certain exceptions described below, eligibility for Class I, Class II and
Class III Shares depends on a client's "TOTAL INVESTMENT" with GMO.

For clients establishing a relationship with GMO on or after June 1,
1996: A client's Total Investment will be determined by GMO as of December 31 of
each year and on such other dates as may be determined by GMO (each a
"Determination Date"). Subject to as provided below, a client's Total Investment
as of any Determination Date will equal the greater of (a) the market value of
assets managed by GMO and its affiliates for the client (whether in a
<PAGE> 18
pooled vehicle or otherwise) as of such Determination Date, and (b) the client's
Total Investment as of the previous Determination Date (less the market value of
any account managed by GMO's Domestic Active Division as of the previous
Determination Date), plus contributions made to, and less Large Withdrawals
(defined below) from, any GMO-managed product or account (other than any account
managed by GMO's Domestic Active Division) since the previous Determination Date
(plus the market value of any account managed by GMO's Domestic Active Division
as of the then current Determination Date). For these purposes, "Large
Withdrawals" means the total of all withdrawals made from any GMO-managed
product or account (other than any account managed by GMO's Domestic Active
Division) since the previous Determination Date if such total exceeds 7% of the
sum of the client's Total Investment as of the previous Determination Date and
any contributions to any GMO-managed product or account (other than any account
managed by GMO's Domestic Active Division) made since the previous Determination
Date. For clients that have accounts with GMO as of November 30, 1997, their
Initial Total Investment is the greater of the market value of assets managed by
GMO and its affiliates for the client as of the close of business on November
30, 1997 or on December 31, 1997. For clients establishing a relationship with
GMO on or after December 1, 1997, their Total Investment will be determined as
described above. Assets invested in the Pelican Fund will not be considered when
determining a client's Total Investment.

Investments by defined contribution pension plans (such as 401(k)
plans) will always be invested in the class of shares of the relevant Fund(s)
with the highest Shareholder Service Fee offered from time to time by the
relevant Fund(s) regardless of the size of the investment, and will not be
eligible to convert to other classes.

For Clients with Accounts as of May 31, 1996: Any client of GMO whose
Total Investment as of May 31, 1996 was equal to or greater than $7 million will
remain eligible for Class III Shares indefinitely, provided that such client
does not make a withdrawal or redemption that causes the client's Total
Investment to fall below $7 million. Any client whose Total Investment as of May
31, 1996 was less than $7 million, but greater than $0, will convert to Class II
Shares on July 31, 1997 or such later date as may be determined by the Manager.
For clients with GMO accounts as of May 31, 1996, their initial Total Investment
will equal the market value of all of their GMO investments as of the close of
business on May 31, 1996 and will subsequently be calculated as described in the
preceding section.

Class IV Shares:

Eligibility for Class IV Shares is dependent upon the client meeting
either (i) a minimum "TOTAL FUND INVESTMENT" requirement, which includes only a
client's total investment in the particular Fund, or (ii) a minimum "Total
Investment" requirement, calculated as described above for Class I, Class II and
Class III Shares. For clients that have accounts with GMO as of November 30,
1997, their initial Total Investment or initial Total
<PAGE> 19
Fund Investment for purposes of determining eligibility for Class IV Shares will
be the greater of the market value of all of their investments advised by GMO
and its affiliates, or the market value of their investment in the particular
Fund, as the case may be, as of the close of business on November 30, 1997 or
December 31, 1997. For clients establishing a relationship with GMO on or after
December 1, 1997, their Total Fund Investment and Total Investment will be
determined as described above.

The Manager will make all determinations as to aggregation of client
accounts for purposes of determining eligibility.

Eligibility requirements for classes of shares currently offered by the
Trust are set forth in the Prospectus and the Shareholder's Manual. Eligibility
requirements for classes of shares not currently being offered will be
established and disclosed in the Prospectus prior to the offering of such
shares.

CLASS CHARACTERISTICS

The sole difference among the various classes of shares is the level of
shareholder service fee ("Shareholder Service Fee") borne by the class for
client and shareholder service, reporting and other support provided to such
class by GMO. The Shareholder Service Fee borne by each class of shares of each
Fund is set forth in Exhibit A hereto. The expenses associated with an
investment in any of the classes currently being offered by a Fund are described
in detail in the Prospectus under "Fees and Expenses."

Investors should be aware that, because of the different Shareholder
Service Fee borne by each class of shares of a particular Fund, the net annual
fund operating expenses associated with an investment in Class I Shares or Class
II Shares of a Fund will typically be 0.13% higher and 0.07% higher,
respectively, than an investment in Class III Shares of the same Fund. As a
result, the total return earned by an investment in Class I or Class II Shares
of a Fund will always be lower than the total return earned by Class III Shares
of the same Fund. Similarly, investors in Class IV Shares can expect to pay
lower net annual fund operating expenses and earn correspondingly higher returns
than an investors in Class III Shares of the same Fund over the same period.

The multiple class structure reflects the fact that, as the size of the
client relationship increases, the cost to service that relationship is expected
to decrease as a percentage of the account. Thus, the Shareholder Service Fee is
lower for classes for which eligibility criteria generally require greater
assets under GMO's management.

All classes of shares of a Fund bear the same level of purchase premium
and/or redemption fee, if any.
<PAGE> 20
CONVERSION AND EXCHANGE FEATURES

On December 31 of each year and on such other dates as may be
determined by GMO (each a "DETERMINATION DATE") the value of each client's Total
Investment and Total Fund Investment with GMO will be determined. Based on that
determination, each client's shares of each Fund will be automatically converted
to the class of shares of the Fund which is then being offered with the lowest
Shareholder Service Fee for which the client is eligible based on the amount of
their Total Investment or Total Fund Investment, as the case may be, on the
Determination Date. The conversion will occur within 15 business days following
the Determination Date on a date selected by GMO. Also, if a client makes an
investment in a GMO Fund (except for the Pelican Fund) or puts additional assets
under GMO's management (except for accounts managed by GMO's Domestic Active
Division) so as to cause the client to be eligible for a new class of shares,
such determination will be made as of the close of business on the last day of
the calendar quarter in which the investment was made, and the conversion will
be effected within 15 business days of that quarter. Notwithstanding the
foregoing, there will be no automatic conversion from a class of shares with a
lower Shareholder Service Fee to a class of shares with a higher Shareholder
Service Fee unless appropriate disclosure regarding the higher Shareholder
Service Fee has been given to the affected client(s) in the Prospectus or
otherwise.

Shares of one class will always convert into shares of another class on
the basis of the relative net asset value of the two classes, without the
imposition of any sales load, fee or other charge. The conversion of a client's
investment from one class of shares to another is not a taxable event, and will
not result in the realization of gain or loss that may exist in Fund shares held
by the client. The client's tax basis in the new class of shares will equal
their basis in the old class before conversion. The conversion of shares from
one class to another class of shares may be suspended if the opinion of counsel
obtained by the Trust that the conversion does not constitute a taxable event
under current federal income tax law is no longer available.

Certain special rules will be applied by the Manager with respect to
clients for whom GMO managed assets prior to the creation of multiple classes on
May 31, 1996. Clients whose Total Investment as of May 31, 1996 is equal to $7
million or more will be eligible to remain invested in Class III Shares
indefinitely (irrespective of whether the Fund has a higher investment minimum),
provided that such client does not make a withdrawal or redemption that causes
the client's Total Investment to fall below $7 million. Clients whose Total
Investment as of May 31, 1996 is less than $7 million but greater than $0 will
be eligible to invest in or convert to Class II Shares indefinitely
(irrespective of whether the Fund has a higher investment minimum), and such
conversion will not occur until on or after July 31, 1997. Notwithstanding the
foregoing special rules applicable to clients owning shares of the Fund on May
31, 1996, such clients shall always be eligible to remain in and/or be converted
to any class of shares of the relevant Fund with a lower Shareholder Service Fee
which the client
<PAGE> 21
would be eligible to purchase pursuant to the eligibility requirements set forth
elsewhere in this Plan or in the Prospectus.
<PAGE> 22
SERVICE FEE SCHEDULE EXHIBIT A

GMO Intrinsic Value Fund

<TABLE>
<CAPTION>
CLASS SERVICE FEE
- ----------------------------------------------------------- -----------
<S> <C>
Class I 0.28%
- ----------------------------------------------------------- -----------
Class II 0.22%
- ----------------------------------------------------------- -----------
Class III 0.15%
- ----------------------------------------------------------- -----------
Class IV 0.13%
- ----------------------------------------------------------- -----------
</TABLE>
<PAGE> 23
GMO TRUST
SHAREHOLDER'S MANUAL
SHAREHOLDER'S MANUAL FOR ALL CLASSES OF FUND SHARES

GMO FUNDS

U.S. FUNDS

U.S. Core Fund
Tobacco-Free Core Fund
Value Fund
Fundamental Value Fund
Growth Fund
Small Cap Value Fund
Small Cap Growth Fund
REIT Fund
Tax-Managed U.S. Equities Fund
Intrinsic Value Fund

INTERNATIONAL EQUITY FUNDS

International Core Fund
Currency Hedged International Core Fund
Foreign Fund
International Small Companies Fund
Japan Fund
Emerging Markets Fund
Evolving Countries Fund
Asia Fund
Global Properties Fund
Global Hedged Equity Fund
Tax-Managed International Equities Fund

FIXED INCOME FUNDS

Domestic Bond Fund
U.S. Bond/Global Alpha A Fund
U.S. Bond/Global Alpha B Fund
International Bond Fund
Currency Hedged International Bond Fund
Global Bond Fund
Emerging Country Debt Fund
Short-Term Income Fund
Inflation Indexed Bond Fund
Emerging Country Debt Share Fund

ASSET ALLOCATION FUNDS

International Equity Allocation Fund
World Equity Allocation Fund
Global (U.S.+) Equity Allocation Fund
Global Balanced Allocation Fund
U.S. Sector Fund

This GMO TRUST Shareholder's Manual (the "Manual") contains detailed
information about purchase and redemption options and procedures for each of
the funds listed above (the "Funds"). This Manual also includes information
regarding the different classes of shares available for each Fund, including
the eligibility requirements for each class and the circumstances under which a
shareholder's shares of one class of a Fund will be automatically converted to
a different class of shares of that Fund. This Manual is not a prospectus, and
should be used in conjunction with the relevant Fund's GMO Trust Prospectus, as
amended from time to time (the "Prospectus"). This Manual, and the information
disclosed herein, is incorporated by reference into the Prospectus, and is
considered part of the Prospectus.

GMO Trust distributes the Funds' shares. You can call the Trust collect at
1-617-346-7646 to find out more about the Funds and other funds offered by the
Trust.

SHAREHOLDER'S MANUAL AUGUST 2, 1999
<PAGE> 24
TABLE OF CONTENTS

Page #
How to Buy Shares
Purchase Procedures
How to Redeem Shares
Multiple Classes
Eligibility for Classes
Conversions between Classes
Distributions

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

HOW TO BUY SHARES

Shares of each Fund are available only from the Trust and may be purchased on
any day when the New York Stock Exchange is open for business (a "business
day"). Shares may be purchased by sending a purchase order to GMO Shareholder
Services. See "Purchase Procedures" below.

The purchase price of a share of each Fund is (i) the net asset value next
determined after a purchase order is received in good order plus (ii) a premium,
if any, established from time to time by the Trust for the particular Fund and
class to be purchased. All purchase premiums are paid to and retained by the
Fund and are intended to cover the brokerage and other costs associated with
putting the investment to work in the relevant markets. Each class of shares of
a Fund has the same rate of purchase premium if any.

The purchase premiums currently in effect for each Fund are as follows:

<TABLE>
<CAPTION>
Fund Purchase
- ---- Premium
-------
<S> <C>
Short-Term Income Fund, Domestic
Bond Fund, Foreign Fund and Emerging County Debt Share Fund*............ None
Inflation Indexed Bond Fund .................................................. 0.10%
U.S. Core Fund, Tobacco-Free Core Fund
Value Fund, Intrinsic Value Fund, Growth Fund
and Tax-Managed U.S. Equities Fund.................................... 0.14%
Fundamental Value Fund,
International Bond Fund, Currency Hedged
International Bond Fund, Global Bond Fund,
U.S. Bond/Global Alpha A Fund and
U.S. Bond/Global Alpha B Fund........................................... 0.15%
U.S. Sector Fund.............................................................. 0.27%
Global Balanced Allocation Fund .............................................. 0.35%
Global Hedged Equity Fund .................................................... 0.37%
Japan Fund ................................................................... 0.40%
Global (U.S.+) Equity Allocation Fund......................................... 0.47%
Small Cap Value Fund, Small Cap Growth Fund,
REIT Fund and Emerging Country Debt Fund ............................... 0.50%
International Core Fund, Currency Hedged
International Core Fund,
Global Properties Fund, and Tax-Managed International Equities Fund ..... 0.60%
World Equity Allocation Fund ................................................. 0.66%
International Equity Allocation Fund ......................................... 0.80%
International Small Companies Fund ........................................... 1.00%
Asia Fund..................................................................... 1.20%
Emerging Markets Fund and Evolving Countries Fund ............................ 1.60%
</TABLE>

-2-
<PAGE> 25
* Although no purchase premium is charged directly by the Emerging Country Debt
Share Fund ("ECDSF"), by virtue of ECDSF's investment in the Emerging Country
Debt Fund, ECDSF's shareholders will indirectly bear the Emerging Country Debt
Fund's purchase premium of up to 0.50%.

Purchase premiums generally apply only to cash transactions. These fees are paid
to and retained by the Fund itself and are designed to allocate transaction
costs caused by shareholder activity to the shareholder generating the activity,
rather than to the Fund as a whole. Purchase premiums are not sales loads.

In certain limited circumstances, the purchase premiums for certain Funds may be
waived in part or in full. These circumstances are described in the Prospectus
under "Fees and Expenses". For many Funds, no purchase premium is charged with
respect to in-kind purchases of Fund shares. However, in the case of in-kind
purchases involving transfers of large positions in markets where the costs of
re-registration and/or other transfer expenses are high, the International Core
Fund, Currency Hedged International Core Fund, International Small Companies
Fund, Japan Fund, Global Hedged Equity Fund and Tax-Managed International
Equities Fund may each charge a premium of 0.10% and the Emerging Markets Fund,
Evolving Countries Fund and Asia Fund may charge a premium of 0.20%. In
addition, in the case of in-kind purchases of shares of the U.S. Bond/Global
Alpha A Fund, U.S. Bond/Global Alpha B Fund, International Bond Fund, Currency
Hedged International Bond Fund, Global Bond Fund, Emerging Country Debt Fund and
Inflation Indexed Bond Fund, shareholders will pay 50% of purchase premium
applied to cash transactions.

Shares may be purchased (i) in cash, (ii) in exchange for securities on deposit
at the Depository Trust Company ("DTC") (or such other depository acceptable to
the Manager), subject to the determination by the Manager that the securities to
be exchanged are acceptable, or (iii) by a combination of such securities and
cash. In all cases, the Manager reserves the right to reject any particular
investment. Securities acceptable to the Manager as consideration for Fund
shares will be valued as set forth under "Determination of Net Asset Value"
(generally the last quoted sale price) as of the time of the next determination
of net asset value after such acceptance. All dividends, subscription or other
rights which are reflected in the market price of accepted securities at the
time of valuation become the property of the relevant Fund and must be delivered
to the Trust upon receipt by the investor from the issuer. A gain or loss for
federal income tax purposes may be realized by the investor subject to federal
income taxation upon the exchange, depending upon the investor's basis in the
securities tendered.

The Manager will not approve securities as acceptable consideration for Fund
shares unless (1) the Manager, in its sole discretion, believes the securities
are appropriate investments for the Fund; (2) the investor represents and agrees
that all securities offered to the Fund are not subject to any restrictions upon
their sale by the Fund under the Securities Act of 1933, or otherwise; and (3)
the securities may be acquired under the investment restrictions applicable to
the relevant Fund. Investors interested in making in-kind purchases should
telephone the Manager at (617) 346-7646.

For purposes of calculating the purchase price of Trust shares, a purchase order
is received by the Trust on the day that it is in "good order" and is accepted
by the Trust. For a purchase order to be in "good order" on a particular day,
the investor's consideration must be received before the relevant deadline on
that day. If the investor makes a cash investment, the deadline for wiring
Federal funds to the Trust is 2:00 p.m. Boston time. If the investor makes an
investment in-kind, the investor's securities must be placed on deposit at DTC
(or such other depository as is acceptable to the Manager) and 2:00 p.m. Boston
time is the deadline for transferring those securities to the account designated
by the Trust's transfer agent, Investors Bank & Trust Company, 200 Clarendon
Street, Boston, Massachusetts 02116. Investors should be aware that approval of
the securities to be used for purchase must be obtained from the Manager prior
to this time. When the consideration is received by the Trust after the relevant
deadline, the purchase order is not considered to be in good order and is
required to be resubmitted on the following business day. With the prior consent
of the Manager, in certain circumstances the Manager may, in its discretion,
permit purchases based on receiving adequate written assurances that Federal
funds or securities, as the case may be, will be delivered to the Trust by 2:00
p.m. Boston time on or prior to the fourth business day after such assurances
are received.

PURCHASE PROCEDURES:

-3-
<PAGE> 26
(a) General: Investors should call the Trust at (617) 330-7500 (ask for
Shareholder Services) to obtain a Purchase Order Form, which contains wire
transfer and mailing instructions. The Trust reserves the right to reject any
order for Trust Shares. DO NOT SEND CASH, CHECKS OR SECURITIES DIRECTLY TO THE
TRUST. Purchases will be made in full and fractional shares of each Fund
calculated to three decimal places. The Trust's Transfer Agent will send a
written confirmation (including a statement of shares owned) to shareholders at
the time of each transaction.

(b) Purchase Order Form: Investors must submit an application to the Trust and
it must be accepted by the Trust before it will be considered in "good order."
The Purchase Order Form may be submitted to the Trust (i) By Mail to GMO Trust
c/o Grantham, Mayo, Van Otterloo & Co. LLC, 40 Rowes Wharf, Boston, MA 02110,
Attention: Shareholder Services, or (ii) By Facsimile to (617) 439-4192,
Attention: Shareholder Services.

(c) Acceptance of Order: No purchase order is in "good order" until it has been
accepted by the Trust. A shareholder may confirm acceptance of a mailed or faxed
purchase order by calling the Trust at (617) 330-7500 (ask for Shareholder
Services). If a Purchase Order is mailed to the Trust, it will be acted upon
when received.

(d) Payment: All Federal funds must be transmitted to Investors Bank & Trust
Company for the account of the specific Fund of GMO Trust. "Federal funds" are
monies credited to Investors Bank & Trust Company's account with the Federal
Reserve Bank of Boston.

NOTE: The Trust may attempt to process orders for Trust shares that are
submitted less formally than as described above, but, in such cases, the
investor should carefully review confirmations set by the Trust to verify that
the order was properly executed. The Trust cannot be held responsible for
failure to execute orders or improperly executing orders that are not submitted
in accordance with these procedures.

HOW TO REDEEM SHARES

Shares of each Fund may be redeemed on any business day in cash or in kind. The
redemption price is the net asset value per share next determined after receipt
of the redemption request in "good order" less any applicable redemption fee.
All redemption fees are paid to and retained by the Fund and are intended to
cover the brokerage and other Fund costs associated with redemptions. All
classes of a particular Fund bear the same redemption fee rate, if any.

The redemption fees currently in effect for each Fund are set forth in the table
below.

<TABLE>
<CAPTION>
- ---- --------------
<S> <C>
U.S. Core Fund, Tobacco-Free Core Fund, Value Fund,
Growth Fund, Small Cap Growth Fund,
Fundamental Value Fund, REIT Fund,
Tax-Managed U.S. Equities Fund, International Core Fund, Currency
Hedged International Core Fund, Foreign Fund, International Small
Companies Fund, Japan Fund, Tax-Managed International Equities
Fund, Domestic Bond Fund, U.S. Bond/Global Alpha A Fund, U.S.
Bond/Global Alpha B Fund,
International Bond Fund, Currency Hedged International Bond Fund,
Global Bond Fund, Short-Term Income Fund, Intrinsic Value Fund,
Global Hedged Equity Fund and Emerging Country Debt Share Fund(1)............. None
</TABLE>

- -------------
(1) Although no redemption fee is charged directly by the Emerging
Country Debt Share Fund ("ECDSF"), by virtue of ECDSF's investment in the
Emerging Country Debt Fund, ECDSF's shareholders will indirectly bear the
Emerging Country Debt Fund's redemption fee of up to 0.25%.

-4-
<PAGE> 27
<TABLE>
<S> <C>
Inflation Indexed Bond Fund................................................................... 0.10%
International Equity Allocation Fund and
Global Balanced Allocation Fund...................................................... 0.11%
Global (U.S.+) Equity Allocation Fund and
World Equity Allocation Fund......................................................... 0.15%
U.S. Sector Fund(2)........................................................................... 0.18%
Emerging Country Debt Fund(3)................................................................. 0.25%
Global Properties Fund........................................................................ 0.30%
Emerging Markets Funds(4),
Asia Fund and
Evolving Countries Fund.............................................................. 0.40%
Small Cap Value Fund,
Small Cap Growth Fund and
REIT Fund............................................................................ 0.50%
International Small Companies Fund............................................................ 0.60%
Global Hedged Equity Fund(5).................................................................. 1.40%
</TABLE>

Redemption fees generally apply only to cash transactions. These fees are paid
to and retained by the Fund itself and are employed to allocate transaction
costs caused by shareholder activity to the shareholder generating the activity,
rather than to the Fund as a whole. Redemption fees are not sales loads or
contingent deferred sale charges.

In certain limited circumstances, the redemption fees for certain Funds may be
waived in part or in full. The circumstances are described in the Prospectus
under "Fees and Expenses". If the Manager determines, in its sole discretion,
that it would be detrimental to the best interest of the remaining shareholders
of a Fund to make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by a distribution in-kind of securities
held by the Fund in lieu of cash. Securities used to redeem Fund shares in-kind
will be valued in accordance with the relevant Fund's procedures for valuation
described under "Determination of Net Asset Value." Securities distributed by a
Fund in-kind will be selected by the Manager in light of the Fund's objective
and will not generally represent a pro rata distribution of each security held
in the Fund's portfolio. Any in-kind redemptions will be of readily marketable
securities to the extent available. Investors may incur brokerage charges on the
sale of any such securities so received in payment of redemptions.

Payment on redemption will be made as promptly as possible and in any event
within seven days after the request for redemption is received by the Trust in
"good order." A redemption request is in "good order" if it includes the exact
name in which shares are registered, the investor's account number and the
number of shares or the dollar amount of shares to be redeemed and if it is
signed exactly in accordance with the form of registration. In addition, for a
redemption request to be in "good order" on a particular day, the investor's
request must be received by the Trust by 4:15 p.m. Boston time on a business
day. When a redemption request is received after 4:15 p.m. Boston time, the
redemption request will not be considered to be in "good order" and is required
to be resubmitted on the following business day. Persons acting in a fiduciary
capacity, or on behalf of a corporation, partnership or trust, must specify, in
full, the capacity in which they are acting. The redemption request will be
considered "received" by the Trust only after (i) it is mailed to, and received
by, the Trust at the appropriate address set forth above for purchase orders, or
(ii) it is faxed to the Trust at the appropriate facsimile number set forth
above for purchase orders, and the investor has confirmed receipt of the faxed
request by calling the Trust at (617) 346-7646. In-kind distributions will be
transferred and delivered as directed by the investor. Cash payments will be
made by transfer of Federal funds for payment into the investor's account.

- ----------
(2) Applies only to shares acquired on or after June 30, 1998
(including shares acquired through the reinvestment of dividends and other
distributions after each date).

(3) Applies only to shares acquired on or after July 1, 1995 (including
shares acquired through the reinvestment of dividends and other distributions
after such date).

(4) Applies only to shares acquired on or after June 1, 1995 (including
shares acquired through the reinvestment of dividends and other distributions
after such date).

(5) This redemption fee will be 0% unless the size of a redemption
forces the Manager to an early termination of a hedging transaction to meet the
redemption request.

-5-
<PAGE> 28

When opening an account with the Trust, shareholders will be required to
designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing.

Each Fund may suspend the right of redemption and may postpone payment for more
than seven days when the New York Stock Exchange is closed for other than
weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it impracticable for the Fund to dispose of its
securities or to fairly determine the value of the net assets of the Fund, or
during any other period permitted by the Securities and Exchange Commission for
the protection of investors. Because the International Funds each hold portfolio
securities listed on foreign exchanges which may trade on days on which the New
York Stock Exchange is closed, the net asset value of such Funds' shares may be
significantly affected on days when shareholders have no access to such Funds.

MULTIPLE CLASSES

Each Fund offers up to three classes of shares. All Funds offer Class
III Shares and, as described below, certain Funds also offer Class II and/or
Class IV Shares. The sole economic difference among the various classes of
shares is the level of Shareholder Service Fee that the classes bear for client
and shareholder service, reporting and other support. The existence of multiple
classes reflects the fact that, as the size of a client relationship increases,
the cost to service that client decreases as a percentage of the assets in that
account. Thus, the Shareholder Service Fee is lower for classes where
eligibility criteria require greater total assets under GMO's management.

The Trust has adopted a Shareholder Servicing Plan (the "Plan")
covering each class of shares of each Fund. The following table summarizes the
current eligibility requirements for each class (subject to the exceptions noted
below) and the Shareholder Service Fees each class will pay under the Plan,
expressed as an annual percentage of the average daily net assets attributable
to that class of shares:

CLASS II AND CLASS III SHARES:

<TABLE>
<CAPTION>
U.S. CORE FUND, INTERNATIONAL CORE FUND
AND FOREIGN FUND (COLLECTIVELY, MINIMUM TOTAL INVESTMENT/ SHAREHOLDER
THE "CLASS II FUNDS") TOTAL FUND INVESTMENT* SERVICE FEE ("SSF")**
- -------------------------------------------- --------------------------- ---------------------
<S> <C> <C>
Class II $ 1 million/ N/A 0.22%
Class III $35 million/ N/A 0.15%

ASSET ALLOCATION FUNDS (EXCEPT U.S. SECTOR
FUND) AND EMERGING COUNTRY DEBT
SHARE FUND
Class III $ 1 million/ N/A 0.00%***

U.S. SECTOR FUND AND GLOBAL
HEDGED EQUITY FUND
Class III $ 1 million/ N/A 0.15%****

ALL OTHER FUNDS (EXCEPT
CLASS II FUNDS AND
ASSET ALLOCATION FUNDS)
Class III $ 1 million/ N/A 0.15 %

CLASS IV SHARES:

U.S. CORE FUND $250 million/$125 million 0.105%
INTERNATIONAL CORE FUND $250 million/ $125 million 0.09 %
FOREIGN FUND $250 million /N/A 0.09 %
CURRENCY HEDGED INTERNATIONAL CORE FUND $250 million /$125 million 0.09 %
</TABLE>

-6-
<PAGE> 29
<TABLE>
<S> <C> <C>
EMERGING MARKETS FUND $250 million/$125 million 0.105%
EMERGING COUNTRY DEBT FUND $250 million/$125 million 0.10 %
</TABLE>

* The eligibility requirements in the table above are subject to certain
exceptions and special rules for certain plan investors and for certain
clients with continuous client relationships with GMO since May 31,
1996. These exceptions and special rules are explained below.

** All classes of shares of a Fund pay the same investment management fee.

*** These Funds will indirectly bear an additional SSF of 0.15% by virtue
of their investments in other Funds of the Trust. Thus, the total SSF
borne by Class III Shares of these Funds is the same as that borne by
Class III Shares of the other Funds. See "Fees and Expenses" in the
Prospectus.

**** The SSF charged to these Funds will be reduced by a corresponding
amount for all SSF's indirectly borne by the relevant Fund by reason of
its investments in Class III Shares of other Funds of the Trust. Thus,
the total SSF borne by Class III Shares of these Funds is the same as
that borne by Class III Shares of the other Funds of the Trust.

ELIGIBILITY FOR CLASSES

CLASS II AND CLASS III SHARES:

Class II Shares are currently being offered only for the "Class II
Funds" listed in the table above. Class III Shares are currently being offered
for all Funds. With certain exceptions described below, for a client to be
eligible for Class II or Class III Shares, the client must satisfy the minimum
"Total Investment" (as defined below) requirement set forth in the table.

For clients establishing a relationship with GMO on or after June 1,
1996: A client's Total Investment will be determined by GMO at least annually
as of December 31 of each year and on such other dates as may be determined by
GMO (each a "Determination Date"). Subject to as provided below, a client's
Total Investment as of any Determination Date will equal the greater of (a) the
market value of assets managed by GMO and its affiliates for the client
(whether in a pooled vehicle or otherwise) as of such Determination Date, and
(b) the client's Total Investment as of the previous Determination Date (less
the market value of any account managed by GMO's U.S. Active Division as of the
previous Determination Date), plus contributions made to, and less Large
Withdrawals (defined below) from, any GMO-managed product or account (other
than any account managed by GMO's U.S. Active Division) since the previous
Determination Date (plus the market value of any account managed by GMO's U.S.
Active Division as of the then current Determination Date). For these purposes,
"Large Withdrawals" means the total of all withdrawals made from any
GMO-managed product or account (other than any account managed by GMO's U.S.
Active Division) since the previous Determination Date if such total exceeds 7%
of the sum of the client's Total Investment as of the previous Determination
Date and any contributions to any GMO-managed product or account (other than
any account managed by GMO's Active U.S. Division) made since the previous
Determination Date. For clients with GMO accounts as of November 30, 1997,
their initial Total Investment is the greater of the market value of assets
managed by GMO and its affiliates for the client as of the close of business on
November 30, 1997 or on December 31, 1997. For clients establishing a
relationship with GMO on or after December 31, 1997, their Total Investment
will be determined as described above. Notwithstanding anything to the contrary
in this Manual or the Prospectus, assets invested in the Pelican Fund will not
be considered when determining a client's Total Investment. For purposes of
this Manual and the Prospectus, accounts managed by GMO's U.S. Active Division
include certain separate accounts managed by GMO. Clients with any questions
regarding whether certain of their assets are deemed to be managed by GMO's
U.S. Active Division should call GMO at (617) 346-7646.

CLASS IV SHARES:

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<PAGE> 30
Class IV Shares are currently being offered only for the Funds listed
in the table on the previous page. Eligibility for Class IV Shares of a Fund is
dependent upon the client meeting either (i) the minimum "Total Fund Investment"
set forth in the table, which includes only a client's total investment in the
particular Fund, or (ii) the minimum "Total Investment" set forth in the table,
calculated as described above for Class II and Class III Shares. For clients
that have accounts with GMO as of November 30, 1997, their initial Total
Investment or initial Total Fund Investment for purposes of determining
eligibility for Class IV Shares will be the greater of the market value of all
of their investments advised by GMO and its affiliates, or the market value of
their investment in the particular Fund, as the case may be, as of the close of
business on November 30, 1997 or December 31, 1997. For clients establishing a
relationship with GMO on or after December 1, 1997, their Total Fund Investment
and Total Investment will be determined as described above.

ALL CLASSES:

- - Investments by defined contribution plans (such as 401(k) plans) will
always be invested in the class of shares of the relevant Fund(s) with the
highest Shareholder Service Fee offered from time to time by the relevant
Fund(s) regardless of the size of the investment, and will not be eligible
to convert to other classes with lower Shareholder Service Fees.

- - There is no minimum additional investment required to purchase additional
shares of a Fund for any class of shares.

- - The Manager will make all determinations as to the aggregation of client
accounts for purposes of determining eligibility.

- - Eligibility requirements for each class of shares are subject to change
upon notice to shareholders.

CONVERSIONS BETWEEN CLASSES

On December 31 of each year and on such other dates as may be
determined by GMO (each a "Determination Date") the value of each client's Total
Investment and Total Fund Investment with GMO, as defined above, will be
determined. Based on that determination, each client's shares of each Fund will
be automatically converted to the class of shares of such Fund which is then
being offered with the lowest Shareholder Service Fee for which the client is
eligible based on the amount of their Total Investment or Total Fund Investment,
as the case may be, on the Determination Date. The conversion will occur within
15 business days following the Determination Date on a date selected by the
Manager. Also, if a client makes an investment in any Fund of the Trust (except
for the Pelican Fund) or puts additional assets under GMO's management (except
for accounts managed by GMO's U.S. Active Division) so as to cause the client to
be eligible for a new class of shares, such determination will be made as of the
close of business on the last day of the calendar quarter in which the
investment was made, and the conversion will be effected within 15 business days
of that quarter end, on a date selected by the Manager.

The Trust has been advised by counsel that the conversion of a client's
investment from one class of shares to another class of shares in the same Fund
should not result in the recognition of gain or loss in the converted Fund's
shares. The client's tax basis in the new class of shares immediately after the
conversion should equal the client's basis in the converted shares immediately
before conversion, and the holding period of the new class of shares should
include the holding period of the converted shares.

Certain special rules will be applied by the Manager with respect to
clients for whom GMO managed assets prior to the creation of multiple classes on
May 31, 1996. Clients whose Total Investment as of May 31, 1996 is equal to $7
million or more will be eligible to remain invested in Class III Shares
indefinitely (irrespective of whether the Fund has a higher investment minimum),
provided that such client does not make a withdrawal or redemption that causes
the client's Total Investment to fall below $7 million. Clients whose Total
Investment as of May 31, 1996 is less than $7 million but greater than $0 will
be eligible to invest in or convert to Class II Shares indefinitely
(irrespective of whether the Fund has a higher investment minimum).
Notwithstanding the foregoing special rules, clients shall always remain
eligible to remain in and/or be converted to any class of shares of the relevant
Fund which the client would be eligible to purchase pursuant to the eligibility
requirements set forth herein.

Investors should be aware that not all classes of shares of all Funds
are available in all jurisdictions.

-8-
<PAGE> 31
DISTRIBUTIONS

The policy of each U.S. Equity Fund (except for the REIT Fund), the
Short-Term Income Fund and the Domestic Bond Fund is to declare and pay
distributions of its dividends and interest quarterly. The policy of each other
Fund is to declare and pay distributions of its dividends, interest and foreign
currency gains semi-annually. Each Fund also intends to distribute net gains
from the sale of securities held for not more than one year ("net short-term
capital gains") and net gains from the sale of securities held for more than one
year ("net long-term capital gains") at least annually.

All dividends and/or distributions will be paid in shares of the relevant Fund,
at net asset value, unless the shareholder elects to receive cash. There is no
purchase premium on reinvested dividends or distributions. Shareholders may make
this election by marking the appropriate box on the application or by writing to
the Trust.

-9-
<PAGE> 32
GMO INTRINSIC VALUE FUND

STATEMENT OF ADDITIONAL INFORMATION

August 2, 1999

This Statement of Additional Information is not a prospectus. It relates to the
GMO Intrinsic Value Fund Prospectus dated August 2, 1999, as amended from time
to time (the "Prospectus"), and should be read in conjunction therewith.
Information from the Prospectus (including the GMO Trust Shareholder's Manual
dated August 2, 1999) is incorporated by reference into this Statement of
Additional Information. The Prospectus and Shareholder's Manual may be obtained
from GMO Trust, 40 Rowes Wharf, Boston, Massachusetts 02110.
<PAGE> 33
TABLE OF CONTENTS
Caption Page

INVESTMENT OBJECTIVES AND POLICIES

DESCRIPTION AND RISKS OF FUND INVESTMENTS

ADDITIONAL INVESTMENT RESTRICTIONS

MANAGEMENT OF THE TRUST

INVESTMENT ADVISORY AND OTHER SERVICES

PORTFOLIO TRANSACTIONS

DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES

VOTING RIGHTS

SHAREHOLDER AND TRUSTEE LIABILITY

DISTRIBUTIONS

TAXES

PERFORMANCE INFORMATION

INVESTMENT GUIDELINES
<PAGE> 34
INVESTMENT OBJECTIVES AND POLICIES

The principal strategies and risks of investing in the GMO Intrinsic
Value Fund (the "Fund") are described in the Prospectus. Unless otherwise
indicated in the Prospectus or this Statement of Additional Information, the
investment objective and policies of the Fund may be changed without shareholder
approval.

DESCRIPTIONS AND RISKS OF FUND INVESTMENTS

The following is a detailed description of the various investment
practices in which the Fund may engage and the risks associated with their use.
The Fund may not necessarily engage in all practices described below. Please
refer to the "Investment Guidelines" beginning on page __ for determination of
which practices the Fund may engage in.

PORTFOLIO TURNOVER

The after-tax impact of portfolio turnover will be considered when
making investment decisions for the Fund. The Fund's portfolio turnover rate is
expected not to exceed 150%.

In any particular year, market conditions may well result in greater
rates than are presently anticipated. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Fund. To the extent that portfolio turnover
results in the recognition of short-term capital gains, such gains are
ordinarily taxed to shareholders at ordinary income tax rates.

DIVERSIFIED AND NON-DIVERSIFIED PORTFOLIOS

The Fund is a "non-diversified" fund under the 1940 Act, and as such is
not required to satisfy the "diversified" fund requirement set forth in the 1940
Act. As a non-diversified fund, the Fund is permitted to (but not required to)
invest a higher percentage of its assets in the securities of fewer issuers,
relative to diversified funds. Such concentration could increase the risk of
loss to the Fund should there be a decline in the market value of any one
portfolio security, relative to diversified funds. Investment in a
non-diversified fund may therefore entail greater risks than investment in a
diversified fund. The Fund, however, must meet certain diversification standards
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended.
<PAGE> 35
SECURITIES LENDING

The Fund may make secured loans of portfolio securities amounting to
not more than one-third of the Fund's total assets. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. However, such loans will be made only to
broker-dealers that are believed by the Manager to be of relatively high credit
standing. Securities loans are made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or U.S.
Government Securities at least equal at all times to the market value of the
securities lent. The borrower pays to the lending Fund an amount equal to any
dividends or interest the Fund would have received had the securities not been
lent. If the loan is collateralized by U.S. Government Securities, the Fund will
receive a fee from the borrower. In the case of loans collateralized by cash,
the Fund typically invests the cash collateral for its own account in
interest-bearing, short-term securities and pays a fee to the borrower. Although
voting rights or rights to consent with respect to the loaned securities pass to
the borrower, the Fund retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the Fund if the holders of such securities are asked to vote upon or consent
to matters materially affecting the investment. The Fund may also call such
loans in order to sell the securities involved. The Manager has retained lending
agents on behalf of the Fund that are compensated based on a percentage of each
Fund's return on the securities lending activity. The Fund also pays various
fees in connection with such loans including shipping fees and reasonable
custodian fees approved by the Trustees of the Trust or persons acting pursuant
to direction of the Board.

DEPOSITORY RECEIPTS

The Fund may invest in American Depositary Receipts (ADRs), Global
Depository Receipts (GDRs) and European Depository Receipts (EDRs)
(collectively, "Depository Receipts") if issues of such Depository Receipts are
available that are consistent with the Fund's investment objective. Depository
Receipts generally evidence an ownership interest in a corresponding foreign
security on deposit with a financial institution. Transactions in Depository
Receipts usually do not settle in the same currency in which the underlying
securities are denominated or traded. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets and EDRs, in bearer form, are
designed for use in European securities markets. GDRs may be traded in any
public or private securities markets and may represent securities held by
institutions located anywhere in the world.

CONVERTIBLE SECURITIES

A convertible security is a fixed-income security (a bond or preferred
stock) which may be converted at a stated price within a specified period of
time into a certain quantity of the common stock of the same or a different
issuer. Convertible securities are senior to common stock in a corporation's
capital structure, but are usually subordinated to similar non-convertible
securities. Convertible securities provide, through their conversion feature, an
opportunity to participate in

1
<PAGE> 36
capital appreciation resulting from a market price advance in a convertible
security's underlying common stock. The price of a convertible security is
influenced by the market value of the underlying common stock and tends to
increase as the market value of the underlying stock rises, whereas it tends to
decrease as the market value of the underlying stock declines. The Manager
regards convertible securities as a form of equity security.

FUTURES AND OPTIONS

The Fund may use futures and options for various purposes. Such transactions may
involve options, futures and related options on futures contracts, and those
instruments may relate to particular equity and fixed income securities, equity
and fixed income indexes, and foreign currencies. The Fund may also enter into a
combination of long and short positions (including spreads and straddles) for a
variety of investment strategies, including protecting against changes in
certain yield relationships.

The use of futures contracts and options on futures contracts involves risk.
Thus, while the Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices, or currency exchange
rates may result in poorer overall performance for the Fund than if it had not
entered into any futures contracts or options transactions. Losses incurred in
transactions in futures, options and options on futures and the costs of these
transactions will affect the Fund's performance.

OPTIONS. As has been noted above, the Fund (1) may enter into contracts giving
third parties the right to buy the Fund's portfolio securities for a fixed price
at a future date (writing "covered call options"); (2) may enter into contracts
giving third parties the right to sell securities to the Fund for a fixed price
at a future date (writing "covered put options"); and (3) may buy the right to
purchase securities from third parties ("call options") or the right to sell
securities to third parties ("put options") for a fixed price at a future date.

WRITING COVERED OPTIONS. The Fund may seek to increase its return by writing
covered call or put options on optionable securities or indexes. A call option
written by the Fund on a security gives the holder the right to buy the
underlying security from the Fund at a stated exercise price; a put option gives
the holder the right to sell the underlying security to the Fund at a stated
exercise price. In the case of options on indexes, the options are usually cash
settled based on the difference between the strike price and the value of the
index.

The Fund will receive a premium for writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price and volatility of the underlying
security or securities index to the exercise price of the option, the remaining
term of the option, supply and demand and interest rates. By writing a call
option on a security, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By writing a put option on a security, the Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value. In the case
of options on an index, if the Fund writes a call, any profit by the Fund in
respect of portfolio securities expected to correlate with the index will be
limited by an increase in the index

2
<PAGE> 37
above the exercise price of the option. If the Fund writes a put on an index,
the Fund may be required to make a cash settlement greater than the premium
received if the index declines.

A call option on a security is "covered" if the Fund owns the underlying
security or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option on a security is also covered if
the Fund holds on a share-for-share basis a call on the same security as the
call written where the exercise price of the call held is equal to or less than
the exercise price of the call written or greater than the exercise price of the
call written if the difference is maintained by the Fund in cash, U.S.
Government Securities or other high grade debt obligations in a segregated
account with its custodian. A call option on an index is "covered" if the Fund
maintains cash, U.S. Government Securities or other high grade debt obligations
with a value equal to the exercise price in a segregated account with its
custodian. A put option is "covered" if the Fund maintains cash, U.S. Government
Securities or other high grade debt obligations with a value equal to the
exercise price in a segregated account with its custodian, or else holds on a
share-for-share basis a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written.

If the writer of an option wishes to terminate its obligation, it may effect a
"closing purchase transaction." This is accomplished, in the case of exchange
traded options, by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the clearing corporation. The writer of an option may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate its
position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously purchased. There
is no guarantee that the Fund will be able to effect a closing purchase or a
closing sale transaction at any particular time. Also, an over-the-counter
option may be closed out only with the other party to the option transaction.

Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash or high grade debt
obligations. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale or any securities subject to the option to be
used for other Fund investments. If the Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale of the
security.

The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security or
index of securities, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or securities owned by the Fund.

3
<PAGE> 38
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at-the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upward or downward by the
difference between the Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset in part, or entirely, by the
premium received.

The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price. In that event, the Fund's return
will be premium received from the put option minus the cost of closing the
position or, if it chooses to take delivery of the security, the premium
received from the put option minus the amount by which the market price of the
security is below the exercise price. Out-of-the-money, at-the-money and
in-the-money put options may be used by the Fund in market environments
analogous to those in which call options are used in buy-and-write transactions.

The extent to which the Fund will be able to write and purchase call and put
options may be restricted by the Fund's intention to qualify as a regulated
investment company under the Internal Revenue Code.

RISK FACTORS IN OPTIONS TRANSACTIONS. The option writer has no control over when
the underlying securities or futures contract must be sold, in the case of a
call option, or purchased, in the case of a put option, since the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. If an option expires unexercised, the writer realizes a gain in the
amount of the premium. Such a gain, of course, may, in the case of a covered
call option, be offset by a decline in the market value of the underlying
security or futures contract during the option period. If a call option is
exercised, the writer realizes a gain or loss from the sale of the underlying
security or futures contract. If a put option is exercised, the writer must
fulfill the obligation to purchase the underlying security or futures contract
at the exercise price, which will usually exceed the then market value of the
underlying security or futures contract.

4
<PAGE> 39
An exchange-traded option may be closed out only on a national securities
exchange ("Exchange") which generally provides a liquid secondary market for an
option of the same series. An over-the-counter option may be closed out only
with the other party to the option transaction. If a liquid secondary market for
an exchange-traded option does not exist, it might not be possible to effect a
closing transaction with respect to a particular option with the result that the
Fund holding the option would have to exercise the option in order to realize
any profit. For example, in the case of a written call option, if the Fund is
unable to effect a closing purchase transaction in a secondary market (in the
case of a listed option) or with the purchaser of the option (in the case of an
over-the-counter option), the Fund will not be able to sell the underlying
security (or futures contract) until the option expires or it delivers the
underlying security (or futures contract) upon exercise. Reasons for the absence
of a liquid secondary market on an Exchange include the following: (i) there may
be insufficient trading interest in certain options; (ii) restrictions may be
imposed by an Exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; (v) the facilities of an Exchange or the Options Clearing Corporation
may not at all times be adequate to handle current trading volume; or (vi) one
or more Exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on that Exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange should continue to be
exercisable in accordance with their terms.

The Exchanges have established limitations governing the maximum number of
options which may be written by an investor or group of investors acting in
concert. It is possible that the Fund, the Manager and other clients of the
Manager may be considered to be such a group. These position limits may restrict
the Fund's ability to purchase or sell options on a particular security.

The amount of risk the Fund assumes when it purchases an option is the premium
paid for the option plus related transaction costs. In addition to the
correlation risks discussed below, the purchase of an option also entails the
risk that changes in the value of the underlying security or futures contract
will not be fully reflected in the value of the option purchased.

FUTURES. A financial futures contract sale creates an obligation by the seller
to deliver the type of financial instrument called for in the contract in a
specified delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to pay for and take delivery of
the type of financial instrument called for in the contract in a specified
delivery month, at a stated price. In some cases, the specific instruments
delivered or taken, respectively, at settlement date are not determined until on
or near that date. The determination is made in accordance with the rules of the
exchange on which the futures contract sale or purchase was made. Some futures
contracts are "cash settled" (rather than "physically settled," as described
above) which means that the purchase price is subtracted from the current market
value of the instrument and the net amount if positive is paid to the purchaser,
and if negative is paid by the purchaser. Futures contracts are traded in the
United States only on commodity exchanges or boards of trade -- known as
"contract markets" -- approved for such trading by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant
or brokerage firm which is a member of the

5
<PAGE> 40
relevant contract market. Under U.S. law, futures contracts on individual equity
securities are not permitted

The purchase or sale of a futures contract differs from the purchase or sale of
a security or option in that no price or premium is paid or received. Instead,
an amount of cash or U.S. Government Securities generally not exceeding 5% of
the fact amount of the futures contract must be deposited with the broker. This
amount is known as initial margin. Subsequent payments to and from the broker,
known as variation margin, are made on a daily basis as the price of the
underlying futures contract fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as "marking to
market." Prior to the settlement date of the futures contract, the position may
be closed out by taking an opposite position which will operate to terminate the
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid to or released by the broker,
and the purchaser realizes a loss or gain. In addition, a commission is paid on
each completed purchase and sale transaction.

In most cases futures contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures contract sale is
effected by purchasing a futures contract for the same aggregate amount of the
specific type of financial instrument or commodity and the same delivery date.
If the price of the initial sale of the futures contract exceeds the price of
the offsetting purchase, the seller is paid the difference and realizes a gain.
Conversely, if the price of the offsetting purchase exceeds the price of the
initial sale, the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, a loss will be realized.

The ability to establish and close out positions on options on futures will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or be maintained.

INDEX FUTURES. The Fund may purchase futures contracts on various securities
indexes ("Index Futures"). For example, the Fund may purchase Index Futures on
the S&P 500 ("S&P 500 Index Futures") and on such other domestic stock indexes
as the Manager may deem appropriate. The Fund's purchase and sale of Index
Futures is limited to contracts and exchanges which have been approved by the
CFTC.

An Index Future may call for "physical delivery" or be "cash settled." An Index
Future that calls for physical delivery is a contract to buy an integral number
of units of the particular securities index at a specified future date at a
price agreed upon when the contract is made. A unit is the value from time to
time of the relevant index. If the Fund purchases an Index Future that calls for
physical delivery, it is obligated to pay the face amount on the stated date.
Such an Index Future may be closed out on that date or any earlier date by
selling an Index Future with the same face amount and contract date. This will
terminate the Fund's position and the Fund will realize a profit or a loss based
on the difference between the cost of purchasing the original Index Future and
the price obtained from selling the closing Index Future. The amount of the
profit or loss is determined by the change in the value of the relevant index
while the Index Future was held.

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<PAGE> 41
For example, if the value of a unit of a particular index were $1,000, a
contract to purchase 500 units would be worth $500,000 (500 units x $1,000). The
Index Futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the relevant index at the expiration
of the contract. For example, if the Fund enters into one futures contract to
buy 500 units of an index at a specified future date at a contract price of
$1,000 per unit and the index is at $1,010 on that future date, the Fund will
gain $5,000 (500 units x gain of $10).

Index Futures that are "cash settled" provide by their terms for settlement on a
net basis reflecting changes in the value of the underlying index. Thus, the
purchaser of such an Index Future is never obligated to pay the face amount of
the contract. The net payment obligation may in fact be very small in relation
to the face amount.

The Fund may close open positions on the futures exchange on which Index Futures
are then traded at any time up to and including the expiration day. All
positions which remain open at the close of the last business day of the
contract's life are required to settle on the next business day (based upon the
value of the relevant index on the expiration day) with settlement made, in the
case of S&P 500 Index Futures, with the Commodities Clearing House. Because the
specific procedures for trading foreign stock Index Futures on futures exchanges
are still under development, additional or different margin requirements as well
as settlement procedures may be applicable to foreign stock Index Futures at the
time the Fund purchases foreign stock Index Futures.

The price of Index Futures may not correlate perfectly with movement in the
relevant index due to certain market distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the S&P 500 Index and futures markets. Secondly, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market, and as a result the futures market may
attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions. In addition, trading hours for foreign stock Index Futures
may not correspond perfectly to hours of trading on the foreign exchange to
which a particular foreign stock Index Futures relates. This may result in a
disparity between the price of Index Futures and the value of the relevant index
due to the lack of continuous arbitrage between the Index Futures price and the
value of the underlying index.

OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the purchaser
the right in return for the premium paid to assume a position in a futures
contract at the specified option-exercise price at any time during the period of
the option. The Fund may use options on futures contracts in lieu of writing or
buying options directly on the underlying securities or purchasing and selling
the underlying futures contracts. For example, to hedge against a possible
decrease in the value of its portfolio securities, the Fund may purchase put
options or write call options on futures contracts rather than selling futures
contracts. Similarly, the Fund may purchase call options or write put options on
futures contracts as a substitute for the purchase of futures contracts to hedge
against a possible increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as options purchased
or written directly on the underlying

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<PAGE> 42
investments. See "Foreign Currency Transactions" below for a description of the
Fund's use of options on currency futures.

RISK FACTORS IN FUTURES TRANSACTIONS. Investment in futures contracts involves
risk. If the futures are used for hedging, some of that risk may be caused by an
imperfect correlation between movements in the price of the futures contract and
the price of the security or currency being hedged. The correlation is higher
between price movements of futures contracts and the instrument underlying that
futures contract. The correlation is lower when futures are used to hedge
securities other than such underlying instrument, such as when a futures
contract on an index of securities is used to hedge a single security, a futures
contract on one security (e.g., U.S. Treasury bonds) is used to hedge a
difference security (e.g., a mortgage-backed security) or when a futures
contract in one currency (e.g., the German Mark) is used to hedge a security
denominated in another currency (e.g., the Spanish Peseta). In the event of an
imperfect correlation between a futures position and a portfolio position (or
anticipated position) which is intended to be protected, the desired protection
may not be obtained and the Fund may be exposed to risk of loss. In addition, it
is not always possible to hedge fully or perfectly against currency fluctuations
affecting the value of the securities denominated in foreign currencies because
the value of such securities also is likely to fluctuate as a result of
independent factors not related to currency fluctuations. The risk of imperfect
correlation generally tends to diminish as the maturity date of the futures
contract approaches.

A hedge will not be fully effective where there is such imperfect correlation.
To compensate for imperfect correlations, the Fund may purchase or sell futures
contracts in a greater amount than the hedged securities if the volatility of
the hedged securities is historically greater than the volatility of the futures
contracts. Conversely, the Fund may purchase or sell fewer contracts if the
volatility of the price of the hedged securities is historically less than that
of the futures contract.

The Fund may also purchase futures contracts (or options thereon) as an
anticipatory hedge against a possible increase in the price of currency in which
is denominated the securities the Fund anticipates purchasing. In such
instances, it is possible that the currency may instead decline. If the Fund
does not then invest in such securities because of concern as to possible
further market and/or currency decline or for other reasons, the Fund may
realize a loss on the futures contract that is not offset by a reduction in the
price of the securities purchased.

The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures contract price during a
single trading day. Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit, thus preventing the
liquidation of open futures positions. Prices have in the past exceeded the
daily limit on a number of consecutive trading days. Short positions in index
futures may be closed out only by entering into a futures contract purchase on
the futures exchange on which the index futures are traded.

The successful use of transactions in futures and related options for hedging
and risk management also depends on the ability of the Manager to forecast
correctly the direction and extent of exchange rate, interest rate and stock
price movements within a given time frame. For example, to the extent interest
rates remain stable during the period in which a futures contract or option is
held by the Fund investing in fixed income securities (or such rates move in a
direction opposite to that

8
<PAGE> 43
anticipated), the Fund may realize a loss on the futures transaction which is
not fully or partially offset by an increase in the value of its portfolio
securities. As a result, the Fund's total return for such period may be less
than if it had not engaged in the hedging transaction.

Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the CFTC and may be subject to greater risks than
trading on domestic exchanges. For example, some foreign exchanges may be
principal markets so that no common clearing facility exists and a trader may
look only to the broker for performance of the contract. In addition, unless the
Fund hedges against fluctuations in the exchange rate between the U.S. dollar
and the currencies in which trading is done on foreign exchanges, any profits
that the Fund might realize in trading could be eliminated by adverse changes in
the exchange rate, or the Fund could incur losses as a result of those changes.

USES OF OPTIONS, FUTURES AND OPTIONS ON FUTURES

HEDGING. To the extent indicated elsewhere, the Fund may also enter into
options, futures contracts and buy and sell options thereon for hedging. For
example, the Fund may sell equity index futures if it wants to hedge its equity
securities against a general decline in the relevant equity market(s). The Fund
may also use futures contracts in anticipatory hedge transactions by taking a
long position in a futures contract with respect to a security, index or foreign
currency that the Fund intends to purchase (or whose value is expected to
correlate closely with the security or currency to be

9
<PAGE> 44
purchased) pending receipt of cash from other transactions (including the
proceeds from this offering) to be used for the actual purchase. Then if the
cost of the security or foreign currency to be purchased by the Fund increases
and if the anticipatory hedge is effective, that increased cost should be
offset, at least in part, by the value of the futures contract. Options on
futures contracts may be used for hedging as well. For example, if the value of
a fixed-income security in the Fund's portfolio is expected to decline as a
result of an increase in rates, the Fund might purchase put options or write
call options on futures contracts rather than selling futures contracts.
Similarly, for anticipatory hedging, the Fund may purchase call options or write
put options as a substitute for the purchase of futures contracts. See "Foreign
Currency Transactions" below for more information regarding the currency hedging
practices of the Fund.

INVESTMENT PURPOSES. To the extent indicated elsewhere, the Fund may also enter
into futures contracts and buy and sell options thereon for investment. For
example, the Fund may invest in futures when its Manager believes that there are
not enough attractive securities available to maintain the standards of
diversity and liquidity set for the Fund pending investment in such securities
if or when they do become available. Through this use of futures and related
options, the Fund may diversify risk in its portfolio without incurring the
substantial brokerage costs which may be associated with investment in the
securities of multiple issuers. This use may also permit the Fund to avoid
potential market and liquidity problems (e.g., driving up the price of a
security by purchasing additional shares of a portfolio security or owning so
much of a particular issuer's stock that the sale of such stock depresses that
stock's price) which may result from increases in positions already held by the
Fund.

When the Fund purchases futures contracts for investment, it will maintain cash,
U.S. Government Securities or other high grade debt obligations in a segregated
account with its custodian in an amount which, together with the initial and
variation margin deposited on the futures contracts, is equal to the face value
of the futures contracts at all times while the futures contracts are held.

Incidental to other transactions in fixed income securities, for investment
purposes the Fund may also combine futures contracts or options on fixed income
securities with cash, cash equivalent investments or other fixed income
securities in order to create "synthetic" bonds which approximate desired risk
and return profiles. This may be done where a "non-synthetic" security having
the desired risk/return profile either is unavailable (e.g., short-term
securities of certain foreign governments) or possesses undesirable
characteristics (e.g., interest payments on the security would be subject to
foreign withholding taxes). The Fund may also purchase forward foreign exchange
contracts in conjunction with U.S. dollar-denominated securities in order to
create a synthetic foreign currency denominated security which approximates
desired risk and return characteristics where the non-synthetic securities
either are not available in foreign markets or possess undesirable
characteristics. For greater detail, see "Foreign Currency Transactions" below.
When the Fund creates a "synthetic" bond with a futures contract, it will
maintain cash, U.S. Government securities or other high grade debt obligations
in a segregated account with its custodian with a value at least equal to the
face amount of the futures contract (less the amount of any initial or variation
margin on deposit).

SYNTHETIC SALES AND PURCHASES. Futures contracts may also be used to reduce
transaction costs associated with short-term restructuring of the Fund's
portfolio. For example, if the Fund's portfolio

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<PAGE> 45
includes stocks of companies with medium-sized equity capitalization (e.g.,
between $300 million and $5.2 billion) and, in the opinion of the Manager, such
stocks are likely to underperform larger capitalization stocks, the Fund might
sell some or all of its mid-capitalization stocks, buy large capitalization
stocks with the proceeds and then, when the expected trend had played out, sell
the large capitalization stocks and repurchase the mid-capitalization stocks
with the proceeds. In the alternative, the Fund may use futures to achieve a
similar result with reduced transaction costs. In that case, the Fund might
simultaneously enter into short futures positions on an appropriate index (e.g.,
the S&P Mid Cap 400 Index) (to synthetically "sell" the stocks in the Fund) and
long futures positions on another index (e.g., the S&P 500) (to synthetically
"buy" the larger capitalization stocks). When the expected trend has played out,
the Fund would then close out both futures contract positions. The Fund will
only enter into these combined positions if (1) the short position (adjusted for
historic volatility) operates as a hedge of existing portfolio holdings, (2) the
face amount of the long futures position is less than or equal to the value of
the portfolio securities that the Fund would like to dispose of, (3) the
contract settlement date for the short futures position is approximately the
same as that for the long futures position and (4) the Fund segregates an amount
of cash, U.S. Government Securities and other high-quality debt obligations
whose value, marked-to-market daily, is equal to the Fund's current obligations
in respect of the long futures contract positions. If the Fund uses such
combined short and long positions, in addition to possible declines in the
values of its investment securities, the Fund may also suffer losses associated
with a securities index underlying the long futures position underperforming the
securities index underlying the short futures position. However, the Manger will
enter into these combined positions only if the manager expects that, overall,
the Fund will perform as if it had sold the securities hedged by the short
position and purchased the securities underlying the long position. The Fund may
also use swaps and options on futures to achieve the same objective.

Limitations on the Use of Options and Futures Portfolio Strategies. As noted
above, the Fund may use futures contracts and related options for hedging and,
in some circumstances, for risk management or investment but not for
speculation. Thus, except when used for risk management or investment, Fund's
long futures contract positions (less its short positions) together with the
Fund's cash (i.e., equity or fixed income) positions will not exceed the Fund's
total net assets.

The Fund's ability to engage in the options and futures strategies described
above will depend on the availability of liquid markets in such instruments.
Markets in options and futures with respect to currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore no assurance
can be given that the Fund will be able to utilize these instruments effectively
for the purposes set forth above. Furthermore, the Fund's ability to engage in
options and futures transactions may be limited by tax considerations.

SWAP CONTRACTS AND OTHER TWO-PARTY CONTRACTS

The Fund may use swap contracts and other two-party contracts for the
same or similar purposes as they may use options, futures and related options.
The use of swap contracts and other two-party contracts involves risk.

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<PAGE> 46
SWAP CONTRACTS. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than one year. In a standard "swap" transaction, two parties agree to
exchange returns (or differentials in rates of return) calculated with respect
to a "notional amount," e.g., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. The
Fund will usually enter into swaps on a net basis, i.e., the two returns are
netted out, with the Fund receiving or paying, as the case may be, only the net
amount of the two returns.

EQUITY SWAP CONTRACTS AND CONTRACTS FOR DIFFERENCES. Equity swap
contracts involve the exchange of one party's obligation to pay the loss, if
any, with respect to a notional amount of a particular equity index (e.g., the
S&P 500 Index) plus interest on such notional amount at a designated rate (e.g.,
the London Inter-Bank Offered Rate) in exchange for the other party's obligation
to pay the gain, if any, with respect to the notional amount of such index.

Contracts for differences are swap arrangements in which the Fund may
agree with a counterparty that its return (or loss) will be based on the
relative performance of two different groups or "baskets" of securities. As to
one of the baskets, the Fund's return is based on theoretical long futures
positions in the securities comprising that basket (with an aggregate face value
equal to the notional amount of the contract for differences) and as to the
other basket, the Fund's return is based on theoretical short futures positions
in the securities comprising the basket. The Fund may also use actual long and
short futures positions to achieve the same market exposure(s) as contracts for
differences. The Fund will only enter into contracts for differences where
payment obligations of the two legs of the contract are netted and thus based on
changes in the relative value of the baskets of securities rather than on the
aggregate change in the value of the two legs. The Fund will only enter into
contracts for differences (and analogous futures positions) when the Manager
believes that the basket of securities constituting the long leg will outperform
the basket constituting the short leg. However, it is possible that the short
basket will outperform the long basket resulting in a loss to the

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<PAGE> 47
Fund, even in circumstances where the securities in both the long and short
baskets appreciate in value.

Except for instances in which the Fund elects to obtain leverage up to
the 10% limitation mentioned above, the Fund will maintain cash, U.S. Government
Securities or other high grade debt obligations in a segregated account with its
custodian in an amount equal to the aggregate of net payment obligations on its
swap contracts and contracts for differences, marked to market daily.

The Fund may enter into swaps and contracts for differences for
hedging and as a substitute for direct investment.

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<PAGE> 48
REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with banks and
broker-dealers by which it acquires a security (usually an obligation of the
Government where the transaction is initiated or in whose currency the agreement
is denominated) for a relatively short period (usually not more than a week) for
cash and obtains a simultaneous commitment from the seller to repurchase the
security at an agreed-on price and date. The resale price is in excess of the
acquisition price and reflects an agreed-upon market rate unrelated to the
coupon rate on the purchased security. Such transactions afford an opportunity
for the Fund to earn a return on temporarily available cash at no market risk,
although there is a risk that the seller may default in its obligation to pay
the agreed-upon sum on the redelivery date. Such a default may subject the Fund
to expenses, delays and risks of loss including: (a) possible declines in the
value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income and lack of
access to income during this period and (c) inability to enforce rights and the
expenses involved in attempted enforcement.

DEBT AND OTHER FIXED INCOME SECURITIES GENERALLY

Debt and Other Fixed Income Securities include fixed income securities
of any maturity. Fixed income securities pay a specified rate of interest or
dividends, or a rate that is adjusted periodically by reference to some
specified index or market rate. Fixed income securities include securities
issued by federal, state, local and foreign governments and related agencies,
and by a wide range of private issuers.

Fixed income securities are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase when
prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest. Obligations of issuers are subject to the provisions of bankruptcy,
insolvency and other laws, such as the Federal Bankruptcy Reform Act of 1978,
affecting the rights and remedies of creditors. Fixed income securities
denominated in foreign currencies are also subject to the risk of a decline in
the value of the denominating currency.

Because interest rates vary, it is impossible to predict the future
income of the Fund investing in such securities. The net asset value of the
Fund's shares will vary as a result of changes in the value of the securities in
its portfolio and will be affected by the absence and/or success of hedging
strategies.

TEMPORARY HIGH QUALITY CASH ITEMS

As described under "Investment Objectives and Policies" above, the Fund
may temporarily invest a portion of its assets in cash or cash items pending
other investments or in connection with the maintenance of a segregated account.
These cash items must be of high quality and may include a number of money
market instruments such as securities issued by the United States government and
agencies thereof, bankers' acceptances, commercial paper, and bank certificates
of deposit. By

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<PAGE> 49
investing only in high quality money market securities the Fund will seek to
minimize credit risk with respect to such investments.

U.S. GOVERNMENT SECURITIES AND FOREIGN GOVERNMENT SECURITIES

U.S. Government Securities include securities issued or guaranteed by
the U.S. government or its authorities, agencies or instrumentalities. Foreign
Government Securities include securities issued or guaranteed by foreign
governments (including political subdivisions) or their authorities, agencies or
instrumentalities or by supra-national agencies. U.S. Government Securities and
Foreign Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities issued or guaranteed by federal agencies or
government-sponsored enterprises are not supported by the full faith and credit
of the United States. Similarly, some Foreign Government Securities are
supported by the full faith and credit of a foreign national government or
political subdivision and some are not. In the case of certain countries,
Foreign Government Securities may involve varying degrees of credit risk as a
result of financial or political instability in such countries and the possible
inability of the Fund to enforce its rights against the foreign government
issuer.

Supra-national agencies are agencies whose member nations make capital
contributions to support the agencies' activities, and include such entities as
the International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Coal and Steel Community and the
Inter-American Development Bank.

Like other fixed income securities, U.S. Government Securities and
Foreign Government Securities are subject to market risk and their market values
fluctuate as interest rates change. Thus, for example, the value of an
investment in the Fund which holds U.S. Government Securities or Foreign
Government Securities may fall during times of rising interest rates. Yields on
U.S. Government Securities and Foreign Government Securities tend to be lower
than those of corporate securities of comparable maturities.

In addition to investing directly in U.S. Government Securities and
Foreign Government Securities, the Fund may purchase certificates of accrual or
similar instruments evidencing undivided ownership interests in interest
payments or principal payments, or both, in U.S. Government Securities and
Foreign Government Securities. These certificates of accrual and similar
instruments may be more volatile than other government securities.

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<PAGE> 50
The Fund's investment in indexed securities may also create taxable
income in excess of the cash such investments generate. See "Taxes" in the
Prospectus.

FIRM COMMITMENTS

A firm commitment agreement is an agreement with a bank or
broker-dealer for the purchase of securities at an agreed-upon price on a
specified future date. The Fund may enter into firm commitment agreements with
such banks and broker-dealers with respect to any of the instruments eligible
for purchase by the Fund. The Fund will only enter into firm commitment
arrangements with banks and broker-dealers which the Manager determines present
minimal credit risks. The Fund will maintain in a segregated account with its
custodian cash, U.S. Government Securities or other liquid high grade debt
obligations in an amount equal to the Fund's obligations under firm commitment
agreements.

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<PAGE> 51
ILLIQUID SECURITIES

The Fund may purchase "illiquid securities," i.e., securities which may
not be sold or disposed of in the ordinary course of business within seven days
at approximately the value at which the Fund has valued the investment, which
include securities whose disposition is restricted by securities laws, so long
as no more than 15% of net assets would be invested in such illiquid securities.
The Fund currently intends to invest in accordance with the SEC staff view that
repurchase agreements maturing in more than seven days are illiquid securities.
The SEC staff has stated informally that it is of the view that over-the-counter
options and securities serving as cover for over-the-counter options are
illiquid securities. While the Trust does not agree with this view, it will
operate in accordance with any relevant formal guidelines adopted by the SEC.

In addition, the SEC staff considers equity swap contracts, caps,
floors and collars to be illiquid securities. Consequently, while the staff
maintains this position, the Fund will not enter into an equity swap contract or
a reverse equity swap contract or purchase a cap, floor or collar if, as a
result of the investment, the total value (i.e., marked-to-market value) of such
investments (without regard to their notional amount) together with that of all
other illiquid securities which the Fund owns would exceed 15% of the Fund's
total assets.

SPECIAL YEAR 2000 RISK CONSIDERATIONS

Many of the services provided to the Fund depend on the proper
functioning of computer systems. Many systems in use today cannot distinguish
between the year 1900 and the year 2000. Should the Fund's service systems fail
to process information properly, that could have an adverse impact on the Fund's
operations and services provided to shareholders. GMO, as well as the Fund's
administrator, transfer agent, custodian and other service providers, have
reported that each is working toward mitigating the risks associated with the
so-called "Year 2000 problem." However, there can be no assurance that the
problems will be corrected in all respects and that the Fund's operations and
services provided to shareholders will not be adversely affected, nor can there
be any

17
<PAGE> 52
assurance that the Year 2000 problem will not have an adverse effect on the
entities whose securities are held by the Fund or on U.S. or global equity
markets or economies generally.

ADDITIONAL INVESTMENT RESTRICTIONS

Fundamental Restrictions:

Without a vote of the majority of the outstanding voting securities of
the Fund, the Trust will not take any of the following actions with respect to
the Fund as indicated:

(1) Borrow money except under the following circumstances: (i) The Fund
may borrow money from banks so long as after such a transaction, the total
assets (including the amount borrowed) less liabilities other than debt
obligations, represent at least 300% of outstanding debt obligations; (ii) The
Fund may also borrow amounts equal to an additional 5% of its total assets
without regard to the foregoing limitation for temporary purposes, such as for
the clearance and settlement of portfolio transactions and to meet shareholder
redemption requests; (iii) The Fund may enter into transactions that are
technically borrowings under the 1940 Act because they involve the sale of a
security coupled with an agreement to repurchase that security (e.g., reverse
repurchase agreements, dollar rolls and other similar investment techniques)
without regard to the asset coverage restriction described in (i) above, so long
as and to the extent that the Fund establishes a segregated account with its
custodian in which it maintains cash and/or high grade debt securities equal in
value to its obligations in respect of these transactions. Under current
pronouncements of the SEC staff, such transactions are not treated as senior
securities so long as and to the extent that the Fund establishes a segregated
account with its custodian in which it maintains liquid assets, such as cash,
U.S. Government securities or other appropriate high grade debt securities equal
in value to its obligations in respect of these transactions.

(2) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities. (For
this purpose, the deposit or payment of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.)

(3) Make short sales of securities or maintain a short position for the
Fund's account unless at all times when a short position is open the Fund owns
an equal amount of such securities or owns securities which, without payment of
any further consideration, are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short.

(4) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws.

(5) Purchase or sell real estate, although it may purchase securities
of issuers which deal in real estate, including securities of real estate
investment trusts, and may purchase securities which are secured by interests in
real estate.

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<PAGE> 53
(6) Make loans, except by purchase of debt obligations or by entering
into repurchase agreements or through the lending of the Fund's portfolio
securities. Loans of portfolio securities may be made with respect to up to 100%
of the Fund's total assets.

(7) Concentrate more than 25% of the value of its total assets in any
one industry.

(8) Purchase or sell commodities or commodity contracts, except that
the Fund may purchase and sell financial futures contracts and options thereon.

(9) Issue senior securities, as defined in the 1940 Act and as
amplified by rules, regulations and pronouncements of the SEC. The SEC has
concluded that even though reverse repurchase agreements, firm commitment
agreements and standby commitment agreements fall within the functional meaning
of the term "evidence of indebtedness", the issue of compliance with Section 18
of the 1940 Act will not be raised with the SEC by the Division of Investment
Management if the Fund covers such securities by maintaining certain "segregated
accounts." Similarly, so long as such segregated accounts are maintained, the
issue of compliance with Section 18 will not be raised with respect to any of
the following: any swap contract or contract for differences; any pledge or
encumbrance of assets permitted by non-fundamental policy (5) below; any
borrowing permitted by restriction 1 above; any collateral arrangements with
respect to initial and variational margin permitted by non-fundamental policy
(5) below; and the purchase or sale of options, forward contracts, futures
contracts or options on futures contracts.

Non-Fundamental Restrictions:

It is contrary to the present policies of the Fund which may be changed
by the Trustees without shareholder approval, to:

(1) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.

(2) Make investments for the purpose of gaining control of a company's
management.

(3) Invest more than 15% of net assets in illiquid securities. The
securities currently thought to be included as "illiquid securities" are
restricted securities under the Federal securities laws (including illiquid
securities traded under Rule 144A), repurchase agreements and securities that
are not readily marketable. To the extent the Trustees determine that restricted
securities traded under Section 4(2) or Rule 144A under the Securities Act of
1933 are in fact liquid, they will not be included in the 15% limit on
investment in illiquid securities.

(4) Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 33 1/3% of the Fund's total assets (taken at cost). (For the purposes
of this restriction, collateral arrangements with respect to swap agreements,
the writing of options, stock index, interest rate, currency or other futures,
options on futures contracts and collateral arrangements with respect to initial
and variation margin are not deemed to be a pledge or other encumbrance of
assets. The deposit of securities or cash or cash equivalents in escrow in
connection with the writing of covered call or put options, respectively is not
deemed to be a pledge or encumbrance.)

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<PAGE> 54
Except as indicated above in Fundamental Restriction No. 1, all
percentage limitations on investments set forth herein and in the Prospectus
will apply at the time of the making of an investment and shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of such investment.

The phrase "shareholder approval," as used in the Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used herein
with respect to the Fund, means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Fund, or (2) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.

MANAGEMENT OF THE TRUST

Subject to the provisions of the GMO Declaration of Trust, the business
of the GMO Trust (the "Trust") shall be managed by the Trustees, and they shall
have all powers necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all kinds on behalf
of the Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with the Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the Shareholders; they may
fill vacancies in or remove from their number (including any vacancies created
by an increase in the number of Trustees); they may remove from their number
with or without cause; they may elect and remove such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number and terminate one or more committees consisting of two or more
Trustees which may exercise the powers and authority of the Trustees to the
extent that the Trustees determine; they may employ one or more custodians of
the assets of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities or with a Federal Reserve Bank,
retain a transfer agent or a shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.

The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:

R. JEREMY GRANTHAM* (D.O.B. 10/6/38). President-Quantitative and
Chairman of the Trustees of the Trust. Member, Grantham, Mayo, Van
Otterloo & Co. LLC

HARVEY R. MARGOLIS (D.O.B. 12/12/42). Trustee of the Trust. Mathematics
Professor, Boston College.

JAY O. LIGHT (D.O.B. 10/3/41). Trustee of the Trust. Professor of
Business Administration, Harvard University; Senior Associate Dean,
Harvard University (1988-1992).

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<PAGE> 55
EYK DEL MOL VAN OTTERLOO (D.O.B. 2/27/37). President-International of
the Trust. Member, Grantham, Mayo, Van Otterloo & Co. LLC

RICHARD MAYO (D.O.B. 6/18/42). President-U.S. Active of the Trust.
Member, Grantham, Mayo, Van Otterloo & Co. LLC

KINGSLEY DURANT (D.O.B. 1/19/32). Vice President and Secretary of the
Trust. Member, Grantham, Mayo, Van Otterloo & Co. LLC

SUSAN RANDALL HARBERT (D.O.B. 4/25/57). Secretary and Treasurer of the
Trust. Member, Grantham, Mayo, Van Otterloo & Co. LLC

WILLIAM R. ROYER, ESQ. (D.O.B. 7/20/65). Vice President, Clerk and
Assistant Treasurer of the Trust. General Counsel, Grantham, Mayo, Van
Otterloo & Co. LLC (January 1995 - Present). Associate, Ropes & Gray,
Boston, Massachusetts (September 1992 - January 1995).

JUI LAI (D.O.B. 1/21/49). Secretary of the Trust. Member, Grantham,
Mayo, Van Otterloo & Co. LLC

ANN SPRUILL (D.O.B. 8/30/54). Secretary of the Trust. Member, Grantham,
Mayo, Van Otterloo & Co. LLC

ROBERT V. BROKAW, JR. (D.O.B. 10/7/43). Secretary of the Trust. Member,
Grantham, Mayo, Van Otterloo & Co. LLC.

FORREST BERKLEY (D.O.B. 4/25/54). Vice President of the Trust. Member,
Grantham, Mayo, Van Otterloo & Co. LLC.

SCOTT ESTON (D.O.B. 1/20/56). Vice President of the Trust. Chief
Financial Officer, Grantham, Mayo, Van Otterloo & Co. LLC (September
1997 - present). Senior Partner, Coopers & Lybrand (1987 - 1997).

BRENT ARVIDSON (D.O.B. 6/26/69). Assistant Treasurer. Senior Fund
Administrator, Grantham, Mayo, Van Otterloo & Co. LLC (September 1997 -
present). Senior Financial Reporting Analyst, John Hancock Funds
(August 1996 - September 1997). Account Supervisor/Senior Account
Specialist, Investors Bank and Company (June 1993 - August 1996).

*Trustee is deemed to be an "interested person" of the Trust and Grantham, Mayo,
Van Otterloo & Co. LLC ("GMO" or the "Manager"), as defined by the 1940 Act.

The mailing address of each of the officers and Trustees is c/o GMO
Trust, 40 Rowes Wharf, Boston, Massachusetts 02110.

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<PAGE> 56
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they have held different positions with such employers.

Other than as set forth in the table below, no Trustee or officer of
the Trust receives any direct compensation from the Trust or any series thereof:

<TABLE>
<CAPTION>
NAME OF PERSON, TOTAL ANNUAL COMPENSATION
POSITION FROM THE TRUST
-------- --------------
<S> <C>
Harvey R. Margolis, Trustee $70,000

Jay O. Light, Trustee $70,000
</TABLE>

Messrs. Grantham, Mayo, Van Otterloo, Durant, Lai, Brokaw, Eston and
Berkley, and Mses. Harbert and Spruill, as members of the Manager, will benefit
from the management fees paid by each Fund of the Trust.

INVESTMENT ADVISORY AND OTHER SERVICES

Management Contracts

As disclosed in the Prospectus under the heading "Management of the
Trust," under a Management Contract (the "Management Contract") between the
Trust and the Manager, subject to such policies as the Trustees of the Trust may
determine, the Manager will furnish continuously an investment program for the
Fund and will make investment decisions on behalf of the Fund and place all
orders for the purchase and sale of portfolio securities. Subject to the control
of the Trustees, the Manager also manages, supervises and conducts the other
affairs and business of the Trust, furnishes office space and equipment,
provides bookkeeping and certain clerical services and pays all salaries, fees
and expenses of officers and Trustees of the Trust who are affiliated with the
Manager. As indicated under "Portfolio Transactions--Brokerage and Research
Services," the Trust's portfolio transactions may be placed with broker-dealers
which furnish the Manager, at no cost, certain research, statistical and
quotation services of value to the Manager in advising the Trust or its other
clients.

As is disclosed in the Prospectus, the Manager has contractually agreed
to reimburse each Fund with respect to certain Fund expenses through June 30,
2000 to the extent that the Fund's total annual operating expenses (excluding
Shareholder Service Fees, brokerage commissions and other investment-related
costs, hedging transaction fees, extraordinary, non-recurring and certain other
unusual expenses (including taxes), securities lending fees and expenses and
transfer taxes would otherwise exceed a specified percentage of the Fund's daily
net assets. In addition, the Manager's compensation under the Management
Contract is subject to reduction to the extent that in any year the expenses of
the Fund exceed the limits on investment company expenses imposed by any statute
or regulatory authority of any jurisdiction in which shares of the Fund are
qualified for offer and sale. The term "expenses" is defined in the statutes or
regulations of such jurisdictions, and,

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<PAGE> 57
generally speaking, excludes brokerage commissions, taxes, interest and
extraordinary expenses. The Fund is not currently subject to any state imposed
limit on expenses.

The Management Contract provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.

The Management Contract was approved by the Trustees of the Trust
(including a majority of the Trustees who are not "interested persons" of the
Manager) and by the Fund's sole shareholder in connection with the organization
of the Trust and the establishment of the Fund. The Management Contract will
continue in effect for a period more than two years from the date of its
execution only so long as its continuance is approved at least annually by (i)
vote, cast in person at a meeting called for that purpose, of a majority of
those Trustees who are not "interested persons" of the Manager or the Trust, and
by (ii) the majority vote of either the full Board of Trustees or the vote of a
majority of the outstanding shares of the Fund. Each Management Contract
automatically terminates on assignment, and is terminable on not more than 60
days' notice by the Trust to the Manager. In addition, the Management Contract
may be terminated on not more than 60 days' written notice by the Manager to the
Trust.

Custodial Arrangements. Investors Bank & Trust Company ("IBT"), 200
Clarendon Street, Boston, Massachusetts 02116, serves as the Trust's custodian
on behalf of the Fund. As such, IBT holds in safekeeping certificated securities
and cash belonging to the Fund and, in such capacity, is the registered owner of
securities in book-entry form belonging to the Fund. Upon instruction, IBT
receives and delivers cash and securities of the Fund in connection with Fund
transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. IBT also maintains certain accounts and
records of the Trust and calculates the total net asset value, total net income
and net asset value per share of the Fund on a daily basis.

Shareholder Service Arrangements. As disclosed in the Prospectus,
pursuant to the terms of a single Servicing Agreement with each Fund of the
Trust, GMO provides direct client service, maintenance and reporting to
shareholders of the Fund. The Servicing Agreement was approved by the Trustees
of the Trust (including a majority of the Trustees who are not "interested
persons" of the Manager or the Trust). The Servicing Agreement will continue in
effect for a period more than one year from the date of its execution only so
long as its continuance is approved at least annually by (i) vote, cast in
person at a meeting called for the purpose, of a majority of those Trustees who
are not "interested persons" of the Manager or the Trust, and by (ii) the
majority vote of the full Board of Trustees. The Servicing Agreement
automatically terminates on assignment (except as specifically provided in the
Servicing Agreement) and is terminable by either party upon not more than 60
days' written notice to the other party.

Independent Accountants. The Trust's independent accountants are
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110.
PricewaterhouseCoopers LLP conducts annual audits of the Trust's financial
statements, assists in the preparation of the Fund's federal and state income
tax returns, consults with the Trust as to matters of accounting and federal and
state income taxation and provides assistance in connection with the preparation
of various Securities and Exchange Commission filings.

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<PAGE> 58
PORTFOLIO TRANSACTIONS

The purchase and sale of portfolio securities for the Fund and for the
other investment advisory clients of the Manager are made by the Manager with a
view to achieving their respective investment objectives. For example, a
particular security may be bought or sold for certain clients of the Manager
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the security. In some instances,
therefore, one client may sell indirectly a particular security to another
client. It also happens that two or more clients may simultaneously buy or sell
the same security, in which event purchases or sales are effected on a pro rata,
rotating or other equitable basis so as to avoid any one account being preferred
over any other account.

Transactions involving the issuance of Fund shares for securities or
assets other than cash will be limited to a bona fide reorganization or
statutory merger and to other acquisitions of portfolio securities that meet all
of the following conditions: (a) such securities meet the investment objectives
and policies of the Fund; (b) such securities are acquired for investment and
not for resale; (c) such securities are liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (d) such
securities have a value which is readily ascertainable as evidenced by a listing
on the American Stock Exchange, the New York Stock Exchange, NASDAQ or a
recognized foreign exchange.

Brokerage and Research Services. In placing orders for the portfolio
transactions of the Fund, the Manager will seek the best price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions for brokerage and research services as described below. The
determination of what may constitute best price and execution by a broker-dealer
in effecting a securities transaction involves a number of considerations,
including, without limitation, the overall net economic result to the Fund
(involving price paid or received and any commissions and other costs paid), the
efficiency with which the transaction is effected, the ability to effect the
transaction at all where a large block is involved, availability of the broker
to stand ready to execute possibly difficult transactions in the future and the
financial strength and stability of the broker. Because of such factors, a
broker-dealer effecting a transaction may be paid a commission higher than that
charged by another broker-dealer. Most of the foregoing are judgmental
considerations.

Over-the-counter transactions often involve dealers acting for their
own account. It is the Manager's policy to place over-the-counter market orders
for the Fund with primary market makers unless better prices or executions are
available elsewhere.

Although the Manager does not consider the receipt of research services
as a factor in selecting brokers to effect portfolio transactions for the Fund,
the Manager will receive such services from brokers who are expected to handle a
substantial amount of the Fund's portfolio transactions. Research services may
include a wide variety of analyses, reviews and reports on such matters as
economic and political developments, industries, companies, securities and
portfolio strategy. The Manager uses such research in servicing other clients as
well as the Fund.

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<PAGE> 59
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and subject to such policies as the Trustees of the Trust may determine, the
Manager may pay an unaffiliated broker or dealer that provides "brokerage and
research services" (as defined in the Act) to the Manager an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction.

DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES

The Trust is organized as a Massachusetts business trust under the laws
of Massachusetts by an Agreement and Declaration of Trust ("Declaration of
Trust") dated June 24, 1985. A copy of the Declaration of Trust is on file with
the Secretary of The Commonwealth of Massachusetts. The fiscal year for the Fund
ends on February 28/29.

Pursuant to the Declaration of Trust, the Trustees have currently
authorized the issuance of an unlimited number of full and fractional shares of
thirty-nine series, one for the Intrinsic Value Fund described in this Statement
of Additional Information, and for each of U.S. Core Fund; Tobacco-Free Core
Fund; Value Fund; Growth Fund; U.S. Sector Fund; Small Cap Value Fund; Small Cap
Growth Fund; Fundamental Value Fund; REIT Fund; International Core Fund;
Currency Hedged International Core Fund; Foreign Fund; International Small
Companies Fund; Japan Fund; Emerging Markets Fund; Evolving Countries Fund;
Global Properties Fund; Domestic Bond Fund; U.S. Bond/Global Alpha A Fund; U.S.
Bond/Global Alpha B Fund; International Bond Fund; Currency Hedged International
Bond Fund; Global Bond Fund; Emerging Country Debt Fund; Short-Term Income Fund;
Global Hedged Equity Fund; Inflation Indexed Bond Fund; International Equity
Allocation Fund; World Equity Allocation Fund; Global (U.S.+) Equity Allocation
Fund; Global Balanced Allocation Fund; International Core Plus Allocation Fund;
Emerging Country Debt Share Fund; Pelican Fund; Tax-Managed U.S. Equities Fund;
Tax-Managed International Equities Fund; Tax-Managed U.S. Small Cap Fund; and
Asia Fund. Interests in each portfolio (Fund) are represented by shares of the
corresponding series. Each share of each series represents an equal
proportionate interest, together with each other share, in the corresponding
Fund. The shares of such series do not have any preemptive rights. Upon
liquidation of a Fund, shareholders of the corresponding series are entitled to
share pro rata in the net assets of the Fund available for distribution to
shareholders. The Declaration of Trust also permits the Trustees to charge
shareholders directly for custodial and transfer agency expenses, but there is
no present intention to make such charges.

The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series or classes
of shares with such dividend preferences and other rights as the Trustees may
designate. This power is intended to allow the Trustees to provide for an
equitable allocation of the impact of any future regulatory requirements which
might affect various classes of shareholders differently. The Trustees have
currently authorized the establishment and designation of up to eight classes of
shares for each series of the Trust (except for the Pelican Fund): Class I
Shares, Class II Shares, Class III Shares, Class IV Shares, Class V Shares,
Class VI Shares, Class VII Shares and Class VIII Shares.

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<PAGE> 60
The Trustees may also, without shareholder approval, establish one or
more additional separate portfolios for investments in the Trust or merge two or
more existing portfolios (i.e., a new fund). Shareholders' investments in such a
portfolio would be evidenced by a separate series of shares.

The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of the Trust. While the Declaration of
Trust further provides that the Trustees may also terminate the Trust upon
written notice to the shareholders, the 1940 Act requires that the Trust receive
the authorization of a majority of its outstanding shares in order to change the
nature of its business so as to cease to be an investment company.

Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the risk of a shareholder
incurring financial loss on account of that liability is considered remote since
it may arise only in very limited circumstances.

VOTING RIGHTS

As summarized in the Shareholder Manual, shareholders are entitled to
one vote for each full share held (with fractional votes for fractional shares
held) and will vote (to the extent provided herein) in the election of Trustees
and the termination of the Trust and on other matters submitted to the vote of
shareholders. Shareholders vote by individual Fund on all matters except (i)
when required by the Investment Company Act of 1940, shares shall be voted in
the aggregate and not by individual Fund, and (ii) when the Trustees have
determined that the matter affects only the interests of one or more Funds, then
only shareholders of such affected Funds shall be entitled to vote thereon.
Shareholders of one Fund shall not be entitled to vote on matters exclusively
affecting another Fund, such matters including, without limitation, the adoption
of or change in the investment objectives, policies or restrictions of the other
Fund and the approval of the investment advisory contracts of the other Fund.
Shareholders of a particular class of shares do not have separate class voting
rights except with respect to matters that affect only that class of shares and
as otherwise required by law.

There will normally be no meetings of shareholders for the purpose of
electing Trustees except that in accordance with the 1940 Act (i) the Trust will
hold a shareholders' meeting for the election of Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, Trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of at least 1% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, the Trustees shall continue
to hold office and may appoint successor Trustees. Voting rights are not
cumulative.

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<PAGE> 61
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series or
sub-series of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.

SHAREHOLDER AND TRUSTEE LIABILITY

Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
all the property of the relevant Fund for all loss and expense of any
shareholder of that Fund held personally liable for the obligations of the
Trust. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and the Fund of which he is or was a
shareholder would be unable to meet its obligations.

The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The By-laws of the Trust provide for indemnification by the Trust of
the Trustees and the officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

DISTRIBUTIONS

The Shareholder's Manual describes the distribution policies of the
Fund under the heading "Distributions".

TAXES

TAX STATUS AND TAXATION OF THE FUND

The Fund is treated as a separate taxable entity for federal income
tax purposes. 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"). In order to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the Fund must, among
other things:

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<PAGE> 62
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale of stock,
securities and foreign currencies, or other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities, or
currencies;

(b) distribute with respect to each taxable year at least 90% of the sum of its
taxable net investment income, its net tax-exempt income, and the excess,
if any, of net short-term capital gains over net long-term capital losses
for such year; and

(c) diversify its holdings so that at the end of each fiscal quarter, (i) at
least 50% of the market value of the Fund's assets is represented by cash
and cash items, U.S. government securities, securities of other regulated
investment companies, and other securities limited in respect of any one
issuer to a value not greater than 5% of the value of the Fund's total net
assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is
invested in the securities (other than those of the U.S. Government or
other regulated investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar,
or related trades or businesses.

If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to federal income
tax on income paid to its shareholders in the form of dividends (including
capital gain dividends).

If the Fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31 (or later if the Fund is
permitted so to elect and so elects), plus any retained amount from the prior
year, such Fund will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year generally is
deemed to have been paid by the Fund on December 31 of the preceding year, if
the dividend was declared and payable to shareholders of record on a date in
October, November or December of that preceding year. Each Fund intends
generally to make distributions sufficient to avoid imposition of the 4% excise
tax.

TAXATION OF FUND DISTRIBUTIONS AND SALES OF FUND SHARES

Fund distributions derived from interest, dividends and certain other
income, including in general short-term capital gains, will be taxable as
ordinary income to shareholders subject to federal income tax whether received
in cash or reinvested shares. Properly designated Fund distributions derived
from net long-term capital gains (i.e., net gains derived from the sale of
securities held for more than 12 months) will be taxable as such (generally at a
20% rate for noncorporate shareholders), regardless of how long a shareholder
has held the shares in the Fund.

Dividends and distributions on the Fund's shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed.

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<PAGE> 63
The sale, exchange or redemption of Fund shares may give rise to a gain
or loss. In general, any gain or loss realized upon a taxable disposition of
shares will be treated as long-term capital gains if the shares have been held
for more than 12 months and as short-term capital gains if the shares have been
held for not more than 12 months.

Any loss realized upon a taxable disposition of shares held for six
months or less will be treated as long-term capital loss to the extent of any
long-term capital gain distributions received by a shareholder with respect to
those shares. All or a portion of any loss realized upon a taxable disposition
of Fund shares will be disallowed if other shares of the same Fund are purchased
within 30 days before or after the disposition. In such a case, the basis of the
newly purchased shares will be adjusted to reflect the disallowed loss.

A distribution paid to shareholders by the Fund in January of a year
generally is deemed to have been received by shareholders on December 31 of the
preceding year, if the distribution was declared and payable to shareholders of
record on a date in October, November or December of that preceding year. The
Trust will provide federal tax information annually, including information about
dividends and distributions paid during the preceding year to taxable investors
and others requesting such information.

If the Fund makes a distribution to you in excess of its current and
accumulated "earnings and profits" in any taxable year, the excess distribution
will be treated as a return of capital to the extent of your tax basis in your
shares, and thereafter as capital gain. A return of capital is not taxable, but
it reduces your tax basis in your shares, thus reducing any loss or increasing
any gain on a subsequent taxable disposition by you of your shares.

For corporate shareholders, the dividends-received deduction will
generally apply (subject to a holding period requirement imposed by the Code) to
the Fund's dividends paid from investment income to the extent derived from
dividends received from U.S. corporations. However, any distributions received
by the Fund from REITs will not qualify for the corporate dividends-received
deduction. The Fund's investments in REIT equity securities may require such
Fund to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, the Fund may be required to
sell securities in its portfolio that it otherwise would have continued to hold
(including when it is not advantageous to do so). The Fund's investments in REIT
equity securities may at other times result in the Fund's receipt of cash in
excess of the REIT's earnings; if the Fund distributes such amounts, such
distribution could constitute a return of capital to Fund shareholders for
federal income tax purposes.

The backup withholding rules do not apply to tax exempt entities so
long as each such entity furnishes the Trust with an appropriate certification.
However, other shareholders are subject to backup withholding at a rate of 31%
on all distributions of net investment income and capital gain, whether
received in cash or reinvested in shares of the Fund, and on the amount of the
proceeds of any redemption of Fund shares paid or credited to any shareholder
account for which an incorrect or no taxpayer identification number has been
provided, where appropriate certification has not been provided for a foreign
shareholder, or where the Trust is notified that the shareholder has
underreported income in the past (or the shareholder fails to certify that he
is not subject to such

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<PAGE> 64
withholding). A "taxpayer identification number" is either the Social Security
number of employer identification number of the record owner of the account.

WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS

Dividend distributions (including distributions derived from short-term
capital gains) are in general subject to a U.S. withholding tax of 30% when paid
to a nonresident alien individual, foreign estate or trust, a foreign
corporation, or a foreign partnership ("foreign shareholder"). Persons who are
resident in a country, such as the U.K., that has an income tax treaty with the
U.S. may be eligible for a reduced withholding rate (upon filing of appropriate
forms), and are urged to consult their tax advisors regarding the applicability
and effect of such a treaty. Distributions of net realized long-term capital
gains paid by the Fund to a foreign shareholder, and any gain realized upon the
sale of Fund shares by such a shareholder, will ordinarily not be subject to
U.S. taxation, unless the recipient or seller is a nonresident alien individual
who is present in the United States for more than 182 days during the taxable
year. However, such distributions and sale proceeds may be subject to backup
withholding, unless the foreign investor certifies his non-U.S. residency
status. Foreign investors are subject to the backup withholding rules described
above. Any tax withheld as a result of backup withholding does not constitute an
additional tax imposed on the record owner of the account, and may be claimed as
a credit on the record owner's Federal income tax return. Also, foreign
shareholders with respect to whom income from the Fund is "effectively
connected" with a U.S. trade or business carried on by such shareholder will in
general be subject to U.S. federal income tax on the income derived from the
Fund at the graduated rates applicable to U.S. citizens, residents or domestic
corporations, whether received in cash or reinvested in shares, and, in the case
of a foreign corporation, may also be subject to a branch profits tax. Again,
foreign shareholders who are resident in a country with an income tax treaty
with the United States may obtain different tax results, and are urged to
consult their tax advisors.

TAX IMPLICATIONS OF CERTAIN INVESTMENTS

Certain of the Fund's investments, including assets "marked to the
market" for federal income tax purposes, debt obligations issued or purchased at
a discount and potentially so-called "index securities" (including inflation
indexed bonds), will create taxable income in excess of the cash they generate.
In such cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.

The Fund's transactions in options, futures contracts, hedging
transactions, forward contracts, straddles and foreign currencies may accelerate
income, defer losses, cause adjustments in the holding periods of the Fund's
securities and convert short-term capital gains or losses into long-term capital
gains or losses. These transactions may affect the amount, timing and character
of distributions to shareholders.

Investment by the Fund in certain passive foreign investment companies
("PFICs") could subject the Fund to a U.S. federal income tax (including
interest charges) on distributions received from the company or on proceeds
received from the disposition of shares in the company, which tax cannot be
eliminated by making distributions to Fund shareholders. However, the Fund may
elect to

30
<PAGE> 65
treat a passive foreign investment company as a "qualified electing fund," in
which case the Fund will be required to include its share of the company's
income and net capital gain annually, regardless of whether it receives any
distribution form the company. The Fund also may make an election to mark the
gains (and to a limited extent losses) in such holdings "to the market" as
though it had sold and repurchased its holdings in those PFICs on the last day
of the Fund's taxable year. Such gains and losses are treated as ordinary income
and loss. The QEF and mark-to-market elections may have the effect of
accelerating the recognition of income (without the receipt of cash) and
increase the amount required to be distributed for the Fund to avoid taxation.
Making either of these elections therefore may require the Fund to liquidate
other investments (including when it is not advantageous to do so) to meet its
distribution requirement, which also may accelerate the recognition of gain and
affect the Fund's total return.

A PFIC is any foreign corporation (i) 75% or more of the income of
which for the taxable year is passive income, or (ii) the average percentage of
the assets of which (generally by value, but by adjusted tax basis in certain
cases) that produce or are held for the production of passive income is at least
50%. Generally, passive income for this purposes means dividends, interest
(including income equivalent to interest), royalties, rents, annuities, the
excess of gains over losses from certain property transactions and commodities
transactions, and foreign currency gains. Passive income for this purposes does
not include rents and royalties received by the foreign corporation from active
business and certain income received from related persons.

LOSS OF REGULATED INVESTMENT COMPANY STATUS

The Fund may experience particular difficulty qualifying as a regulated
investment company in the case of highly unusual market movements, in the case
of high redemption levels and/or during the first year of its operations. If the
Fund does not qualify for taxation as a regulated investment company for any
taxable year, the Fund's income will be taxed at the Fund level at regular
corporate rates, and all distributions from earnings and profits, including
distributions of net long-term capital gains, will be taxable to shareholders as
ordinary income and subject to withholding in the case of non-U.S. shareholders.
In addition, in order to requalify for taxation as a regulated investment
company that is accorded special tax treatment, the Fund may be required to
recognize unrealized gains, pay substantial taxes and interest on such gains,
and make certain substantial distributions.

31
<PAGE> 66
INVESTMENT GUIDELINES

- --------------------------------------------------------------------------------
GMO INTRINSIC VALUE FUND
Performance Benchmark: Russell 1000 Value Index
GENERAL OBJECTIVE: Seeks total return greater than that of the Russell 1000
Value Index through investment in a broadly diversified and liquid portfolio of
common stocks.
- --------------------------------------------------------------------------------

GMO Intrinsic Value Fund (the "Fund") is a series of GMO Trust, a registered
open-end investment company. The complete policies of the Fund are set forth in
and governed by the Fund's prospectus as amended from time to time.

PERMITTED INVESTMENTS

EQUITY SECURITIES: * At least 65% of the Fund's total assets
domestic common stocks will be invested in or exposed to (2)
convertible securities domestic common stocks
Securities of Foreign Issuers * Substantially all of the Fund's total
(traded on U.S. Exchanges) assets will be invested in or exposed to
equity securities of at least 125
companies chosen from among the Wilshire
5000 Index
* The Fund's total assets will primarily
be invested in or exposed to the "Large
Cap 1200"
OTHER EQUITY SECURITIES: (1)
Depository Receipts
Illiquid Securities
144A Securities
Restricted Securities
Futures and Related Options on
securities indexes
REITs
Exchange-traded and OTC options on
securities and indexes
(including writing covered options)
Equity Swap Contracts
Contracts for Differences

The Fund will normally have greater than 95% of its net assets invested
in or exposed to the securities of the two categories above.

CASH AND MONEY MARKET * The Fund will not normally have greater
INSTRUMENTS than 5% of its net assets exposed to
Any short-term assets will cash and money market instruments. This
be invested in cash or High limitation does NOT include cash and
Quality Money Market Instruments money market instruments in margin or
including securities issued by other segregated accounts held against
the U.S. government and agencies exposure achieved through derivative
thereof, banker's acceptances, instruments ("equitized cash")
commercial paper, bank
certificates of deposit and
repurchase agreements

- ------------
(1) Investment in these instruments may be limited by restrictions described
below.

(2) The words "exposed to" as used in these guidelines mean that, for purposes
of the relevant requirement or restriction, the total of the Fund's
exposure to the relevant market or security through direct investments and
through derivative instruments will be considered.

THIS SUMMARY RELATES TO THE GMO TRUST PROSPECTUS, AND INVESTORS
SHOULD READ THE PROSPECTUS CAREFULLY BEFORE INVESTING IN THE FUND.
A COPY OF THE PROSPECTUS MAY BE OBTAINED FROM
GMO TRUST, 40 ROWES WHARF, BOSTON, MASSACHUSETTS 02110
OR BY CALLING (617) 790-5000

32
<PAGE> 67

PROHIBITED INVESTMENTS AND PRACTICES

The Fund will NOT engage in the following practices except as indicated:

PURCHASING SECURITIES Except for short-term credits necessary for
ON MARGIN clearance of transactions

SHORT SALES OF SECURITIES Except when such sales are "against-the-box"

BORROWING MONEY Except that the Fund may borrow up to 20% of its
net assets from banks temporarily for the payment
of redemptions or settlement of securities
transactions, but not as a leveraged investment
strategy

UNDERWRITING SECURITIES Except to the extent that the Fund is deemed an
underwriter for securities law purposes in
connection with disposition of portfolio
investments

MAKING LOANS Except by way of purchasing of debt obligations,
repurchase agreements and securities lending.
Fund may loan securities valued at up to 33 1/3%
of its total assets

PLEDGING, HYPOTHECATING OR Except that collateral arrangements with respect
MORTGAGING FUND ASSETS to swap agreements, the writing of options,
stock index, interest rate, currency or other
futures, options on futures contracts and
collateral arrangements with respect to initial
and variation margin are not deemed to be a
pledge or other encumbrance of assets. The
deposit of securities or cash equivalents in
escrow in connection with the writing of covered
call or put options, respectively is also not
deemed to be a pledge or encumbrance.

SELLING UNCOVERED PUT AND
CALL OPTIONS ON SECURITIES OR INDEXES
INVESTING IN REAL ESTATE
INVESTING IN NON-FINANCIAL COMMODITY CONTRACTS
PARTICIPATING IN DIRECTED BROKERAGE ARRANGEMENTS
PARTICIPATING IN SOFT DOLLAR ARRANGEMENTS
MAKING INVESTMENTS FOR THE PURPOSE OF GAINING CONTROL
OF A COMPANY'S MANAGEMENT

RESTRICTIONS AND LIMITATIONS

OPTIONS ON SECURITIES * No more than 5% of the Fund' net assets will be
invested in time premiums on options on
particular securities (as opposed to options on
indexes)
* Put and call options written by a Fund must be
covered

ILLIQUID SECURITIES * No more than 15% of the Fund's net assets will
be invested in illiquid securities. This
includes restricted securities (except that some
144A securities may be considered liquid by GMO
if there is sufficient market depth), repurchase
agreements maturing in greater than 7 days, swap
contracts, and other securities determined by
GMO not to be readily marketable at their
carried value.

INVESTMENT IN INSURANCE * The Fund will not purchase more than 10% of the
COMPANIES total outstanding voting stock of any insurance
company (including foreign insurance companies).

INVESTMENT IN SECURITIES * EQUITY: The Fund will not purchase more than 5%
ISSUED BY BROKERS, DEALERS, of any class of stock of a broker, dealer,
UNDERWRITERS AND INVESTMENT underwriter or investment adviser.
ADVISERS
* DEBT: The Fund may not purchase more than 10%
of any such company's total outstanding debt
in the aggregate.

* INVESTMENT LIMITS: No more than 5% of the Fund's
total assets will be invested in the securities
of a SINGLE broker, dealer, underwriter or
investment adviser. The net payment obligation
of swap contracts where one of these types of
companies is the counterparty also counts for
purposes of this restriction.

<PAGE> 68

This policy does not apply to companies that
derived less than 15% of revenues from
"securities-related businesses" during the most
recent fiscal year.

DIVERSIFICATION/CONCENTRATION

DIVERSIFICATION * Except for U.S. government securities, cash, and
money market instruments, the Fund will not
invest more than 5% of its assets in the
securities of a single issuer.
* The Fund will not purchase more than 10% of the
outstanding securities of any issuer.
* The Fund will be invested in the securities of
at least 125 issuers.

CONCENTRATION * No more than 25% of the Fund's assets will be
invested in securities of issuers in any one
industry.

DERIVATIVE INSTRUMENTS

TYPES OF DERIVATIVES * Futures contracts and related options on
securities indexes
* Long equity swap contracts: where the Fund pays
a fixed rate plus the negative performance, if
any, and receives the positive performance, if
any, of an index or basket of securities.
* Short equity swap contracts: where the Fund
receives a fixed rate plus the negative
performance, if any, and pays the positive
performance of an index or basket of securities.
* Contracts for differences: equity swaps that
contain both a long and short equity component.

USES OF DERIVATIVES

HEDGING * TRADITIONAL HEDGING: Short equity futures,
related options and short equity swap contracts
used to hedge against an equity risk already
generally present in the Fund.(3)

* ANTICIPATORY HEDGING: If the Fund receives or
anticipates significant cash purchase
transactions, the Fund may hedge market risk
(risk of not being invested in the market) by
purchasing long futures contracts or entering
long equity swap contracts to obtain market
exposure until such time as direct investments
can be made efficiently. Conversely, if the Fund
receives or anticipates a significant demand for
cash redemptions, the Fund may sell futures
contracts or enter into short equity swap
contracts, to allow the Fund to dispose of
securities in a more orderly fashion without
the Fund being exposed to leveraged loss
exposure in the interim.

INVESTMENT * The Fund may use derivative instruments
(particularly long futures contracts, related
options and long equity swap contracts) in place
of investing directly in securities. This will
include using equity derivatives to "equitize"
cash balances held by the Fund. The Fund may
also use long derivatives for investment in
conjunction with short hedging transactions to
adjust the weights of the Fund's underlying
equity portfolio to a level the Manager believes
is the optimal exposure to individual markets,
sectors and equities.

- --------------
(3) The Fund may use such hedging to remove or reduce general market exposure
(e.g. an index or broad basket of securities) relative to specific exposure
existing in the Fund (the specific stocks of that market actually owned by the
Fund). The Fund may also seek to remove specific exposure (e.g. a single stock,
small basket or more focused index of securities expected to do poorly in an
otherwise promising market) relative to general or broad market exposure that
exits in the Fund.

<PAGE> 69

RISK MANAGEMENT- * The Fund may use equity futures, related options
SYNTHETIC SALES AND and equity swap contracts to adjust the weight
PURCHASES of the Fund to a level the manager believes is
the optimal exposure to individual markets,
sectors and equities. Sometimes, such
transactions are used as a precursor to actual
sales and purchases. For example, if the Fund
held a large proportion of stocks of a
particular market and the Manager believed that
stocks of another market would outperform such
stocks, the Fund might use a short futures
contract on an appropriate index (to
synthetically "sell" a portion of the Fund's
portfolio) in combination with a long futures
contract on another index (to synthetically
"buy" exposure to that index). Long and short
equity swap contracts and contracts for
differences may also be used for these purposes.
Equity derivatives (and corresponding currency
forwards) used to effect synthetic sales and
purchases will generally be unwound as actual
portfolio securities are sold and purchased.

LIMITATIONS ON THE USE * There is no limit on the use of derivatives for
OF DERIVATIVES hedging purposes.
* The face value of derivatives used for
investment purposes will be limited to 25% of
the Fund's assets. When a currency forward is
used in conjunction with an equity derivative
for investment purposes, the currency forward
will not be independently counted for this
restriction.
* When long futures contracts and long equity swaps
are used for investment, an amount of cash or
high quality debt securities equal to the face
value of all such long derivative positions will
be segregated against such exposure. However,
for purposes of this restriction, if an existing
long equity exposure is reduced or eliminated by
a short derivative position, the combination of
the long and short position will be considered
as cash available to segregate against a new
long derivative exposure.
* The net long equity exposure of the Fund,
including direct investment in securities and
long derivative positions, will not exceed 100%
of the Fund's net assets.
* The aggregate absolute face value of all futures
contracts and swap contracts (without regard to
sign and assuming no offset of long and short
positions, and counting both components of any
contract for differences) will not exceed 100%
of the Fund's assets.
* Except when such instruments are used for
bona-fide hedging, no more than 5% of the Fund's
net assets will be committed to initial margin
on futures contracts and time premiums on
related options.
* Counterparties used for OTC derivatives must
have a long-term debt rating of A or higher when
the derivative is entered into. Occasionally,
short-term derivatives will be entered into with
counterparties that have only high short-term
debt ratings.

<PAGE> 70
PERFORMANCE INFORMATION

Each Fund may from time to time include its total return in
advertisements or in information furnished to present or prospective
shareholders.

Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, three, five,
and ten years (or for such shorter or longer periods as shares of the Fund have
been offered), calculated pursuant to the following formula: P (1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). Except as
noted below, all total return figures reflect the deduction of a proportional
share of Fund expenses on an annual basis, and assume that (i) the maximum
purchase premium is deducted from the initial $1,000 payment, (ii) all
dividends and distributions are reinvested when paid and (iii) the maximum
redemption fee is charged at the end of the relevant period. Quotations of
total return may also be shown for other periods. The Fund may also, with
respect to certain periods of less than one year, provide total return
information for that period that is unannualized. Any such information would be
accompanied by standardized total return information.

Each Fund may also from time to time advertise net return and gross
return data for each month and calendar quarter since the Fund's inception.
Monthly and quarterly return data is calculated by linking daily performance for
the Fund (current net asset value divided by prior net asset value), and assumes
reinvestment of all dividends and gains. Monthly and quarterly performance data
does not reflect payment of any applicable purchase premiums or redemption fees.
All quotations of monthly and quarterly returns would be accompanied by
standardized total return information.

Quotations of the Fund's gross return do not reflect any reduction for
any Fund fees or expenses unless otherwise noted; if the gross return data
reflected the estimated fees and expenses of the Fund, the returns would be
lower than those shown. Quotations of gross return for the Fund for a particular
month or quarter will be calculated in accordance with the following formula:

Gross Return =
Net Return + (Total Annual Operating Expense Ratio) (# of days in relevant
period/365)

Information relating to the Fund's return for a particular month or calendar
quarter is provided to permit evaluation of the Fund's performance and
volatility in different market conditions, and should not be considered in
isolation.

From time to time, in advertisements, in sales literature, or in
reports to shareholders, the Fund may compare its respective performance to that
of other mutual funds with similar investment objective and to stock or other
relevant indices. For example, the Fund may compare its total return to rankings
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or any other
independent service that monitors mutual fund performance; the Russell 2500
Index, an index of unmanaged groups of common stock; or the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange.

Performance rankings and listings reported in national financial
publications, such as Money Magazine, Barron's and Changing Times, may also be
cited (if the Fund is listed in any such publication) or used of comparison, as
well as performance listings and rankings from various other sources including
No Load Fund X, CDA Investment Technologies, Inc., Weisenberger Investment
Companies Services, and Donoghue's Mutual Fund Almanac.

36
<PAGE> 71
GMO TRUST
(GMO Intrinsic Value Fund only)

PART C. OTHER INFORMATION

Item 23. Exhibits

(a). Amended and Restated Agreement and Declaration of Trust.(1)

(b). Amended and Restated By-laws of the Trust.(1)

(c). Please refer to Article 5 of the Trust's Amended and Restated
Declaration of Trust, which is hereby incorporated by reference.

(d). Form of Management Contract between GMO, on behalf of its GMO
Intrinsic Value Fund, and GMO Trust -- Exhibit 1.

(e). None.

(f). None.

(g). 1. Custodian Agreement (the "IBT Custodian Agreement") among the
Trust, on behalf of its GMO U.S. Core Fund (formerly "GMO Core
Fund"), GMO Currency Hedged International Bond Fund (formerly
"GMO SAF Core Fund"), GMO Value Fund (formerly "GMO Value
Allocation Fund"), GMO Growth Fund (formerly "GMO Growth
Allocation Fund"), and GMO Short-Term Income Fund, GMO and
Investors Bank & Trust Company ("IBT");(1)

2. Form of Letter Agreement between the Trust, on behalf of its
GMO Intrinsic Value Fund and GMO Tax-Managed U.S. Small Cap Fund,
and IBT. (1)

- -------------------
(1) = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
<PAGE> 72
(h). 1. Transfer Agency Agreement among the Trust, on behalf of its
GMO U.S. Core Fund (formerly "GMO Core Fund"), GMO Currency
Hedged International Bond Fund, GMO Growth Fund (formerly "GMO
Growth Allocation Fund"), GMO Value Fund (formerly "GMO Growth
Allocation Fund"), GMO Short-Term Income Fund, GMO International
Core Fund and GMO Japan Fund, GMO and IBT(1);

2. Form of Letter Agreements to the Transfer Agency Agreement
among the Trust, on behalf of each of its GMO Intrinsic Value
Fund and GMO Tax- Managed U.S. Small Cap Fund, and IBT.(1)

3. Form of Notification of Obligation to Reimburse Certain Fund
Expenses by Grantham, Mayo, Van Otterloo & Co. LLC to the
Trust.(1)

4. Form of Amended and Restated Servicing Agreement between the
Trust, on behalf of certain Funds, and Grantham, Mayo, Van
Otterloo & Co. LLC(1).

- -------------------
(1) = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.

-2-
<PAGE> 73
(i). Opinion and Consent of Ropes & Gray.(1)

(j) Not Applicable.

(k). Not Applicable.

(l). None.

(m). None.

(n). Not Applicable.

(o). Form of Rule 18f-3 Multiclass Plan.(1)

Item 24. Persons Controlled by or Under Common Control with Registrant

None.

Item 25. Indemnification

See Item 27 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.

Item 26. Business and Other Connections of Investment Adviser

See Item 28 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.

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

(1) = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.

-3-
<PAGE> 74

Item 27. Principal Underwriters

Not Applicable.

Item 28. Location of Accounts and Records

See Item 30 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.

Item 29. Management Services

Not Applicable.

Item 30. Undertakings

Registrant undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report to shareholders containing the information required by
Item 5 of Form N-1A omitted from the Prospectus, upon request
and without charge.

- -------------------
(1) = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.

-4-
<PAGE> 75
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 (the "Securities
Act") and the Investment Company Act of 1940 (the "1940 Act"), the Registrant,
GMO Trust, has duly caused this Post-Effective Amendment No. 49 to the Trust's
Registration Statement under the Securities Act and Post-Effective Amendment No.
56 under the 1940 Act, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston and The Commonwealth of Massachusetts, on
the 19th day of May, 1999.

GMO Trust

By: R. JEREMY GRANTHAM*
-----------------------------------
R. Jeremy Grantham
President - Quantitative;
Principal Executive Officer;
Title: Trustee

Pursuant to the Securities Act of 1933, this Post-Effective Amendment No. 49
to the Trust's Registration Statement under the Securities Act has been signed
below by the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
R. JEREMY GRANTHAM* President - Quantitative; Principal May 19, 1999
- ---------------------- Executive Officer; Trustee
R. Jeremy Grantham

SUSAN RANDALL HARBERT* Treasurer; Principal Financial and May 19, 1999
- ---------------------- Accounting Officer
Susan Randall Harbert

HARVEY R. MARGOLIS* Trustee May 19, 1999
- ----------------------
Harvey R. Margolis

JAY O. LIGHT* Trustee May 19, 1999
- ----------------------
Jay O. Light
</TABLE>

* By: /S/ WILLIAM R. ROYER
----------------------------------
William R. Royer
Attorney-in-Fact
<PAGE> 76
POWER OF ATTORNEY

We, the undersigned officers and trustees of GMO Trust, a Massachusetts
business trust, hereby severally constitute and appoint William R. Royer our
true and lawful attorney, with full power to him to sign for us, and in our
names and in the capacities indicated below, any and all amendments to the
Registration Statement filed with the Securities and Exchange Commission for the
purpose of registering shares of beneficial interest of GMO Trust, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys on said Registration Statement.

Witness our hands and common seal on the date set forth below.

(Seal)

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President-Domestic;
Principal Executive
/S/ R. Jeremy Grantham Officer; Trustee March 12, 1996
- -----------------------------
R. Jeremy Grantham

/S/ Eyk H.A. Van Otterloo President-International March 12, 1996
- -----------------------------
Eyk H.A. Van Otterloo

/S/ Harvey Margolis Trustee March 12, 1996
- -----------------------------
Harvey Margolis

Treasurer; Principal
Financial and
/S/ Kingsley Durant Accounting Officer March 12, 1996
- -----------------------------
Kingsley Durant
</TABLE>
<PAGE> 77
POWER OF ATTORNEY

I, the undersigned trustee of GMO Trust, a Massachusetts business trust,
hereby constitute and appoint William R. Royer my true and lawful attorney, with
full power to him to sign for me, and in my names and in the capacity indicated
below, any and all amendments to the Registration Statement filed with the
Securities and Exchange Commission for the purpose of registering shares of
beneficial interest of GMO Trust, hereby ratifying and confirming my signature
as it may be signed by my said attorney on said Registration Statement.

Witness my hand and common seal on the date set forth below.

(Seal)

Signature Title Date
- --------- ----- ----

/S/ JAY O. LIGHT Trustee May 23, 1996
- --------------------
Jay O. Light
<PAGE> 78
POWER OF ATTORNEY

I, the undersigned officer of GMO Trust, a Massachusetts business trust,
hereby constitute and appoint William R. Royer my true and lawful attorney, with
full power to him to sign for me, and in my name and in the capacity indicated
below, any and all amendments to the Registration Statement filed with the
Securities and Exchange Commission for the purpose of registering shares of
beneficial interest of GMO Trust, hereby ratifying and confirming my signature
as it may be signed by my said attorney on said Registration Statement.

Witness my hand and common seal on the date set forth below.

(Seal)

Signature Title Date
- --------- ----- ----

/S/ SUSAN RANDALL HARBERT Treasurer April 29, 1999
- -------------------------
Susan Randall Harbert
<PAGE> 79
EXHIBIT INDEX

GMO TRUST

Exhibit No. Title of Exhibit
- ----------- ----------------

1 Form of Management Contract

<PAGE> 1
MANAGEMENT CONTRACT

Management Contract executed as of May ___, 1999 between GMO TRUST, a
Massachusetts business trust (the "Trust") on behalf of its GMO Intrinsic Value
Fund (the "Fund"), and GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC, a Massachusetts
limited liability company (the "Manager").

W I T N E S S E T H:

That in consideration of the mutual covenants herein contained, it is
agreed as follows:

1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.

(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and the fund accounting
services for the Fund being supplied by Investors Bank & Trust Company) and pay
all salaries, fees and expenses of officers and Trustees of the Trust who are
affiliated with the Manager. In the performance of its duties, the Manager will
comply with the provisions of the Agreement and Declaration of Trust and Bylaws
of the Trust and the Fund's stated investment objective, policies and
restrictions.

(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and financial strength and stability of the
broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused a
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
<PAGE> 2
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to the Trust and to other clients of the Manager
as to which the Manager exercises investment discretion.

(c) The Manager shall not be obligated under this agreement to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.

2. OTHER AGREEMENTS, ETC.

It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlled by or under common control with the Manager, and that the Manager and
any person controlled by or under common control with the Manager may have an
interest in the Trust. It is also understood that the Manager and persons
controlled by or under common control with the Manager have and may have
advisory, management service, distribution or other contracts with other
organizations and persons, and may have other interests and businesses.

3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.

The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 0.33% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month at the close
of business on each business day during such month while this Contract is in
effect. Such fee shall be payable for each month within five (5) business days
after the end of such month.

In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Trust
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall bear the Fund's
expenses to the extent required by such expense limitation.

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<PAGE> 3
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.

4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.

This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.

5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.

This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4)
until terminated as follows:

(a) Either party hereto may at any time terminate this Contract by not
more than sixty days' written notice delivered or mailed by registered mail,
postage prepaid, to the other party, or

(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate at the close of business on the second anniversary of
its execution, or upon the expiration of one year from the effective date of the
last such continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the Fund for
their approval and such shareholders fail to approve such continuance of this
Contract as provided herein, the Manager may continue to serve hereunder in a
manner consistent with the Investment Company Act of 1940 and the rules and
regulations thereunder.

Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.

Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.

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<PAGE> 4
6. CERTAIN DEFINITIONS.

For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.

For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.

7. NONLIABILITY OF MANAGER.

In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.

8. INITIALS "GMO".

The Manager owns the initials "GMO" which may be used by the Trust only
with the consent of the Manager. The Manager consents to the use by the Trust of
the name "GMO Trust" or any other name embodying the initials "GMO", in such
forms as the Manager shall in writing approve, but only on condition and so long
as (i) this Contract shall remain in full force and (ii) the Trust shall fully
perform, fulfill and comply with all provisions of this Contract expressed
herein to be performed, fulfilled or complied with by it. No such name shall be
used by the Trust at any time or in any place or for any purposes or under any
conditions except as in this section provided. The foregoing authorization by
the Manager to the Trust to use said initials as part of a business or name is
not exclusive of the right of the Manager itself to use, or to authorize others
to use, the same; the Trust acknowledges and agrees that as between the Manager
and the Trust, the Manager has the exclusive right so to authorize others to use
the same; the Trust acknowledges and agrees that as between the Manager and the
Trust, the Manager has the exclusive right so to use, or authorize others to
use, said initials and the Trust agrees to take such action as may reasonably be
requested by the Manager to give full effect to the provisions of this section
(including, without limitation, consenting to such use of said initials).
Without limiting the generality of the foregoing, the Trust agrees that, upon
any termination of this Contract by either party or upon the violation of

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<PAGE> 5
any of its provisions by the Trust, the Trust will, at the request of the
Manager made within six months after the Manager has knowledge of such
termination or violation, use its best efforts to change the name of the Trust
so as to eliminate all reference, if any, to the initials "GMO" and will not
thereafter transact any business in a name containing the initials "GMO" in any
form or combination whatsoever, or designate itself as the same entity as or
successor to an entity of such name, or otherwise use the initials "GMO" or any
other reference to the Manager. Such covenants on the part of the Trust shall be
binding upon it, its trustees, officers, stockholders, creditors and all other
persons claiming under or through it.

9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.

A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders individually
but are binding only upon the assets and property of the Fund.

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<PAGE> 6
IN WITNESS WHEREOF, GMO TRUST and GRANTHAM, MAYO, VAN
OTTERLOO & CO. LLC have each caused this instrument to be signed in duplicate on
its behalf by its duly authorized representative, all as of the day and year
first above written.

GMO TRUST

By_______________________________________
Title:

GRANTHAM, MAYO, VAN OTTERLOO
& CO. LLC

By_______________________________________
Title:

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